Imagine you are buying a new house that is so expensive your kids will get stuck with paying off the mortgage; so modern the design has only been used for a decade; and so risky that all previous construction attempts were unsuccessful. You are to sign the purchase contract without checking out what went wrong with the previous failures. In addition, the contract contains a clause that states you can never sell, trade, or otherwise get rid of the house.
This is pretty much the electricity deal the McGuinty government is signing on behalf of the citizens of Ontario.
Ontario’s electricity deal is estimated at $80 billion—the largest peacetime expenditure in Canadian history. Never before has a government spent so much money with so little discussion, and without a mandate from the voters. In addition to lacking a mandate, Dalton McGuinty’s campaign remarks misled voters as to what he really intended to do.
When McGuinty campaigned, he said the electricity "market is dead,” and that he supported public power. Ontarians listened and voted the Tories out.
Unfortunately, McGuinty has refused to close the market. And instead of increasing public power, he is signing contracts with big corporations like California’s Calpine and Japan’s Mitsui to privatize electricity production. He is continuing down the deregulated electricity path that the Harris government started the province on.
For nearly a century in Ontario, electricity prices were regulated—that is, they were set by governments and their appointees, based on performance and the cost of production. With deregulated electricity, the price that providers can charge is unlimited. Since allowing deregulation, prices have soared even though Ontario Power Generation, the public provider, still supplies 70% of electricity at regulated rates. As the government increases the private, big-profit electricity supply, electricity prices will climb much higher. This will cause devastating economic harm to the poor, farmers, manufacturers, and the tourist industry.
Regulated suppliers are rewarded for low-cost, reliable electricity while deregulated producers are rewarded for big short-term profits. To date, there isn’t a single example of a deregulated electricity system that hasn’t caused pain for consumers with high prices and increased blackout risk. No responsible government should risk Ontario’s future on an expensive, unproven system that has failed everywhere it has been tried.
Sadly, the McGuinty government is refusing to support an independent investigation of deregulation’s contribution to blackout risk as recommended by the Joint U.S.-Canadian Blackout Task Force. At September 2005 workshops in Washington, D.C. and Toronto, ten experts invited by the U.S. and Canadian governments discussed how deregulation relates to blackout risk. Ontario was represented by the CEO of the province’s Independent Electricity System Operator (IESO) and this author. The IESO CEO, appointed by the McGuinty government, refused to support the recommended investigation even though there were numerous studies and events pointing at big problems that deregulation was causing. Apparently, it’s possible to know what is happening without even looking. However, as Mark Twain said, “It isn't what you don't know that gets you into trouble. It's what you know for sure that’s just not so.”
And, worse yet, Canada’s free trade agreements, such as NAFTA, will compel us to become and remain part of the U.S. electricity market if we continue to deregulated our electricity. This will put us in a permanent bidding war with wealthier, electricity-hungry Americans to buy our own electricity--just as we currently bid against them to buy Canadian-produced oil and natural gas.
In addition, we will no longer be able to cut exports, even when there are shortages in Ontario. Also, much of our control over the environment will be taken away as NAFTA trade panels overrule our government, making trade the first priority rather than the air we breathe.
No government should make decisions that will permanently change Ontario’s future without thoroughly investigating it and without a voter mandate that explicitly supports such a direction.
Would you buy an expensive new house without talking it over with your spouse and seeing a lawyer?
Without a mandate from the people of Ontario, the McGuinty government is signing an electricity contract for them that they can’t afford. This contract will drive up prices and increase blackout risk.
Ontarians should let McGuinty know they want their say before he spends their money.
(John Wilson, an energy consultant, has worked as a power engineer in Canada and the U.S. and was one of 10 experts invited by the U.S. Department of Energy and Natural Resources Canada and to write papers on and discuss the relationship between deregulated electricity prices and blackout risk.)