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Canada

Canada

PRIVATISATION PRESSURE MOUNTING

North American industry groups are calling for the privatisation of Ontario Hydro -- the continent's largest electric utility -- and for the early introduction of wholesale and retail competition into the province's electricity supply system. Dismantling of the Canadian utility's monopoly was urged in many of the nearly 200 submissions filed in late January with the Advisory Committee on Competition in Ontario's Electricity System. The committee was scheduled to report its recommendations for phasing in competition by April 30.

Even the brief by Ontario Hydro's management, entitled "Competition, Convergence and Customer Choice: Finding New Paths to the Consumer," argued against complete public ownership of the electricity industry, saying there are significant benefits to be achieved through private ownership of some parts. All customers should be allowed to choose an electricity supplier from inside or outside of Ontario. "Retail access is the most appropriate form of competition," says the document. But the Hydro management report was not approved by Hydro's board of directors, which contains some staunch foes of privatisation.

The recommendations could eventually bring full competition by opening the transmission system to all electricity suppliers. The Ontario government would reduce Hydro's massive $33 billion debt with the proceeds from the sale of Hydro's generating assets.

The recommendations would postpone the onset of retail competition until "around the year 2000." Several industry stakeholders, including the Association of Major Power Consumers of Ontario and the Independent Power Producers' Society of Ontario (IPPSO) have urged a more rapid implementation. IPPSO was also critical of the claim that "support for renewable energy technologies will likely weaken. The majority of these are still more costly than conventional generation, even when their environmental advantages are factored in." IPPSO's executive director Jake Brooks said that "Hydro has not done enough full cost accounting to make such a statement." Despite the lack of enthusiasm for renewables expressed in the report, Hydro is continuing its Renewable Energy Technologies (RETs) programme (Windpower Monthly, November 1995).

Hydro management wants the governing Power Corporation Act replaced by legislation promoting competition and a business orientation. It maintains that only very large generating companies could compete in the broader North American electricity market. The report also says Ontario Hydro Nuclear should be maintained as a single entity, which could be merged with portions of other nuclear utilities and Atomic Energy of Canada Limited.

Electricity prices should be unregulated and determined by the market, says the management report, and an independent "central market operator" (CMO) -- as a publicly owned company -- should manage a spot market for electricity. All generators would bid into this market to supply electricity. The CMO would ensure overall fairness and competition, manage Ontario's financial exchange for electricity, dispatch generators, ensure electrical system security, and administer settlements of market trading.

Customers desiring simplicity could join a not-for-profit "price averaging pool" (PAP) which would contract to obtain electricity from suppliers and the spot market on the basis of averaged costs. Those seeking direct access could obtain electricity from licensed agents (aggregators, marketers and brokers) who act for generators and customers, beginning around 2000 in competition with the PAP, much as the natural gas and long distance telephone companies now offer direct service. Price risk could be managed through hedging arrangements with suppliers.

Crucial to the proposal is the proviso that Hydro should be allowed to recover the complete costs of its uneconomic assets, including the debt burdened fleet of 19 nuclear reactors, which are unable to recoup their embedded costs at competitive market rates.

In a controversial recommendation, the report proposes to merge distributors before the year 2000 in a single company called "Wiresco." This firm would be initially public and would act as a regulated "common carrier" for the electrical industry, owned "by those who have contributed its assets" in a share-capital structure, which could eventually be privatized. Wiresco could have several regional units to facilitate efficiency and administration.

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