The rigours and benefits of competition will be achieved when renewable technologies compete with each other on a parallel market, notes the report. Whenever appropriate, the renewable set-aside should also be divided to ensure "a healthy diversity" of renewable technologies.
IPPSO took the opportunity of its annual conference in mid December in Toronto to develop this scenario, which is a key element of its model for restructuring the Ontario electrical sector. IPPSO proposes a permanent and binding regulatory structure, with fair competition assured by insisting on complete and accurate costs. "Subsidies, hidden or explicit, should not be tolerated." Ontario Hydro and most other public utilities in Canada have thus far successfully resisted such regulation.
Under the present monopoly dominance of Ontario Hydro, says IPPSO, non utility generation accounts for less than 2000 MW, or under 10%, of grid connected power. By the year 2020, some 17,000 to 20,000 MW, or up to 85% of Hydro's current generating capacity will need replacing. Renewable energy technologies, continues IPPSO, reflect the "true, unsubsidised" cost of producing energy. Non-renewables pose serious intrinsic risks and pollution costs, and, in the current flawed market, benefit from the hidden subsidies of externalised costs.
Nuclear and coal plants generate about 80% of Ontario's energy but are associated with pollution, along with large and costly risks. Nonetheless they benefit from considerable hidden subsidies which renewables are unable to compete with. IPPSO says a renewable set-aside would provide Hydro's system with a proxy for the external costs of nuclear and fossil generation.
Acknowledging Ontario's current excess of generating capacity, IPPSO notes the renewable market would initially be very modest. It would grow, however, in proportion to new contracts which displace Hydro's nuclear and coal capacity. IPPSO is proposing a provincial electricity structure which would encourage independent generation to expand as Hydro's coal and nuclear generating units are phased out, under the supervision of a newly empowered Ontario Energy Board (OEB) with binding regulatory authority over Ontario Hydro or its successors. Without such regulation, "it would be reckless for developers, investors and lenders to undertake major energy projects (and in many cases long term fuel contracts) if the market operating rules could be arbitrarily imposed or changed by a public monopoly or various governments."
In a deregulated market, IPPSO says Ontario's electricity functions and existing infrastructure should be unbundled and restructured into a publicly managed power pool; into several companies, called "Gencos," which would own and operate Ontario Hydro's existing generating assets "and thus ensure real competition;" and into a public or private transmission monopoly called "Ontario Transmission." IPPSO wants competition in generation to begin immediately at the wholesale level. All power producers would competitively bid to supply power to the pool, which would assess bids on the basis of price, reliability, and length and timing of contracts.
IPPSO notes that Hydro has responded to competition "by blocking all but emergency power imports from the US, offering discounts to Ontario industry, banning wheeling, actively and systematically discouraging self-generation (including instituting ill-conceived back-up charges and anti-competitive load retention rates) and selling record amounts of surplus power to US utilities which in turn sell it as discount power to their industries to keep them as customers. In fact, neighbouring US private utilities have attempted to lure Ontario industries to re-locate across the border with discount power rates driven by the availability of Ontario Hydro's own surplus power exports."
The Ontario power pool proposed by IPPSO resembles the Alberta pool, which started operating this month (see separate story). However, there are major differences between the two provinces. Ontario Hydro is a publicly owned, monopoly generator, while Alberta has two major investor owned utilities (TransAlta Utilities and Alberta Power), and one large municipal utility (Edmonton Power). Ontario Hydro operates under a massive debt burden of C$35 billion, whereas the Alberta utilities never incurred debts per unit on this scale.