Table Of ContentDirection
Change
FOR
Charting a Course
for Competitive Electricity and Jobs
Ontario
in
Ontario
Change
Direction for
Charting a Course for
Competitive Electricity andjobs
in Ontario
November, 1997
Pibs3600e
ISBN0-7778-6867-9
Printedonrecycledpaper
Change
Direction for
Charting a Course for Competitive
Electricity and Jobs in Ontario
Table of Contents
MINISTER'S STATEMENT v
EXECUTIVE SUMMARY
vji
CHAPTER 1: The Need to Restructure 1
• OtherJurisdictions are Benefitting from Change 1
• Ontario Hydro's Unsatisfactory Business Record 5
• Positioning Ontario for Emerging Opportunities 9
CHAPTER 2: Objectives of the Restructuring Plan 10
• Supporting Investmentand Jobs 10
• Reasonable Prices and More Choice 11
• Enhanced Reliability, Safetyand Environmental Protection 11
• More Efficient Distribution 12
• Fair Rules forAll Industry Participants 12
• More Business-like Investment 13
• Financial Soundness 13
CHAPTER 3: Key Elements of the Restructuring Plan 15
• Competition in 2000for Both Wholesaleand Retail Customers 16
• An Independent Market Operatorto be Created 17
• Monopoly Operations and Competitive Businessesto be Separated 18
• The Ontario Energy Board to be Redesigned with a New Mandate 19
• Stepsto be Taken to Ensure Environmental Protection 20
• Restructuring ofthe Local Utilitiesto be Encouraged 20
• A Level Playing Field on Taxes and Regulations to be Established 21
• Ontario Hydro to be Restructured with Clear Business Mandates 22
• The New Companiesto be put on a Sound Financial Footing 23
CONCLUSION 27
ILLUSTRATION: One Wire, Many Competing Generators
and Service Providers 28
FOR MORE COPIES 29
A Message from the Minister of
Energy, Science and Technology
FellowOntarians:
Within months oftaking office, the Government initiated a processofintensive studyand
consultations aimed at ensuring a competitive, reliable, affordable and safesupplyofelec-
tricityforall Ontarians. I am now pleased to announcea proposal forrestructuring Ontario's
electricitysystem thatwould meettheseobjectives and build on the momentum of
increased investmentand jobcreation opportunitiesevidentthroughoutthe Province.
We believea competitive—electricitysystem will deliversignificantbenefitsto all power
consumers in the pro—vince from homeownersto large institutions, commercial businesses
and majorindustries aswell as to Ontariotaxpayers. In particular, theGovernment
believesthatthe moveto acompetitiveelectricity marketisthe keyto:
• creating newjobs and a robusteconomythat is competitiveand attractiveto investors;
• providing the lowest possiblecostswhilesafeguarding a reliable, safe, environmentally
sound electricitysupply;
• restoring thevitality and financial soundness ofOntario's electricitysystem; and
• ensuring a level playing field forall participantswith an independent regulator.
In 1996, theAdvisoryCommitteeon Competitionin Ontario's ElectricitySystemreported a
compelling needforchange in Ontario'selectricitysector. In the monthssincethen, the
Government has carefully considered theCommittee'sadvice in thecontext ofthe immedi-
ate challengesfacing Ontario Hydro.
Ourplan proposesto movecarefully butquicklywith thecreation of competitivewhole-
saleand retail markets in theyear 2000. Toachieve ourgoals, we need to accomplish a
greatdeal overthe nexttwoyears. I believethe plan represents an approach to reform that
is orderly, balanced, fairand forward-looking. Electricityconsumers, representativesfrom
industry, organized labour, environmental organizationsand individuals haveall madea
strong contribution totheGovernment's reviewofoptionsforchangein Ontario'selectricity
sector. Wewill build on thesevital partnershipsaswe proceed with thecreation ofa
competitiveelectricitysystem forOntario.
Ultimately, the benefits ofcompetition in electricity mean morejobsand opportunities,
and a healthiereconomicfutureforthe peopleofOntario. Theseobjectives continueto
representtheGovernment's highest priorities. And theyarethedrivingforce behind our
proposalsforchange. Forthe ProvinceofOntario and its millions ofelectricityconsumers,
the Government's electricity reform plan represents a necessaryand significantdeparture
from the past. I believe italso representsa majorsteptowardsa brighterfutureforusall.
The HonourableJim Wilson
MinisterofEnergy, Science and Technology
Summary
Executive
The Government has developed a plan forintroducing full competition into Ontario's
electricity system intheyear2000. Implementation ofthe plan involves legislative
change, and is subjecttoapproval bythe LegislativeAssembly.
Competition among supplierswill createtheconditionsfor lov^^erelectricity prices,
therebysupporting investmentandjob creation acrossthe province. Itwill ensurethat
investments in electricitygenerationand transmission aremadeprudentlyandthatassetsare
managed carefullyand responsibly. Itwill mean morechoicesforcustomers and will leadto
newtechnologies and approachesthataresafe, reliable and betterfortheenvironment.
TheAdvisoryCommitteeon Competitionin Ontario's ElectricitySystem^ made recommenda-
tionson howto open up Ontario's electricity market. The Governmentagreeswith the
Advisory Committeethatthe need forchange is compelling.
Neighbouring provincesand statesare restructuring theirelectricitysectors and are
expecting lower prices. Ontario needs to keep paceto preserve its industrial competitive-
ness. Favourable electricity prices are critical toattracting investment, and tocreating and
preserving jobs.
The business record ofOntario Hydro has been unsatisfactory, as shown most recently in
a highlycritical assessmentofOntario Hydro's nucleardivision prepared bya team of U.S.
experts. Ontario Hydro's problems have continued overa numberofyears, and are in large
partduetothefactthatthecorporation is a monopoly, and has not been subjecttothe
disciplineofthe marketplace.
Newopportunitiesareemerging asthe NorthAmerican electricity industrychanges
from onebased on monopolytoone based on competition. Ontario needsto restructure its
electricityindustry in ordertocreatea business climatewhich supports newtechnologies,
newservices, and newwaysofdoing business.
TheGovernment's main restructuring objective isto supportinvestmentandjobs
through the lowest possibleelectricity pricesand the best possibleelectricityservice. The
Government continuesto place a high priorityon safety, reliability, and sound environmental
practices, and hasdesigned its restructuring plan to maintain and improve on current perfor-
mance. Othermajorobjectives includetheestablishmentofmorecommerciallyoriented
electricitycompaniesand the restoration offinancial soundness in the provincially-owned
partoftheelectricityindustry.
'TheCommittee,chairedbytheHonourableDonaldS.Macdonald,reportedinJune1996.
The Government has developed a nine-part planfor restructuring theelectricity industry,
re-organizing Ontario Hydro into newcompanies, and putting the newcompanieson a
sound businessandfinancialfooting. It proposestointroduce legislation covering this plan
in 1998. Ifapproved, keyparts ofthe plan would be proclaimed and implemented as soon
aspossible. The Government proposesto consultwidelyon the legislation and on a number
ofspecific issuesthat requirefurtherconsideration and public discussion.
The plan would:
• create a competitive market in theyear2000forboth wholesale and retail customers
• establish an IndependentMarketOperator, and provideforan interim supplymarket
forreplacement power
• separate monopolyoperationsfrom competitivebusinessesthroughouttheelectricity
sector
• providetheOntario Energy Board with an expanded mandateto protectelectricity
consumers
• take stepstoensureenvironmental protection
• encourage costsavings in the local distribution sector
• establish a level playing field on taxesand regulation
• restructure Ontario Hydro into newcompanieswith clear business mandates, and,
• take action to putthe newelectricitycompanieson a sound economicand
financial footing.
The Government proposes to createtwo newcommercial electricitycompaniesto
succeed Ontario Hydro. The Ontario Electricity Generation Corporationwould takeowner-
ship ofOntario Hydro'sgeneration assets, and havea mandateto ensuresafety, reliability,
and sound environmental performance,whilemaximizingthevalueofthegeneration
businesstoOntariotaxpayers. The Ontario Electric Services Corporation would bea holding
companyforotherelectricity businesses, includingtransmission, distribution, retail, and
operating contracts. Itwould be required to keep its monopoly and competitive businesses
separatefrom each otherthrough an appropriatestructureofsubsidiarycompanies.
Existing Ontario Hydrodebtwill be held bya publicly-owned financial holding company,
as recommended bytheAdvisory Committee.
The Governmentwill workwith Ontariansto ensurethattheelectricityindustryis
restructured in a timelyand well-managed way, with the necessary protectionsfor both
businessand residential customers.
An independent Market Design Committeecomposedofindustryand customerrepresen-
tativeswill havea large role in designing the rulesforthe new market. Itscomposition and
termsofreferencewill beannounced shortly. Underthe plan, a redesigned Ontario Energy
Boardwould ensurethatfairness prevails in theoperation ofthe marketand thesetting of
transmission and distribution tariffs. Ontario Hydroand its successorswill beexpected to
workcloselywith employeeorganizationstoachieveasmooth implementation ofthe
proposed corporate restructuring.
