Electricity Restructuring: The Ontario Experience

Over the last decade or so, a number of jurisdictions throughout the developed and developing world have embarked upon major competitively oriented restructurings of their electricity industries. Ontario has recently joined this list. Historically, Ontario Hydro has been the largest state-owned enterprise in Canada, having been created by the government of Ontario in 1906 initially to construct and operate a provincial transmission grid which would deliver power from privately owned hydro-electric generators to various municipally owned distribution systems. Ontario Hydro quickly broadened its vision to embrace a provincewide transmission grid and the progressive acquisition of most privately owned generating facilities in the province, as well as the construction of massive new generating facilities of its own. Ontario Hydro currently generates about 90% of the electric power sold in the province, about 60% of which is generated by nuclear facilities built in the 1970s and 1980s. Throughout its history, Ontario Hydro has occupied a unique and in many respects dominating political and economic influence in the province. It has rarely been far from the public eye, and major cost over-runs in system expansion precipitated the first of many commissions or like inquiries as early as 1920. By 1923, debts incurred on behalf of Ontario Hydro amounted to one-half of the entire provincial debt. Despite frequent public inquiries over the years into aspects of its operations, the basic vertically integrated, public monopoly structure of the industry that emerged in its first 20 years of operations has remained intact until very recently. The current Ontario government has now committed itself to wholesale and retail competition in electricity by the year 2000 and has restructured Ontario Hydro into two state-owned successor companies constituted under the Ontario Business Corporations Act. One of these will own the high voltage transmission grid and the other will own the generating facilities subject to commitments to transfer effective control of these facilities to private competitors so as to reduce Ontario Hydro's market share to 35% of price setting plant output within 3 1/2 years of market opening and 35% of all generating output sold in the province within 10 years. Significant rationalization of the almost 300 municipally owned local distribution utilities (LDCS or MEUS) in Ontario through amalgamation or privatization is anticipated (and is already occurring, albeit slowly).