Direction for change : charting a course for competitive electricity and jobs in Ontario PDF
Preview Direction for change : charting a course for competitive electricity and jobs in Ontario
Direction 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.
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