The new Ontario electricity market : a user perspective

The wholesale and retail electricity markets in Ontario were opened to competition on May 1, 2002. The author points out that while there has been much misinformation about market opening, there have been some market successes and some problems inherent in the new design structure. The experience of the early days of market competition were discussed, with reference to how it will reflect on market participants. The creation of the open Ontario electricity market can be partly attributed to the unsustainable rise in power rates in Ontario during the 1990s. The market was conceived in order to control electricity costs by introducing competition. It was also meant to offer customer choice in supply and services and to open access to transmission. The main objective was to return Ontario to its former competitive status within North America and create employment in the province. It is noted that it is not correct to call the open market deregulated. In fact, there is regulation in the Ontario electricity market for the first time. There is open and unrestricted access to transmission. In theory, consumers have choice in supply, but because of the continued dominance of Ontario Power Generation, there is little real competition in generation. One of the main barriers to participation in the open market is the restrictive and unrealistic credit policies with the IMO and some other market participants. The other problem is the $8 billion in residual stranded debt which has placed a surcharge of $7 per MWh applied to wholesale energy prices. The author also describes other experiences in the contract market, the spot market, and dispatchable load operations. It was also noted that government intervention is not helpful in stimulating investment in the power system. The author suggests the following solutions to correct these problems: (1) break up Ontario Power Generation, (2) foster demand side response, (3) sell Hydro One, (4) foster the creation of forward markets, (5) revise the prudential requirements to something more businesslike, (6) introduce location marginal pricing, and (7) allow the market to work by keeping government intervention out. 4 figs