Ontario Electricity Market Inches Closer To Deregulation

- The province of Ontario opened another door to electric deregulation Wednesday, issuing tough new emission standards for industry and lifting a two-year moratorium on the sale of provincially owned coal-fired generation plants.

Loosening Ontario Power Generation's hold on the bulk of the province's power plants is critical to launching an electricity market slated to open by May 2002 - after three delays in as many years.

"Putting additional generation assets in the hands of competition to OPG is one of the primary objectives," said John Dalton, director at Navigant Consulting Inc. in Toronto.

The utility has five coal-fired power plants, including the 4,000-megawatt Naticoke and 1,975-MW Lambton stations where the government has accepted OPG installing selective catalytic reduction units to cut down smog, rather than converting to other fuels.

"Right now, without putting these generation assets under the control of competition, essentially we don't have a power market, we have a regulatory scheme," Dalton said.

Sale of the plants had been put on hold until the environment ministry finalized its anti-pollution regulations. The new rules issued Wednesday by Environment Minister Elizabeth Witmer will cap emissions by fossil fuel-burning generation stations starting Jan. 1, and will be fully implemented by 2007.

Under the government's plan for deregulation, OPG must sell or lease about 4,00 MW of non-nuclear power within 42 months of market opening. The utility owns 9,700 MW of fossil-fuel capacity, 8,728 MW of nuclear power and 7,309 MW of hydroelectric power.

"Lifting the moratorium goes a long way toward OPG moving quickly to its decontrol program, and preparing for an open market," OPG spokesman John Earl said

This latest move has the industry optimistic that the provincial government could open electricity markets by early rather than late spring.

"We're working on being ready for March 1," an industry source told Dow Jones Newswires. "There will be lots of supply on the market because the economy is slower than anticipated and demand is down. That's what the government wants, lots of supply and some choice for consumers."

A separate regulation finalized Wednesday ordered OPG's aging Lakeview plant to stop burning coal by 2005.

The edict gave new life to the four units that faced being completely shut down, but still doesn't make them that attractive to buyers, Dalton said.

Lakeview operates about 30% of the year at a lower fuel cost than cleaner-burning natural gas plants. Converting to an alternative fuel will increase cost on units that are last on the fossil fuel plant list to be dispatched - meaning they will run even fewer hours and at lower rates.