By -- Source, Reuters
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Ontario intends to introduce competition on May 1 into an industry that has 29,500 megawatts of generating capacity and serves almost 12 million people. The process was originally scheduled for November 2000.
Well-chronicled price and supply problems accompanied deregulation in Alberta and California over the past two years, including rolling blackouts and bankruptcies in California. Alberta spent billions of dollars on rebates to cushion the impact on consumers of its difficult transition.
But Alberta's power charges, after rising sharply in the run-up to its market opening in 2001, have declined to about C$71 ($44) per megawatt hour from C$133 the previous year.
The economic slowdown, additional generating capacity and lower natural gas prices have pushed down wholesale electricity prices (the ones paid to generators) across North America.
But spot prices remained volatile, with Alberta's wholesale level last year ranging from C$6 per megawatt hour at off-peak times to a massive C$879 per megawatt hour during heavy peaks. A megawatt hour roughly equals the amount of power used by 1,000 homes in 60 minutes.
Joseph Doucet, an energy economics professor at the University of Alberta, warned that Ontario's wholesale prices will experience similar wide fluctuations.
"Electricity prices under this new market are going to be more volatile than they were before and that's going to be true for the foreseeable future," he said.
While there will be more price swings, Ontario's electricity prices will be lower over the longer term because of increased competition, predicted Dan Allard, a vice-president of Calpine Canada, a subsidiary of giant U.S. power player Calpine Corp. .
But Ontario will pay a price for its halting steps toward competition. Alex Pourbaix, executive vice-president of power development for TransCanada PipeLines Ltd. said the weak economy and reduced capital available to potential buyers are reducing bids for publicly owned power plants by 25 percent to 50 percent.
"The ability of companies to pay outrageous premiums for assets has gone by the wayside," he said. "We think assets are becoming more reasonably valued."
Ontario Power Generation, a government utility controlling about 77 percent of the province's generating capacity, must sell 4,200 megawatts of capacity within four years to encourage competition. Within 10 years it must reduce its share of the market to under 35 percent.
"Consumers are going to benefit from lower prices. On the other hand, the people looking at power plants are going to adjust their expectations, and the prices they are going to pay (for them) will be lower," Allard said.
All observers said a large reserve of generating capacity should shelter Ontario residents from the wallet-emptying experiences of California and Alberta, which both suffered from skinny margins.
"I fully expect there will be bumps along the way," TransCanada's Pourbaix said. "The good news is that as we see these markets deregulating, I do like to think people learn from the mistakes of those who came before them."
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