|Montreal, February 1st, 2003 / No 118|
by Harry Valentine
During the summer of 2001, California was plagued by power brown-outs and black-outs, the result of the state having previously frozen the price of privately generated power several years earlier. Users en masse were able to increase power usage without paying any more per kilowatt-hour. California's power price regulation had effectively discouraged power producers from building new power plants at the very time when Silicon Valley was experiencing an unprecedented boom. At the height of California's power black-outs and brown-outs, Governor Gray Davis blamed a corrupt and ruthless private power industry for having caused his state's power shortages.
In an unrestricted free market, entrepreneurs regularly raise and lower
prices to get an accurate assessment of market demand. When prices go up,
sales generally drop while lowering prices usually results in an increase
in sales (demand). This information enables entrepreneurs to accurately
match their supply with market demand, minimizing both an oversupply and
a supply shortage, that is, minimizing waste and maintaining efficiency
of supply or production. A state-imposed price freeze impairs a supplier's
ability to accurately assess market demand, resulting in either an oversupply
or a shortage of goods or services.
Ignoring basic economics
During the third week of January, 2003, Ontario's Premier Ernie Eves ignored both the precedent of California's power debacle, as well as proven basic economics, when he cancelled the sale of a portion of the publically owned Ontario Hydro company, after having previously frozen Ontario Hydro's residential power prices at 4.3 cents per kilowatt-hour. The publically owned power producer still had a debt well in excess of $30 billion, a legacy of onetime Premier Bob Rae's government.
Prior to the price freeze, the Premier had enacted an electric power deregulatory farce. A few cosmetic changes were made to Ontario's existing power regulatory regime and a few new faces appointed to the province's power regulator. Under the new regime, customers could buy power from the producer of their choice, with the power being delivered to them via the provincially owned electric power transmission grid. Very few private power producers fell for this ruse. Most preferred to stay out of the Ontario power deregulatory farce due to an excess of rules, regulations, restrictions and bureaucratic red tape.
As the deregulatory charade got underway, power prices in Ontario did escalate and municipal power companies got the blame. These publically owned companies buy electric power directly from the publically owned Ontario Hydro, then resell the power to local businesses and residential customers. During the summer of 2002, Ontario operated at very near to peak generating capacity and very narrowly avoided brown-outs. Ontario is projected to have a possible power shortage during the summer of 2003, partly due to the rapidly growing housing market in the Toronto region which will raise demand for electric power. Quebec does generate sufficient electric power for export, except that Quebec generated electric power serves very few areas in Ontario. A few communities like Gananoque in Eastern Ontario and an area northwest of Ottawa are served by (heavily regulated) private electric power companies.
Ontario's residential power price freeze has created a situation where residential electrical power usage would increase almost unchecked. Extra electric power will have to be purchased from outside the province during peak periods and at premium power rates, running the risk of incurring a deficit and increasing Ontario Hydro's debt. The alternative would be to raise commercial power rates, since the residential power price freeze does not apply to Ontario Hydro's commercial customers. They may bear the brunt of any electrical power price increases. In a manufacturing and production regime that operates on a JIT (just-in-time inventory and delivery control system), power brown-outs and black-outs would spell economic disaster for many industrial and commercial enterprises. Several businesses in various sectors may need to consider either generating their own power (at premium prices) or relocating into a geographic locations where electric power prices are more competitive and the power supply more reliable.
Relocating in Quebec?
One such location is a small region in Eastern Ontario, a city and a portion of a neighbouring township that receive Quebec generated electric power and are exempt from the residential power price freeze. Both municipalities have available industrial land located near the major east-west highway (#401) and the main CN rail line. The city has a large swamp located in its industrial area, which environmentalists wish to preserve as a wild-life habitat and the city's administration seems willing to oblige them.
The looming Ontario power debacle may send new economic, business and industrial development into places like a portion of the neighbouring South Stormont Township, or into other areas in Ontario that are served by private electric power producers. Larger industries and heavy commercial power users may even need to consider locating to industrial areas in Quebec, where a more reliable and competitively priced electric power supply is available. Information sector survivors of the high-tech meltdown may even consider relocating into Quebec, given the evolving changes now occurring in Quebec's society and workforce (see THE EVOLVING CHANGE IN QUEBEC'S DISTINCT SOCIETY, le QL, no 106).
Under the Eves power regime, private unregulated electric power generation located inside industrial areas and supplying heat and power to neighbouring industrial and commercial customers inside those areas would not even be considered. Ontario's power deregulation farce sabotaged private efforts at new electrical power generation at a time when the province urgently needed an additional supply of electric energy. In the short term, Premier Eves has won voter support for having enforced the timely power price freeze, from thousands of grateful Ontario residents who are also Ontario Hydro power customers. In the long term however, the likelihood of power brown-outs and black-outs increases under the residential power price freeze regime and raises the potential of major economic upheavals occurring in Ontario's commercial and industrial sectors.
By the time the Premier calls the next provincial election, Ontario will likely be in the midst of an economic debacle caused by an electric power shortage, the result of the Eves power price freeze. At the height of California's 2001 power shortages, Governor Gray Davis blamed local power producers for withholding power and out-of-state power producers for profiteering. Ontario's Premier will likely follow Gray's precedent and blame unscrupulous out-of-province power producers for price gouging Ontario power customers and causing an economic upheaval in the province.
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