as the tories set the stage for commercialized electricity in Ontario, behind-the-scenes private interests are revving up for the pending power trading frenzy.Giant U.S. power marketers like Enron Canada, whose Houston-based, George W. Bush-connected parent company recently filed for bankruptcy protection south of the border, have been lining up to get a piece of the action. Large, shareholder-owned power marketers have become prominent players over the last decade as states south of the border deregulated electricity in the belief that an open market and more choice would mean lower costs for consumers.
For better or worse, for the last few years the Ontario government has been quietly moving us toward total integration with power markets in the U.S. northeast, effectively breaking down the border for a small army of private players.
"We really are evolving into more of a North American marketplace," says Francis Bradley, vice-president of the Canadian Electricity Association, representing Canada's 30 largest utilities.
In December 1999, Ontario's Independent Electricity Market Operator (IMO), set up by the Tories to manage the deregulated market, signed a memorandum of understanding with equivalent organizations in New York, New Jersey, Pennsylvania and the New England states to "develop a seamless regional market for wholesale electricity trading,"as IMO president and CEO Dave Goulding put it.
But despite what you might think, this "seamless market" didn't exactly come out of an FTA-like, bilateral trade negotiation. The impetus was actually an arbitrary order from the U.S. Federal Energy Regulatory Commission (FERC) that requires utilities south of the border to form regional free trade power blocs. FERC's idea is that offering customers more choice through a larger free market will keep prices low.
And so, if Canadian players want access to those markets, we basically have no choice but to sign on.
Addressing the Toronto Board of Trade two years ago at a "power breakfast," FERC commissioner Brenda Breathitt delicately put it this way:
"We acknowledge the sovereign authority of Canadian governments over Canadian entities and transactions that take place in Canada. Nevertheless, we continue to believe that expansion of electricity trade in the North American bulk power market requires that regional institutions include all market participants so that everyone may enjoy direct access to market information and the benefits of (lower) transmission rates."
As if that weren't enough, in the mid-1990s FERC also issued Order 888, which requires Canadian power generators who want access to wholesale markets in the U.S. to obtain a licence from FERC. But to obtain that licence, the provinces' utilities must first demonstrate to FERC that their markets are open to U.S. power. Although Ontario Power Generation already sells power to neighbouring states, they can't sell directly to non-border states without a FERC licence.
These FERC orders have effectively paved the way for U.S. power interests to invade Ontario.
Power marketers like Enron treat electricity like a commodity, not a public trust. They buy and sell wholesale electricity on the "spot market," which has been described as "institutionalized day trading." As well, they provide long-term power at fixed rates for customers including municipal utilities and large corporations.
They've been criticized as middle-men who are only interested in buying power low and selling it high. But like them or not, power marketers are expected to be significant players in the new Ontario power scene.
"I would expect (electricity) trading to grow from nothing in Ontario to significant fractions of the annual volume of generation," predicts U of T economist Donald Dewees.
For a variety of reasons, lower rates and reliable supply were not exactly the outcome when the markets recently opened in California and Alberta. While the problems in those markets can't be blamed entirely on the power marketers, they have been significant players in those markets.
"I like the idea of marketers being around," says Energy Probe's Tom Adams. "I like the liquidity they offer -- it ultimately helps customers. But at the same time, they're always going to be trying to gain (from) the system for their own benefit. It's only safe if you've got effective regulators."
Adams doesn't mince his words when it comes to assessing Ontario's regulator, the Ontario Energy Board.
"It's a disaster area," he says. "We're in big trouble."
There's already widespread fear here, even among some of the province's largest corporations, which rely on abundant, cheap power for manufacturing, that prices will rise once Ontario's market is deregulated in May.
Currently, over 250 organizations have registered with Ontario's new IMO to participate in the competitive market. Included on that long list are some of North America's largest power marketers, including, Aquila Canada, Duke Energy Marketing, Dynegy, El Paso Market Energy, Mirant Americas Energy Marketing, TransAlta Energy Marketing and, of course, Enron.
In fact, Enron Canada's president, Rob Milnthorp, is actually a "stakeholder" member of the board of Ontario's IMO, which is interesting considering that the organization, legislated into existance by the Tories, is, according to its Web site, "independent of all other players in the industry and is managed in the interest of all involved." As well, the IMO board "approves the market rules, policies and guidelines which govern the IMO-administered markets."
Enron Canada has already carved out a significant piece of the wholesale power pie in the competitive Alberta market, including the right to exclusively market power from the province's Sundance generation facility, which the company recently sold off.
Enron was a big player in Alberta, according to William Lacey, an electricity market analyst with FirstEnergy Capital in Calgary.
According to Lacey, Enron transacts approximately $14 billion in gas and electricity contracts in Canada per year. Since January 2001, Enron Canada has entered into 30,000 contracts representing 30 million megawatt hours.
Enron Canada officials were unavailable for comment.
But if the company ultimately ceases operations (it wasn't part of the parent company's bankruptcy filings in the U.S., but it recently lost a court battle in Alberta to keep customers from cancelling contracts), it will no doubt deal a blow to the free power market in Alberta.
"Is that a good thing or a bad thing?" reflects Lacey. "I guess it depends on what side of the fence you're on. Some people view the marketing side of the business as not adding any value -- they're lining their own pockets. And other people say they create a market that may not (otherwise) be there."