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News & Events
The OPG Monopoly Must End:
12/09/2004
ONTARIO, CDN – The Vancouver-based Fraser Institute recently released a report documenting the success of competitive energy markets worldwide. From Alberta, to the United States, to the United Kingdom and Australia, there is ample evidence that open markets lead to greater energy supply and lower prices. The Institute found that competitive energy markets perform more efficiently than regulated markets. The move to open electric markets in 13 U.S. states, for example, increased growth in power generation by 11%. Alberta experienced an even greater jump. While electricity prices did not always decline in newly opened markets, the rate of future price increases was lower than those in regulated environments. The Fraser study suggests that moving Ontario and the rest of Canada to open markets would reduce electricity costs 7% to 9% over five years. Unfortunately, the debate about Ontario's energy future has been clouded by inconsistent and misguided public policy. On one hand, the government's energy blueprint, known as Bill 100, envisions that consumers will be served by a robust competitive market. Standing in the way of that vision, on the other hand, is the Ontario Power Generation (OPG) monopoly, which has a regulated lock on 70% of the province's power market. A vibrant electricity market and a preserved OPG monopoly simply cannot co-exist. The preservation of OPG would sharply contradict not only the most critical recommendation in the Fraser Institute's analysis, but also the findings contained in John Manley's recent report on Ontario's energy system. Both concluded that competition would not take hold unless a market is fully open to all sellers and buyers. As it stands, Bill 100 is silent on the future role of OPG, and that silence is broadcasting the wrong signal to investors and entrepreneurs. It says that those who invest in Ontario's power markets will compete for only a small slice of the pie, and will be pitted against a regulated monopoly with formidable advantages. Breaking the OPG monopoly would not necessarily mean total privatization: As the Manley report pointed out, OPG could lease its generation to private investors and maintain ownership. OPG could also help identify future generation sites and make those available to the private sector. That way, private companies -- rather than Ontario taxpayers -- would bear the risk of cost overruns in building new nuclear plants. A half-step to competition that preserves OPG's market dominance ignores the reality of the energy business. Power generation is a large-scale physical undertaking that requires vast amounts of capital. To keep pace with rising demand, Ontario will need to invest billions in new infrastructure. The only way to attract investors to these mega-projects is to create open markets with reasonable rates of return. Investors, suppliers and entrepreneurs won't enter our market if OPG maintains its monopoly. Time and again, critics of open electricity markets point out that less regulation and more competition do not always lead to lower prices. While true, it's actually one of the most compelling endorsements of competition. Why? Because rates set by regulation, rather than competition, are by definition artificial. Today's low rates may feel good for politicians. But since they encourage excessive consumption, they will likely cause pain tomorrow. Artificially low prices also discourage adequate investment in new power generation, either by the province or the private sector. Those pushing the status quo have suggested that, over time, a large and sustainable electricity market will grow organically in the shadow of OPG's monopoly. It won't. Around the world, the most successful restructured markets are those that have embraced competition totally. They developed efficient and transparent wholesale and retail markets that lured investors, competitive energy suppliers and, most importantly, buyers and sellers. Ontario must do the same. Constellation NewEnergy, a member of Constellation Energy (NYSE: CEG), is a leading competitive supplier of electricity, natural gas and energy related services to commercial and industrial customers throughout North America. Constellation NewEnergy operates in all competitive energy markets throughout Canada and the United States, providing products that enable customers to effectively manage and control energy costs. Constellation NewEnergy's regional expertise coupled with its national presence provide customers with customized energy products and services while leveraging the assets of one of the strongest integrated energy companies in North America. Constellation NewEnergy, based in Baltimore, serves more than 8,000 commercial and industrial customers throughout 31 states and 3 Canadian provinces representing more than 12,000 megawatts of peak load and more than 300 billion cubic feet of annual natural gas consumption. Constellation Energy, a FORTUNE 200 company based in Baltimore, is the nation's largest competitive supplier of electricity to large commercial and industrial customers and the nation's largest wholesale power seller. Constellation Energy also manages fuels and energy services on behalf of energy intensive industries and utilities. It owns a diversified fleet of more than 100 generating units located throughout the United States, totaling approximately 12,000 megawatts of generating capacity. The company delivers electricity and natural gas through the Baltimore Gas and Electric Company (BGE), its regulated utility in Central Maryland. In 2004, the combined revenues of the integrated energy company totaled $12.5 billion. |
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