Deregulation
An Overview
Deregulation is the term used to describe the process in which the electricity market in Ontario was opened up to competition by the provincial government. The actual opening of the market occurred on May 1, 2002, giving residents and businesses across Ontario free choice in who they wanted to be their electricity supplier.
The opening of the market officially ended the monopoly that had previously controlled the generation and retailing of electricity when Ontario Hydro had provided the majority of electricity required by the province’s consumers.
Why was Deregulation Introduced?
For more than 75 years, the electricity supply industry (generation, transmission and distribution) in Ontario was essentially a monopoly. Under this monopoly, the driving principle was to provide power to consumers at cost. However, by the mid 1990s, the cost of producing this power was rising sharply, and the debts incurred by the province’s previous power generator, Ontario Hydro were reaching alarming heights.
In reviewing methods of reducing the debt, the Ontario government opted to deregulate the electricity market, in much the same way as the natural gas and long distance telephone industries had earlier been deregulated. As a result, Bill 35, The Energy Competition Act, was passed in November 1998. The act set out the framework for deregulation of the electric power industry in Ontario and the introduction of competition, where practical, into the system.
Under Bill 35, the former monopoly of Ontario Hydro was broken up into five successor entities, (Ontario Power Generation Inc., Ontario Hydro Services Company Inc., Ontario Electricity Financial Corporation, the Independent Electricity System Operator and the Electrical Safety Authority).
The electricity market has now been deregulated in much the same way as natural gas and long distance telephone services.
The Bill also allowed for licensed electricity retailers to buy electricity from power generators and wholesalers and compete to sell electricity to customers and have it delivered through the local distribution company's "wires".
The City of London, like all other municipalities, was required to separate London Hydro’s distribution functions from its retail functions (such as selling fireplaces and appliances) and incorporate it as a local distribution company under the Ontario Business Corporations Act. As a result, London Hydro must now pay a form of corporate tax – known as Payment in Lieu of Taxes - to the provincial government each year. Previously, London Hydro was exempt from paying taxes.
Before deregulation
For close to a century, the Ontario electricity industry had operated as a monopoly:
Ontario Hydro was responsible for generating and transmitting electricity to power the province.
Local municipal electric utilities, such as London Hydro, purchased electricity generated by Ontario Hydro, and were responsible for distributing and selling electricity to customers, and maintaining the local wires that electricity flowed through.
A few Ontario communities were supplied by private-sector companies.
After deregulation – May 1, 2002
Under deregulation, the Ontario electricity industry was opened to competition:
Ontario Power Generation Inc. (OPGI), an Ontario Hydro successor company, generates almost all electricity in Ontario. The government is encouraging other companies to compete with OPGI, so that there will be a variety of sources of generation in the future.
Licensed electricity retailers purchase electricity from generators and wholesalers and compete to sell electricity to customers. The electricity is still delivered by the local utility’s "wires".
London Hydro customers have a choice as to who they will purchase electricity from for their homes and businesses.
