Far from lowering prices, deregulation has introduced the worst elements of competition without any redeeming aspects.
By Ryan McGreal
Published August 22, 2005
This has generally been a disaster. Far from improving efficiency and reducing costs, electricity deregulation has introduced the worst elements of competition without any redeeming aspects. Spot markets have replaced supply reliability, leading to extreme price volatility, and companies now regard energy reserves as "glut" to be avoided. Unfortunately, that volatility has swallowed spare capacity and destroyed incentives to invest in long-term capacity.
In deregulated markets such as California, deregulation has been a bonanza for energy speculators like the ill-fated Enron Corporation, which systematically under-invested in capacity, engineered shortages, and profited immensely from price spikes while residents and businesses struggled through unscheduled brownouts and blackouts.
We're now seeing similar effects in Ontario, as peak demand has forced Ontario Power Generation to buy electricity from other utilities at peak prices. The government's decision to freeze consumption at 5.8 cents per kilowatt-hour has only compounded the problem, since consumers no longer receive price signals to reduce their demand and perform energy-intensive activities (like washing laundry) during off-peak times.
The predictable result during our hot summer is that residents leave their air conditioners on all day, even when no one is at home, and keep their houses extremely cool. Why conserve? Electricity is cheap. Only it isn't cheap anymore. Meanwhile, air exchangers attached to all these super-cool buildings are pumping even more hot air outside.
It gets worse: Ontario is planning to decomission its coal-fired plants, which is laudable. However, because we aren't managing energy consumption effectively, Ontario Power Generation has to buy electricity from the United States during peak periods - electricity that is often generated by coal-fired plants in the Ohio Valley whose air pollution eventually blows into Ontario anyway.