Ontario’s Independent Electricity Market Operator (IMO) successfully opened the province’s competitive electricity marketplace at midnight on May 1, and began calculating market-clearing prices every five minutes for the 239 participants. The new market, run by the IMO, has more than 200 participants, including 93 local distribution companies, 89 industrial consumers, 19 generators, 34 wholesale buyers/sellers and four transmitters.

“I’m convinced that the competitive market will be successful,” said Ontario Energy Minister Chris Stockwell. “Prices over time will be considerably lower than they would have been than under the old monopoly-based system.” Analysts predict the prices will rise as demand increases and as summer nears.

Next on tap to be privatized is Hydro One, the power grid monopoly regulated by the Ontario Energy Board. Hydro One is one of two main spin offs from Ontario Hydro, the provincially owned utility that once was the largest power company in North America. The other spinoff is Ontario Power Generation.

Hydro One operates most of the bulk transmission system and is responsible to the IMO for its reliability. Hydro One is slated to be privatized this fall. Ontario Power Generation, owned by the Ontario government, currently provides more than 70% of the electricity consumed in the province, which numbers 12 million. Local distribution companies and competitive retailers are regulated by the Ontario Energy Board.

Faced with controversy from the public and inside the government over a plan to sell it, Stockwell reversed an earlier position and said Wednesday that selling it as a C$5.5 billion ($3.5 billion) initial public offering (IPO) as planned may not be the best way. The province has already committed to privatizing the grid by this fall. However, the province still has to have a plan that will be approved. Just weeks ago, the Ontario Superior Court ruled that the province did not have the authority to sell the utility, a ruling which came six weeks before the expected IPO.

Following the court ruling, Ontario’s conservative government began public hearings across the province last week to formulate a new plan. The hearings will conclude on Tuesday (May 7), and the province is then expected to announce what form the Hydro One privatization will take. Stockwell said he will consider turning Hydro One into an income trust or propose a long-term lease instead of an immediate sale. However, opposition politicians and labor unions criticized Stockwell’s suggestions, calling his proposals the same as an IPO.

The opening of Ontario’s electricity markets to competition last week has already attracted new investment in the province, and will enhance the province’s reliable supply of electricity over the next 10 years, according to reports issued by the Independent Electricity Market Operator (IMO).

“The decision to open the province’s electricity market this spring has attracted significant investments in the province’s electrical infrastructure,” said Paul Murphy, IMO’s COO. “The more than 3,000 MW that will be added to the province or returned to service in the next year-and-a-half will increase available resources by more than 10%, which will further enhance reliability and competition in Ontario.”

The IMO, which issues annual 10-year outlooks and quarterly 18-month outlooks, examined the ability of Ontario’s electricity system to meet customer demands over the long- and short- term, designed to inform the marketplace of the demand supply/balance in the province. The reports identify potentially adverse conditions that might suggest adjustment or coordination of maintenance outage plans for generation and transmission equipment or that can be addressed by market participants acting in response to market opportunities.

“These are essentially our first outlooks for the open marketplace,” said Murphy. “They are designed to advise wholesale buyers and sellers of the upcoming demand/supply mix in the province so that they can make appropriate business decisions. As part of our preparations for the new market, we have been issuing these for the past two years and are confident that they represent effective planning tools for the Ontario marketplace.”

The reports forecast that Ontario’s demand for electricity will grow at just under 1% a year for the next decade. Proposed new generation projects could add more than 6,000 MW of new capacity over the same period. The reports also identify specific market opportunities and system needs that will occur in the province in the next 10 years.

The IMO also has developed a Deferred Payment Plan (DPP) to assist distributors in managing the effects of significant price excursions. The DPP is designed to provide a cost-effective, alternative backstop credit facility to assist distributors finance cash flow imbalances during extreme price excursions, recognizing that distributors will ultimately receive higher prices from their customers at a later date. The IMO is currently in the process of implementing the DPP with the goal of having the plan available by June 13, 2002 (immediately before the first invoice date for the new marketplace).

The reports, as well as the real-time pricing in the deregulated market, are available on the IMO’s web site at www.theimo.com. The IMO’s Help Center responds to questions from market participants and others about the operation of the wholesale market and the role of the IMO. It can be reached by calling (905) 403-6900 or (888) 448-7777. Send e-mail to helpcentre@theIMO.com.

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