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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: quoted-printable X-From: IssueAlert@SCIENTECH.COM X-To: ISSUEALERTHTML@LISTSERV.SCIENTECH.COM X-cc: X-bcc: X-Folder: \RSHAPIRO (Non-Privileged)\Shapiro, Richard\canada X-Origin: Shapiro-R X-FileName: RSHAPIRO (Non-Privileged).pst <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09 <http://secure.s= cientech.com/images/spacer.gif<=09 <http://secure.scientech.com/_IA_TEST/C= orner_TR.jpg<=09 =09 <http://secure.scientech.com/rci/wsimages/ia_banner02.gif<=09=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.sciente= ch.com/specialpages/Multi_Client.asp< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scient= ech.com/images/spacer.gif<=09 =09 <http://secure.scientech.com/rci/wsimages/will100border_copy.jpg< <http://secure.scientech.com/_IA_TEST/Corner_TL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_TR.jpg<=09 =09 <http://secure.scientech.com/images/spacer.gif<; <http://www.thestructu= regroup.com< <http://secure.scientech.com/images/spacer.gif<; <http://secure.scientech.= com/specialpages/Strategic_Planning.asp< <http://secure.scientech.com/ima= ges/spacer.gif< <http://secure.scientech.com/rci/details.asp?ProductID=3D90= 9< <http://secure.scientech.com/images/spacer.gif<;=09 <http://secure.scientech.com/_IA_TEST/Corner_BL.jpg<=09=09 <http://secur= e.scientech.com/_IA_TEST/Corner_BR.jpg<=09 November 15, 2001=20 Ontario Treads Cautiously Along Its Toilsome Path Toward Deregulation By Will McNamara Director, Electric Industry Analysis [News item from Reuters] Ontario, Canada's plan to open its electricity mar= ket to competition could happen earlier than the May 2002 target date, but = the earlier timing is contingent upon the completion of a key report, a spo= kesperson for the province's energy minister said earlier this week. "It's = opening. We're just waiting to set a date and full steam ahead," said Chris= tine Smith, a spokeswoman for the Ministry of Energy, Science and Technolog= y. Ontario's government will make the decision regarding the start date for= competition once the readiness report, which documents the preparedness of= all the agencies involved in the privatization process, is completed and r= eviewed by both Energy Minister Jim Wilson and Premier Mike Harris.=20 Analysis: The fact that the start of electric competition in Ontario, Canad= a's most populous province, may actually be on the near horizon is a major = development, considering that deregulation in the region has been in the wo= rks-and has encountered several delays-since 1998. Shaken by the fiasco of = direct access in California, along with the sudden price spikes that occurr= ed in Alberta (Canada's only fully opened market), officials in Ontario hav= e been rather reticent to proceed with dismantling the monopoly system in t= his region. However, it now appears that Ontario is finally moving forward = with its deregulation plan, despite concerns from some of the major players= in Canada that officials in the region have orchestrated what may become a= nother troubled experiment in electric deregulation.=20 Before discussing the current deregulation plans in Ontario, it is necessar= y to establish some key points about Canada as a whole, the province of Ont= ario in particular and trends within the energy market of the Great White N= orth. From a national perspective, electric deregulation in Canada is occur= ring on a province-by-province basis (much like the United States is deregu= lating its market on a state-by-state basis). At this point, only Alberta h= as deregulated its electric market, which occurred in January 2001. Beyond = Ontario, none of the other Canadian provinces (British Columbia, Manitoba, = New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island, Quebec, Sas= katchewan, or Yukon) have taken any definitive steps toward deregulating th= eir electric markets and instead are approaching deregulation from a "wait-= and-see" perspective. Part of this reticence toward deregulation among othe= r Canadian provinces besides Alberta and Ontario relates to the generally l= ow energy prices across Canada and the fact that the regions within the nat= ion are vast and rather isolated from each other (thus making the issue of = transmission interconnection a challenge). Ontario is an exception to this = general rule, as the province has experienced relatively high prices and is= interconnected with other provinces and the United States.=20 As noted, Ontario is the most populous Canadian province, the home to 11 mi= llion people with an average power usage of 155 terrawatt hours a year, and= representing a $10-billion electric market. The three main utilities in On= tario are Ontario Power Generation, the former Crown-owned utility that was= formed by the replacement of Ontario Hydro Services Company with separate = commercial companies in April 1999 and currently controls a total generatin= g capacity of approximately 25,800 MW; Ottawa Hydro, which is owned by the = city of Ottawa; and Toronto Hydro, which was created as a result of the con= vergence between six utility companies serving Toronto. Toronto Hydro consi= sts of a transmission and distribution unit and an energy services company,= but owns no generation of its own. Of the three, Ontario Power Generation = has the market share in the province, reportedly serving about 85 percent o= f Ontario's power market.=20 Deregulation of Ontario's natural-gas market took place in the late 1980s. = Following plans that had been in the works since at least 1998, electric de= regulation in Ontario was originally scheduled to begin in November 2000, a= lthough it was postponed another 18 months due to concerns from officials a= fter witnessing the well-documented problems in California. Energy Minister= Jim Wilson reportedly was also concerned about Alberta's experience with e= lectric deregulation. Competition in Alberta's wholesale and retail power m= arket began on Jan. 1, 2001, a time at which wholesale prices for natural g= as were staggeringly high. High demand and short supply in Alberta caused r= ates in the province to immediately double upon the onset of deregulation, = a development that has naturally given great pause to other Canadian govern= ments. Natural-gas and electricity prices in Alberta have since fallen dram= atically, as elsewhere in North America, but not before the Alberta governm= ent was forced to give hefty rebates to customers to compensate for the sha= rp increases.=20 Under Ontario's evolving deregulation plan, retail markets will remain unde= r the oversight of the Ontario Energy Board, the provincial power regulator= , and are scheduled to open at the same time as wholesale markets. Under th= e retail system, customers will have the option of arranging their electric= ity purchases directly from suppliers at fixed-price contracts, or having e= nergy purchased for them by distribution companies, agents, brokers, or mar= keters at fluctuating prices. Most reports indicate that Ontario is well po= sitioned to open its market to competition, at least from a supply perspect= ive; in fact, Ontario government officials have claimed that the province h= as adequate power supply, fueled mostly by hydro and nuclear energy, along = with planned investments in new generation. However, other observers have c= laimed that the delay in the start date for competition in Ontario is servi= ng as a deterrent for new generation investments in the region. Reports fro= m earlier in 2001 indicated that Ontario will need an additional 1,000 MW o= f generation in addition to its existing capacity of 26,000 MW to meet dema= nd, and only one 450-MW plant had been officially announced.=20 In addition, despite the assurances from the government, some companies hav= e claimed that the deregulation policy outlined by the Ontario Energy Board= is fundamentally uncompetitive. For instance, one company that appears to = have very little interest in the new opportunities in Ontario is Calgary-ba= sed TransCanada Pipelines Ltd., Canada's largest natural-gas pipeline compa= ny and a huge player in the country's regulated marketplace. One of the key= criticisms that TransCanada officials have raised is that the Ontario gove= rnment is implementing a policy in which the bulk of Ontario's high-quality= generating assets will remain controlled by Ontario Power Generation, leav= ing only undesirable plants on the auction block. In other words, even in a= deregulated market, Ontario Power Generation may continue to hold the mark= et share of generation in Ontario. TransCanada claims that this approach wi= ll diminish investment interest in Ontario and do little to entice new gene= rating companies from entering the province. TransCanada, which has previou= sly made acquisitions of natural-gas fired plants in Alberta and the northe= astern United States, does not think that the province will offer a very co= mpetitive market and appears to have little interest in moving into the Ont= ario electric market. Note that in mid-October, Mirant Corp. (NYSE: MIR) an= nounced that it had entered into an agreement to purchase the majority of t= he gas marketing business of TransCanada, making it the largest natural-gas= marketer in Canada and the largest natural-gas exporter to the United Stat= es.=20 Under the Ontario Energy Board's deregulation plan, Ontario Power Generatio= n must sell or lease 4,000 MW of its non-nuclear power within 42 months of = the opening of the Ontario market. Currently, Ontario Power Generation owns= 9,700 MW of fossil-fuel capacity; 8,728 MW of nuclear power; and 7,309 MW = of hydroelectric power. Obviously, the governmental mandate regarding the d= ivestiture leaves the bulk of the province's generating capacity under the = control of Ontario Power Generation, which is a major point of contention f= or potential competitors.=20 It is important to note that the office of Ontario Energy Minister Jim Wils= on does not share TransCanada's perspective. In fact, a spokesperson for th= e office said generation assets such as the Mississagi hydroelectric system= and the gas-fired Lennox plant in southwestern Ontario, both of which Onta= rio Power Generation will be divesting, represent very valuable assets that= should be a desirable way for companies such as TransCanada to enter the d= eregulated market. Also note that TransCanada has expressed concerns only a= bout opportunities in Ontario's electric market, and the company already ha= s rather extensive gas-pipeline investments in the province. Nevertheless, = enabling the opportunity for new companies to gain generating assets curren= tly owned by Ontario Power Generation is a key factor to the success of Ont= ario's deregulated market.=20 Moreover, Ontario inches ever closer to a competitive electric market, but = a good number of concerns about the province's plan for deregulation remain= unresolved. There is great anticipation for the report that is expected sh= ortly from the Ontario Energy Board, which may specifically address the div= estiture policy for Ontario Power Generation that has troubled companies su= ch as TransCanada. Certainly, there is great hope that no further delays of= the deregulation start date in Ontario, and that province officials either= maintain or accelerate the May 2002 start. Just as Canadian officials have= closely watched the move toward deregulation in the United States, U.S. co= mpanies continue to monitor Canada's slow, province-by-province progression= toward competition. As noted, Mirant Corp. already has gained a market edg= e in the natural-gas sector of Canada by acquiring the assets of TransCanad= a. Duke Energy, Calpine Corp. and Devon Energy have also penetrated the Can= adian natural-gas market with pending acquisitions of Westcoast Energy, Enc= al Energy and Anderson Exploration, respectively. The next horizon for the = Canadian energy market is electric deregulation, and industry eyes remain o= n Ontario as the only Canadian province that is following Alberta into elec= tric competition.=20 An archive list of previous IssueAlert articles is available at www.scientech.com <http://secure.scientech.com/issuealert/<;=20 _____ =20 We encourage our readers to contact us with their comments. We look forward= to hearing from you. Nancy Spring <mailto:nspring@scientech.com< Reach thousands of utility analysts and decision makers every day. Your com= pany can schedule a sponsorship of IssueAlert by contacting Jane Pelz <mai= lto:jpelz@scientech.com<at 505.244.7650. Advertising opportunities are also= available on our Website.=20 _____ =20 Our staff is comprised of leading energy experts with diverse backgrounds i= n utility generation, transmission and distribution, retail markets, new te= chnologies, I/T, renewable energy, regulatory affairs, community relations = and international issues. Contact consulting@scientech.com <http://consulti= ng@scientech.com< or call Nancy Spring at 505.244.7613.=20 _____ =20 SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let u= s know if we can help you with in-depth analyses or any other SCIENTECH inf= ormation products. If you would like to refer colleagues to receive our fre= e, daily IssueAlert articles, please register directly on our site at secur= e.scientech.com/issuealert <http://secure.scientech.com/issuealert/<;.=20 If you no longer wish to receive this daily e-mail, and you are currently a= registered subscriber to IssueAlert via SCIENTECH's website, please visit = <http://secure.scientech.com/account/<; to unsubscribe. Otherwise, please se= nd an e-mail to to IssueAlert <mailto:IssueAlert@scientech.com<, with "Dele= te IA Subscription" in the subject line.=20 _____ =20 SCIENTECH's IssueAlert(SM) articles are compiled based on the independent a= nalysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's Iss= ueAlerts are not intended to predict financial performance of companies dis= cussed, or to be the basis for investment decisions of any kind. SCIENTECH'= s sole purpose in publishing its IssueAlert articles is to offer an indepen= dent perspective regarding the key events occurring in the energy industry,= based on its long-standing reputation as an expert on energy issues.=20 Copyright 2001. SCIENTECH, Inc. All rights reserved. <http://infostore.consultrci.com/spacerdot.gif?IssueAlert=3D11/15/2001<;
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