Ontario’s energy market is not completely run by the government, nor is it a completely open market. The truth is that it’s a bit of both, with the Ontario government continuing to remain involved in the acquisition of much the area’s energy supply, while competitive companies are allowed to acquire and sell energy as well. While this might suggest that there’s a fairly equitable split between the number of residents who use regulated energy and those who purchase from retailers, in fact about 90% of Ontario consumers are served by regulated utility companies.
Regulated Electricity in Ontario
For much of the last century, Ontario Hydro (now Hydro One) was the generator and supplier of electricity for most of the province. During this time, 100% of the province’s residents and businesses paid rates that were controlled by the government. But beginning in the 1970s, it became increasingly apparent that the cost of repairing older generation stations, cost overruns for the construction of new systems, and subsided energy prices were creating insurmountable amounts of debt.
To address this issue, the Energy Competition Act was passed in 1998. The Act called for the restructuring of the electricity market, in order to allow private companies to participate. As required by the new law, Ontario Hydro was divided into five companies:
- Hydro One, which handles electricity transmission.
- Ontario Power Generation, which generates roughly half of the province’s electricity.
- Independent Electricity Systems Operator (IESO), which is in charge of maintaining a balance between electricity supply and demand.
- Electrical Safety Authority, which sets regulations to ensure the safety of those performing electrical work.
- Ontario Electricity Financial Corporation, which manages Hydro One’s financial concerns.
Four years later, in 2002, the retail electricity market was deregulated, allowing consumers to take advantage of services offered by competitive companies. Later that year, a sharp increase in the cost of electricity prompted the suspension of the deregulation process. The process was resumed in 2005 with the introduction of the Regulated Price Plan, a predictable electricity plan featuring regulated rates for homeowners and businesses who wished to continue receiving electricity from their local utility.
More than a decade later, consumers continue to have access to a competitive energy market (though the transmission of electricity is still regulated). This has allowed for the introduction of a variety of plans which cater to specific consumer needs, as well as socially aware energy plans which use renewable energy sources.
Regulated Natural Gas in Ontario
Before 1985, the federal government of Canada regulated the purchase of natural gas. At the time, the government argued that regulation was necessary in order to maintain stockpiles of natural gas that would ensure the continued operation of the country in the case of an energy crisis.
During this time, TransCanada Pipelines had a de facto monopoly, as it was the sole owner and operator of every interprovincial gas pipeline in the country. As a consequence, gas distributors lacked the ability to determine their own rates for the gas they delivered to customers.
To combat this issue, in 1985 the federal government signed an agreement with the country’s three gas-producing provinces—Alberta, British Columbia, and Saskatchewan—which allowed for the deregulation of the nation’s natural gas market. TransCanada was compelled to spin off its sales services, and strictly function as an operator of the nation’s natural gas pipelines. In 1992, the retail natural gas market was made accessible to consumers, allowing homeowners and business owners the option of purchasing their gas from retailers, rather than their local utility company.
As is the case with electricity, the transmission of natural gas continues to be regulated. The Ontario Energy Board regulates the fees charged for natural gas distribution, transmission, and storage, and these fees are passed onto the consumer without markup. The OEB also regulates the natural gas rates charged by Ontario utilities, updating these rates four times a year, in January, April, July, and October. These rates are based upon the current market rate for natural gas, as well as projections of the future cost. To ensure that customers are not over- or undercharged when the market fails to align with expectations, the OEB also imposes the Gas Price Adjustment, which credits or debits consumers for any difference between expected and actual natural gas costs.