Electricity Restructuring in Ontario

This paper examines the short-lived electricity sector restructuring initiative of the province of Ontario, CanadaÕs largest province. In May 2002, following years of planning and consultation Ontario opened its retail and wholesale electricity markets to competition. The summer of 2002 saw retail prices reach levels that consumers had never previously encountered. By December 2002, the provincial government froze retail electricity prices, covering approximately half of OntarioÕs electricity consumption. While the weather played a significant role in driving prices higher during the summer of 2002, other factors also played a major role. The other factors reviewed in this paper fall into two categories. The first category consists of market design problems, such as market rules (e.g., trading arrangements) and market structure (e.g., the degree of competition in the generation sector). The second category covers political economy problems, in particular the lack of political will to allow retail prices to reflect wholesale prices and to address effectively structural problems in the sector. Finally, this paper examines some of the new restructuring initiatives being pursued by the recently elected provincial government of Ontario as the province continues to struggle to bring order to its electricity sector.