Energy Market Regulation in Ontario
The electricity market in Ontario is hybrid, meaning that while some market competition exists, the provincial government remains highly involved, and a large amount of energy supply is centrally procured. In fact, about 9 out of 10 Ontario residential electricity consumers are supplied by their local utility and pay regulated prices. Like much of the rest of Canada, the natural gas market in Ontario is deregulated.
Electricity
A Short History of Electricity Market Regulation in Ontario
Ontario Hydro was the historic electricity producer and supplier for Ontario, until the late 1990s when the provincial electricity system began to be restructured to introduce market competition. Prior to this, Ontario Hydro was responsible for electricity generation, transmission and distribution for most of the province, with prices regulated by the provincial government. However, a combination of aging generation facilities and heavily subsidized prices led the company to begin to run up billions of dollars of debt during the 1990s. With the 1998 Energy Competition Act, Ontario Hydro was split into five separate companies, among them Hydro One Inc (responsible for transmission), Ontario Power Generation Inc (OPG), and the Independent Market Operator (IMO), which is now known as the Independent Electricity Systems Operator (IESO) and is responsible for balancing supply and demand for electricity on the Ontario grid. This restructuring separated electricity transmission from generation and sale.
The electricity market was deregulated for retail consumers in 2002, allowing market competition in energy supply. However, after a sharp jump in the price of electricity, the deregulation process was frozen for the three years that followed. It was reopened in 2005, with a Regulated Price Plan introduced, in order to provide a more stable and predictable price plan for consumers who chose to stay with their local utility for their energy supply. Currently, the sale of electricity is open to competition, while the transmission of power remains regulated. This allows the consumer to choose among a range of energy marketers, offering the possibility of savings on the energy bill and/or of supporting a certain electricity type (such as renewable, for example).
Natural Gas Market Regulation
Prior to 1985, the sale of natural gas was regulated by the federal government. In 1985, however, gas-producing provinces signed an agreement with gas-consuming provinces and the government of Canada that led to the TransCanada PipeLines separating its "merchant" function from its distribution function and the beginning of gas market deregulation in all Canadian provinces. By 1992, the natural gas retail market was opened in Ontario, and residential consumers were able to purchase their gas supply from suppliers other than their local utility.
As with the electricity market, transmission of natural gas remains regulated, while supply is open to competition. The OEB sets rates for the distribution, transmission, and storage of natural gas, as well as its commodity price. Natural gas utilities are required to pass the cost of purchasing natural gas to consumers with no mark up. They apply for a quarterly rate adjustment (QRAM) from the OEB to reflect the difference between forecasted and actual natural gas prices. These adjustments are made on January 1, April 1, July 1, and October 1. Prices offered as part of contracts by independent natural gas marketers are not regulated.