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The Privatization of the Power Industry

Delve into the transformation of the power industry through deregulation and privatization processes, exploring market developments, price impacts, environmental concerns, and government objectives. Get insights into major players, bidding strategies, and the evolving energy landscape.

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The Privatization of the Power Industry

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  1. The Privatization of the Power Industry By Shubha Balasubramanyam July 23, 2001

  2. What’s with the shirt? • There was a fear of natural monopoly • Per capita use has grown so much that there are enough geographic regions to support competition • Transmission line technology has grown so there is more market area • Being forced to build in the region means building in an area with higher costs

  3. What is deregulation? • Deregulation is the process of getting rid of government control in an industry • In Ontario there will be a spot market, and the ability to enter into contracts • The spot market will be regulated by the IMO

  4. Why mess with a good thing? • In 1995, Ontario had the 3rd highest power price in Canada • Currently 24 states and the district of Columbia are deregulated

  5. Major examples • Pennsylvania deregulated in Jan 1999 and prices decreased by 30% • UK deregulated in April 1990 and prices decreased by 26% • Australia deregulated in 1994 and prices decreased by 24% • California deregulated in 1996 and prices went from 3¢/kW to $1/kW • Alberta prices went from 5¢/kW to 10¢/kW

  6. How did it all begin? • In November 1997, an official report was released on creating an open market • In early 1998 a market design committee was created • In November 1998, the electricity act was formed which ordered the “breakup” of Ontario Hydro

  7. Something is to So, Me, Thing as Ontario Hydro is to... • Ontario Hydro was split up into 5 companies: • Ontario Power Generation (OPG..us) • Hydro One • Independent Market Operator (IMO) • Electrical Safety Authority (ESA) • Ontario Electricity Financial Corporation (OEFC)

  8. Government’s Vision • Four principles guiding government vision: 1. Protecting consumers and offering more choice 2. Creating strong business climate with a reliable supply of electricity 3. Protect our environment: new emission cap for electricity sector 4. Encourage new ways of doing business and support search for alternate forms of power

  9. Taking the power from OPG • Within 42 months of market opening, OPG must decontrol at least 4000 MW. This includes any fossil plants, and up to 1000 MW of hydroelectric • Within 10 years, OPG can only control 35% of the total generating capacity in Ontario

  10. Selling the power • Electricity cannot be stored • Every company will enter bids into the spot market of how much they can produce, and how much they are willing to sell for. • These bids are put in hourly for the production period in two hours • The market clearing price is then set by the highest bid that is accepted to produce at that time

  11. Price caps? • Price caps are used so the previously government-owned company doesn’t have an advantage • OPG will have MPMF • Could have the same negative effects as price caps - not allowing competition in • Numbers were calculated before gas price increase

  12. Stop the smog! • Deregulation has often been beneficial environmentally - consumer desire for green energy • By 2007 allowed emissions from electricity sector must be reduced by 50% for NOx and 25% for SO2 from 2000 levels. • Lakeview must stop burning coal by April 2005.

  13. Not enough power? • IMO requires a reserve margin of 18%-20% • Ont. has 25% excess power, not including Pickering A and Bruce A • Limit on import/export due to transmission constraints • California didn’t have enough power, and there was a growing demand

  14. Other fears • Price of generation could increase • Limiting to spot market causes high consumer cost • Lack of competition leading to gaming • Prices changing to reflect bordering regions

  15. Other benefits • Improved customer service • Increase in jobs • Safety

  16. Major Players • Potential bidders: Dominion Energy, Orion/Constellation Energy, Reliant, PECO, TransCanada, Sithe Energy, TransAlta • Key marketers: Enron, Duke, TransCanada, Engage Energy, Sempra, Direct Energy, DTE

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