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The Privatization of the Power Industry

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

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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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