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Report On Business Ontarians should brace for shocks from electricity market changes

Here is something to ponder as Ontario embarks on a controversial overhaul of its electricity market.

More than three-quarters of employees at the province's two main utilities – Hydro One and Ontario Power Generation – made at least $100,000 in 2014, according to the government's "Sunshine List" of top income earners. That's more than 12,000 people in all – workers who already enjoy some of the richest pensions in Canada.

Beyond shock value, the point of mentioning this is because fairness belongs at the heart of whatever Kathleen Wynne's government does to untangle the mess that is Ontario's electricity marketplace.

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Step 1 in Ms. Wynne's planned restructuring is expected to be the $500-million sale of Hydro One Brampton and its subsequent merger with a clutch of neighbouring Toronto-area electricity distributors. Step 2 is the sale of a piece of Hydro One in an initial public offering.

Former banker Ed Clark, who is helping to steer the effort as chairman of Ms. Wynne's advisory council on government assets, has suggested that ratepayers will eventually share in the savings that flow from rationalization.

"Any rate savings here will, in time, be passed on to the ratepayer," Mr. Clark promised last October.

Ontarians should be very wary. Successive Liberal, Conservative and NDP governments have made similar promises as they serially meddled in the electricity market over the past two decades.

And yet rates in Ontario continue to climb higher, even as they fall nearly everywhere else in North America. Ontarians, who already pay more than most Canadians, are poised to get hit with another big hike.

Last week, Ontario Energy Minister Bob Chiarelli warned Ontario residential customers to brace for paying as much as $120 more a year for their electricity in 2016 and beyond.

The reason this time is the elimination of the temporary Clean Energy Benefit, a politically expedient measure that merely forestalled the pain of shutting down the province's polluting coal-fired power plants.

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Lower rates for residential and business customers may not even be the primary objective of the revamp and partial privatization of Hydro One. The main driver is raising cash to help fund Ms. Wynne's plan for new transit lines in the province.

Squeezing Hydro One and OPG for cash is tempting. The provincial government continues to run a large deficit, and can't afford the infrastructure it needs, and wants.

But it's a diversion from what's really wrong in Ontario's electricity market.

Governments have foisted a series of often conflicting political mandates on the system – no new nuclear plants (NDP), deregulation (Conservatives), privatization (Conservatives and Liberals), a phase-out of coal (Liberals) and renewable-energy incentives (Liberals).

And now a new wave of privatization and rationalization is promised by the Wynne government.

Through it all, there has been scant attention paid to outcomes – most notably, the impact these decisions would have on rates.

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The break-up of Ontario Hydro in 1998 created four separate entities, each with its own bloated and powerful bureaucracies, as the latest Sunshine List makes clear.

The provincially owned system now consists of Hydro One (distribution and transmission), OPG (generation), Independent Electricity System Operator (managing the electricity grid) and Ontario Power Authority (longer term power planning). The IESO and the OPA were merged at the start of this year.

Together these entities now employ roughly 18,000 people. That's roughly 2,000 fewer than in 1998, but it follows a period of massive technological change that has reduced job intensity in most other industries.

Add to this private power suppliers and a hodgepodge of more than 70 local, municipally owned distribution companies, and Ontario almost certainly has the most inefficient and costly system in the country.

Waves of deregulation and privatization have produced none of the savings that politicians repeatedly promised.

Often, quite the opposite. Ontario has quietly privatized nearly half of the electricity used in Ontario, often at higher cost.

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The Conservatives leased OPG's Bruce nuclear generating station to private operators. And then, instead of converting its coal plants to natural gas, the Liberals opted to award contracts for more costly gas plants to private companies, including TransCanada Corp.

And then along comes the Wynne-Clark plan.

Ontarians have every reason to be jaded and skeptical.

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