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Speaking Notes of the Public Interest Advocacy Centre(PIAC)
First of all, I would like to extend our thanks to the Committee for giving us an opportunity to address the Committee on our concerns associated with Bill 35 – the Energy Competition Act.
The Public Interest Advocacy Centre (PIAC) is a non-profit organization that provides legal and research services on behalf of consumer interests, and, in particular, vulnerable consumer interests concerning the provision of important public services. Since the inception of the Centre in 1976, the regulation of public utilities, such as telecommunications and energy, has been an important focus of the Centre’s work .
PIAC has been a frequent intervenor, generally on behalf of low income customers, in proceedings before the Ontario Energy Board, both with respect to rates and policies for natural gas local distribution companies and in the former periodic reviews of different aspects of the Ontario Hydro operation. We participated fully in the OEB proceedings that produced the report recommending the legislative changes in the gas industry which has provided a policy basis for the portions of this Bill dealing with the natural gas industry. PIAC has also published extensive reports in utility fields and frequently provides policy reports to the federal department of Industry on consumer related concerns. We have appended a partial list of publications to this document.
By way of general comment upon Bill 35, we would state that the Government appears to be proceeding in a prudent fashion, given the relatively large stakes involved in the management of the transition to a more competitve energy industry in Ontario. Getting from where we were, to where we will end up, is by no means a straightforward proposition.The management of the change will play a key role in the economic future of all stakeholders . As we will discuss later in this submission, it is vitally important that the superintending authority possess the ability to fashion effective consumer protection and market failure remedies when the need arises. In energy, we do not have the luxury to wait for long term market correction based on economic theory in the event that serious impairment arises to threaten energy access and affordability.
It should also be recognised that this Bill deals with two industries, gas and electricity, with wholly different historical profiles in terms of meaningful regulation, public accountabilty and effectiveness. The natural gas industry has carried out its monopoly operations pursuant to real scrutiny by an informed and effective regulator, the OEB, with authority to review performance and compliance. Ontario Hydro, on the other hand , has not had a similar experience and its lack of meaningful accountability has given rise to many of the problems that beset it today. Public satisfaction with the historical performance of the natural gas industry is relatively high: there is little clamour for change among natural gas residential consumers. In electricity, on the other hand, there has been a demonstrable need for change that is apparent to all informed stakeholders.
However, little can be gained at this juncture by a recitation of the past sins of Ontario Hydro. When discussing the treatment of utilities, it is always a risky proposition to quote from former British Prime Minister Margaret Thatcher. However, I believe that her statement ” if we spend our present, debating the past, we will find that we have forfeited our future ” has particular resonance with many of the tasks concerning the management of the electricity industry that are before us in this Bill. We cannot make the monkey of stranded costs disappear from the backs of the Ontario Hydro customer. We can only ensure that there is a equitable treatment of these costs so that : (1) the burden of the costs are fairly allocated and (2) no market participant is able to avoid contribution by opting out.
We have organised our comments upon this Bill under the general headings of Benefits, Consumer Protection and Unknowns. The limitations of time prevent a lengthier discussion of many of the points raised in each of the above noted categories, but I trust that other presenters may be addressing them.
We see potential benefits accruing to all consumers from the following features or effects of Bill 35:
In this decade, PIAC has been actively engaged with the regulatory and governmental process that has attempted to establish the framework for competition in telecommunications in Canada. The telecommunications experience with competition to date is, in some ways, instructive to the current task in energy, and, in other respects, not particularly helpful.
In telecommunications, it was necessary to re-price network access to facilitate competitive entry into long distance markets. This meant an two to three fold increase in basic rates (despite the initial CRTC finding that such increases were not inevitable). Similar to the energy market, the revenues from long distance service were disproportionately produced from the high volume users. (One third of all Bell Canada accounts in 1994 produced two thirds of the long distance revenue). The CRTC generally left it to market forces both to establish an informed consumer market as well as police the many resellers that sprung up to sell long distance offerings to compete with the former incumbent monopolist. In the result, the higher volume user was largely the market target for discounts. Consumers were bombarded with a confusing array of advertising and some customers were slammed onto services they had not authorized. By the beginning of 1998, most telephone customers were paying higher total telephone bills.
There also continues to exist indicia of the former monopoly in the market power exercised by the incumbent local telephone companies. Up to this year, for example, Bell Canada was able to retain close to a 90% share in the residential long distance market despite the fact that its RealPlus savings plan had call amount minimums that exceeded the monthly long distance bills of a majority of its residential customers. This meant that most customers were not receiving any benefits from competition.
This year, there are finally discounts for ordinary callers available with Bell and there appears to be an expanded interest in low volume customers by most long distance players. The lion’s share of competition benefits still remain with the high volume user.
However, this pattern should not be repeated in energy. Simply put, energy customers in Ontario will not countenance a doubling or tripling of their energy rates and wait six years for some real benefits no matter what the advertising program that accompanies the changes. As well, there will be much less tolerance for unscrupulous operators in the energy field as the consequences of misconduct in false representations, slamming, and inability to deliver are more serious. As one commentator has stated, ” You can’t have a busy signal when you turn on the light switch”.
The telecommunications industry has been saved from widespread public outcry from market misconduct, in part, by the fact that the players are absorbing the transactional costs of customer transfer themselves to encourage customer mobility. Because of the arbitrage nature of competitive commodity offerings in the energy field, long term locked-in energy contracts with customers are the desirable norm for marketers. This makes it difficult to effect market corrections without regulatory intervention, both to police misconduct and secondly to ensure workable competition in an informed consumer market.
Similar to telecommunications, there will likely be attempts to wring concessions for high volume users with accompanying threats to exit the system, if rates are not designed to recover more costs from smaller users. As well, competition theorists are likely to be frustrated by the maddening tendency on the part of private market participants to maximize the bottom line, in the form of cream skimming , service reductions, and mergers and acquisitions, rather than financing competitive entry as they are supposed to be doing.
In our view, Bill 35 seems to have a framework of remedies in place to address th above noted problems.This returns to the central theme of our presentation. The evolution of a genuinely competitive market for energy will initially require more regulatory vigilance not less. (In the case of Ontario Hydro, we are starting close to regulatory ground zero)The statutory provisions of this Bill creating the licensing regime and establishing effective OEB superintendence over the process are vital to the successful smooth transition to competition as well as the operation of the industry to the benefit of the entire public interest.