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Public Interest Advocacy Centre
1204-ONE Nicholas St.
With Funding from Industry Canada
Copyright 2002 PIAC Contents my not be commercially reproduced, But any other reproduction with acknowledgments is encouraged.
The Public Interest Advocacy Centre (PIAC)
ONE Nicholas Street
Canadian Cataloguing and Publication Data
Utility Reconnection Services: A New Threat to Vulnerable Consumers? ISBN 1-895060-56-7
This report examines the current status of utility deregulation or restructuring in the energy and telecommunications sectors in Canada and the U.S. and its impact upon low-income consumers. It focuses on three major utility sectors that have the greatest impact on residential, low-income consumers: electricity, natural gas and telephone services. Specifically, the report examines to what extent reconnection services, or services targeted specifically to consumers who have lost service or have been unable to maintain utility service as a result of deregulation or restructuring, have emerged in Canada and the U.S.
The key characteristic of restructuring or deregulation is that investment and pricing decision-making are increasingly guided by market forces and competition. To enable this to occur, the core functions of the utility – the generation, transmission and distribution functions are separated or unbundled and a portion of these functions is subject to competition. The obvious and most significant impact upon the residential consumer is that their source of supply may change. It is no longer just the incumbent utility providing the service. The result has been the entry of reconnection companies into utility markets.
Utility restructuring in Canada has varied in its development and impact between utility sectors. Deregulation in the natural gas industry has been under way since the 1980s. There is some evidence that market segmentation has resulted as a result of restructuring in the gas industry. Market segmentation means that there is a differing impact of prices of natural gas upon different sectors of consumers, with higher prices for residential consumers than for other consumers, such as commercial or industrial consumers.
Deregulation in the electricity sector in Canada, has been a very recent development. It has mainly taken place in Alberta and Ontario. In those provinces, there is already some limited evidence of price increases for residential customers. In the telephone industry, the federal government has jurisdiction and has set out the framework for deregulation through its amendments to federal legislation, which took place in 1993. The major effect of deregulation of the telephone industry has been reductions in long distance rates but increases in local phone service. There is also some limited evidence of telephone reconnection services being offered in Canada.
A significant part of the report examines utility restructuring and its effects in some specific jurisdictions in the U.S. This emphasis comes because utility deregulation in certain U.S. jurisdictions has been significant in its scope and depth. As a result, there is more evidence of market segmentation and growth of reconnection services targeting vulnerable consumers. The report examines some of the regulatory responses to telephone reconnection services and the impact of market segmentation in the energy sector creating the phenomenon of Providers of Last Resort Services.
With this background, the report offers some initial assessment of the overall impact of utility restructuring on vulnerable consumers in Canada and the U.S. Utility price increases have a greater impact on vulnerable consumers because a greater proportion of their income is spent on utilities.
The report assesses how the U.S. experience of deregulation may relevant for Canada. It suggests that there may be a significant impact of Canada’s increasing exports into U.S. energy markets. There may be strong pressure on Canada to conform to the U.S. deregulatory environment. The examination of the effect of utility deregulation in the U.S. also points up very clearly the information deficit in this area in Canada. We have very few government and non-governmental resources dedicated to tracking deregulation and its impact in Canada.
Finally, the report focuses on Canada’s existing legal/legislative framework to protect vulnerable consumers. It looks briefly at the federal regulatory role in telecommunications and in energy and the provincial role, using Ontario as an example. It also looks at consumer protection legislation in Ontario and its applicability and the status of the common law notion of ‘duty to serve’ under deregulation. The report makes some specific recommendations concerning measures to assess status of restructuring, to address effects of restructuring on vulnerable consumers, and recommendations concerning utility reconnection services in the telephone and energy sectors.