Ontario electricity consumers will get their power at the frozen rate of 4.3 cents a kilowatt hour, and can look for rebates of up to $100 on average under a major policy reversal announced yesterday by Premier Ernie Eves.
The new scheme could end up costing billions of dollars, critics warned. However, Mr. Eves insisted the costs will be minimal.
After 6½ months of staunchly defending the attempt to deregulate the industry, Mr. Eves said his government will bow to public opinion and end the experiment of allowing competition to set the price of electricity.
His decision came after a public outcry threatened to destroy his government.
"It is unacceptable that families are being hit with hydro bills they can't afford and businesses are facing cost increases significantly larger than they can handle," said Mr. Eves during a heavily choreographed announcement at a private home in Mississauga.
"From now on the only time your electricity bill will go up is when you use more power."
Mr. Eves set out a plan to freeze the basic electricity rate at 4.3 cents, and repay consumers and small businesses for the excesses they have paid since May 1.
The price freeze is effective Dec. 1 and is to last until 2006.
Critics warned that ending deregulation eventually will cost taxpayers billions of dollars and increase the probability of brownouts and blackouts.
"The risk of blackouts was serious before today. After today there is a very high likelihood," said Tom Adams of the electricity watchdog agency Energy Probe.
The rate of 4.3 cents a kilowatt hour was the price at which electricity charges were frozen in 1994 by the New Democratic Party government. They remained at that level until May 1.
Mr. Eves said there will be no cost to consumers or taxpayers to put the price freeze and rebates in place, because Ontario Power Generation, the government's electricity-generation company, makes money on generating power in the range of two cents to three cents a kilowatt hour from water and nuclear sources.
This profit can cover the cost of paying for power generated at a cost of five cents, six cents or seven cents, he said.
However, critics warned that 4.3 cents is far below the cost of producing and importing much of the electricity used in Ontario.
Since the market was opened, the wholesale price for electricity, adjusted to take into account the times of heavy use, has been about 5.6 cents, and it spiked several times. In the first week in September, the price averaged 10.9 cents a kilowatt hour.
Mr. Eves's announcement echoes Alberta's experience two years ago, when soaring electricity prices in a deregulated market forced political action.
Premier Ralph Klein provided rebates totalling $300 to every taxpayer, along with other benefits to quell a public outcry against the problems in the industry.
In California, a shortage of electricity pushed up prices to the point where the state had to reregulate its deregulated market.
Stakeholders in the electricity industry, who received a special briefing on the policy reversal from the Premier's office, said later that they could not obtain answers to their questions on where the money will come from to pay for the price freeze and the rebates. Nor could they obtain answers about how the government will encourage new investment in electricity-generation plants needed in Ontario.
Judith Andrew, Ontario vice-president of the Canadian Federation of Independent Business, said: "There was discussion today about how [the new system]was supposed to be self-financing. But the real question is how that will happen. . . . We had a long period of price freezes . . . and that's when the debt was built up." When Ontario Hydro was broken up four years ago, it had a debt of $38-billion.
Len Crispino, president of the Ontario Chamber of Commerce, said: "We did not get adequate answers to our questions today with respect to who pays for this. It's supposed to be revenue neutral, but we have our doubts."
Energy Minister John Baird is to hold news conferences today and tomorrow to elaborate on Mr. Eves's announcement, while the Premier takes what his office described as "private time with his family." The legislature is not sitting this week.
About one million of the four million consumers in the province who have contracted to buy electricity at fixed rates, usually 5.5 cents or more, will pay the 4.3-cent rate and be entitled to rebates similar to those that will go to those without fixed-price contracts.
The first instalments of the rebates, set at $75, will be sent before the end of the year, Mr. Eves said.
The balance of the rebates will be applied to future bills. Most of the money will come from Ontario Power Generation, which has a $700-million rebate fund.
The changes announced by Mr. Eves put an end to the attempt to establish private companies to sell power to homes and small businesses on fixed-price contracts, Mr. Adams said. He predicted that it will cost the government up to $1.5-billion to buy out companies in the business of selling electricity on a retail basis through fixed-price contracts.
Mr. Eves had other announcements, including plans to look at other charges on electricity bills to see whether they should stay. An easy-to-read bill is to be designed.
Further, the government will make changes at Ontario Power Generation to make it more concerned with the interests of consumers. And the government will set up an investigation into why the four nuclear generators at the Pickering A station are out of service more than five years after they were shut down for repairs.