Tuesday, October 12, 2010

The Oakville Power Plant & The Useless OPA

As stated in the “Who We Are” section of the IESO website (Independent Electricity System Operator), this government bureaucracy just “balances the supply and demand for electricity in Ontario.” Apparently the market of voluntary exchange (also known as the “free” market) isn't sufficient enough to supply Ontarians with an adequate supply of electricity as at reasonable cost.

There are a lot of bureaucracies when it comes to Ontario electricity, but for this particular story we'll single out the OPA, short for the Ontario Power Authority. The OPA formed in 2004 under the Dalton McGuinity government. Apparently Ontario needed a provincial wide energy plan and Dalton and his band of cronies were the people to do it. Afterall, with a running deficit of $6.2 billion and a total debt of $142.4 billion (CBC, 2004) it seemed pretty clear that what was needed was more government spending.

The OPA was formed as a way of leading Ontario's electricity industry into the 21st century. Now don't let the term industry fool you, there was and still is no competition in the Ontario's electricity field. There are about 250 generators in Ontario, owned by companies like Bruce Power or Huron Wind, but they are all in one or way or another connected to major corporations like Cameco or TransCanada. In order to do electric generating in Ontario, one has to go through government entities like HydroOne, the IESO and the OPA. With so many bureaucratic walls to conquer, it's a wonder no small time entrepreneur has successfully ran his own generator company (perhaps completely altering the generator and revolutionizing the market with even cheaper electricity). Instead our government has made it possible so only a few corporations get the necessary contracts.

So the OPA, using their far-wide reaching God-like knowledge about Ontario's energy demands and their perfect market calculation information, decided that Oakville would be the ideal spot to build a $1.2 billion gas-fired power plant. This plant was desperately needed, according to the OPA, because of high electricity usage by the GTA and the closing of coal-fired stations in the area.

It's worth noting that nothing was broken or wrong with the coal powered plants. They were just seen as unclean and contributed C02 to the atmosphere. So government decision-makers, wanting to look 'green' for their constituents, shut these productive power plants down and not only created unemployment but cut into the supply of a much demanded commodity. So a new power plant was needed. Burning fossil fuels was seen as cleaner than coal, so Oakville was chosen to represent the new power plant.

Now the Oakville residents didn't want the gas-fired power plant in their community and McGuinity originally said he wasn't going to accept no as an answer. Since his election, McGuinity as gone crazy for the “green”, talking about making Ontario the number one in “green” this and “green” that by 2020 or some other arbitrary date. The Mississauga coal-power plant that he shut down produced 1,140 megawatts, whereas this new Oakville station would have only generated 900 watts. That's a 240 megawatt discrepancy in a time when Ontario's electricity demand is supposed to increase significantly in the coming years. So obviously he couldn't back down on this power plant plan.

Oakville residents used everything in their power to avoid having a power-plant built in their backyard. They even paid Erin Brockovich to come read off a script and intimidate the OPA and Dalton McGuinity. And it worked. Through local media, activism and, of course, Erin Brockovich, the Oakville residents won and the plant won't be built in their 'backyards'.

Colin Andersen, the OPA's CEO had written to newspapers about how the GTA needed this power plant in that location. He was so sure the thing would be built (Brockovich or no Brockovich) that the OPA awarded its Oakville contract to the TransCanada Corporation. Once again highlighting how the bureaucratic OPA picked one of the standard generator corporations. Unfortunately for Mr. Andersen the decision not to build in Oakville was made after September 2009 when the contract with TransCanada Corp was already signed. So now TransCanada Corp is getting ready to sue, and the compensation could be in the millions. But no dirt off the OPA's back, nor McGuinity's, who will inevitably pass the expenses onto consumers, that is, the taxpayers.

Either way it's pretty obvious what happened here: political repercussions (the Oakville riding is held by a Liberal MPP) and the OPA didn't have enough market information to make an informed decision as to where to build the plant. One is a story of why politics and business don't mix, the other deals with a very serious economic problem. Electricity, like food or computers or other consumer goods is a commodity, that is to say it's a consumer product. A good, a service, whatever you want to call it. It may seem like a necessity these days, and for some of us it is, but like any other consumer product electricity is best delivered by private capital and voluntary exchange. Does it make a lot of sense for the government to monopolize it and then hand out private contracting to special interests? This product would better be served by dozens of companies, all competing with each other to meet your demands. And anyone who argues that the government needs to cap the price so all can afford it, obviously haven't done their research about the unintended effects of government price fixing. Needless to say, the market will provide.

So our story seems to have been wrapped up rather nicely. Except for one major problem: where will the OPA build this new plant? King township seems like a nice little spot. Right next to a school and right on a flood plane, the power will make its way to the GTA without a hitch. And I mean power in more than one way. King Township is in the same riding as Markham, and the heavily populated Markham area will decide who represents their riding. So the 19,000 residents of King Township can complain all they want, a gas-fired power plant is going to be built there.

And clearly economic factors can't be taken into consideration when discussing environmental challenges like building a new fossil-fuel plant to replace an old coal plant. This province needed the creation of a million dollar bureaucracy (the OPA), the central planning schemes that led to the idea of an Oakville power plant, the informed decision to award the contract to big business, only to break the contract a year later and the decision not to built the power plant in Oakville but instead a smaller Ontario community without the political strength to counteract the OPA and the McGuinity government. Meanwhile while this whole ordeal went on, OPA employees were paid high public service wages (with the promise of pensions in the future, no doubt), millions of Ontarians saw their electricity bills increase as no work was done at the Oakville sight long after the Mississauga coal plant was shut down. And now millions will have to be paid to TransCanada Corporation via taxes because the McGuinity government backed out of a legal contract for political reasons.

Clearly this is something the free market could never duplicate.

1 comment:

  1. steve/freesteader.comJanuary 17, 2011 at 12:52 AM

    A prime example of the calculation problem at play. I'm hoping that future innovations in alternate energy. Not the public utility favourites solar, and wind. I mean inventions that manipulate the hydrogen atom, spark low-temperature, radiation-free nuclear reactions, and capture useful power from the energy fields that surround us, all the entrepreneurs and visionaries within the private sector labs and workshops will eventually break the stranglehold of the fedgov monopoly. I know, i know odds are fedgov will regulate these industries to death if they have their way. Still I remain fingers crossed.

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