It is not uncommon to hear someone complain about government inefficiency and wonder why it can’t be run like a private business. There are a lot of ways to approach that statement (including agreement) but in one key respect it misses the point. Governments are often inefficient not because they are not private but because they are monopolies. They are not subject to competition. There are no shortage of cases of private businesses being inefficient, and abusive of their customers, when they have a monopoly.
In The Wealth of Nations, Adam Smith argues that there is a very important role for governments to play and that is to prevent monopoly situations from occurring and promoting competition. Unfortunately, I think that is a role that the governments of today often forget.
Electricity distribution and transmission companies are natural monopolies. There is currently no way around that. Electricity generation can be competitive. In fact, when the Ontario electricity industry was restructured back in 2000, the goal was to create a competitive market for generation. Unfortunately, the government at the time caved the first time there was a crisis and the opportunity was lost. There is very little competition left in electricity generation in Ontario.
Without competition, there are other steps a government can take to try to replicate some of the benefits of competition. These include regulation, price setting and benchmarking. These are not a substitute for competition, but they are the next best thing when there is no competition. Within this context, I believe there are opportunities the Government of Ontario has missed to at least promote some of the virtues of competition and provide better service with lower rates for Ontario electricity consumers.
I will examine these in the Ontario electricity distribution, transmission and generation sectors.
Distribution
Local distribution companies (LDCs) in Ontario are highly regulated by the Ontario Energy Board (OEB) right down to such things as what goes on the bill, when a customer can be disconnected and how an LDC sets up new customers. All these regulations are generally designed to prevent abuses of power and promote efficiencies. Whether these regulations have gone too far and created larger inefficiencies is another discussion.
Likewise, any rates the LDCs charge their customers must be approved by the OEB after a hearing. Again, this is to prevent abuse and encourage efficiencies. The OEB runs a transparent process in setting these rates and the public can participate in the process.
Finally, the OEB has established various benchmarks that it measures and publishes. Most of these are rather useless. They are either too granular to have any statistical meaning, are too generic when compared across the vastly different types and sizes of LDCs or do not capture the actual activities of LDCs. What the OEB does publish which is much more useful is an annual yearbook of financial and statistical data across all LDCs. This allows the individual LDCs to compare themselves against their peers. This makes for more useful benchmarking that can then lead to corrective action.
As an aside, this yearbook used to be published in a format easy for any user to access. Unfortunately, the OEB stopped preparing the yearbook when they made the raw data available. Making the raw data available was an excellent step for transparency and for more sophisticated users. It does not help an average user. The fact that one of the LDC industry associations now recreates this yearbook for its members shows that there is a demand for it.
There is some very limited competition in the sense that customers with operations across different LDC territories can compare their costs and experiences. This is not real competition, but it does provide some limited potential for customers to make decisions based on LDC services and it provides another avenue for feedback.
More importantly, having over 50 LDCs means that there is scope for experimentation in how the LDCs operate and what services they provide their customers beyond the basics. The diversity of LDCs means they can try different things and learn from each other.
Transmission
Ontario transmitters are also regulated and have their rates set by a hearing process. The regulations are not as extensive as transmitters are largely not public facing. Where transmitters differ from distributors is that there is really only one. Hydro One owns around 90% of the transmission assets. The remaining 10% is split among many other transmitters. This means that there is no possibility to benchmark against any other Ontario based transmitter, it is not possible for customers to compare services and there are no opportunities for learning from experimentation beyond within Hydro One.
There used to be a second transmitter of some size, Great Lakes Power, but Hydro One was allowed to purchase their assets. I believe this was a mistake. The Government of Ontario could have used the sale by Great Lakes Power to try develop a second large transmitter. Likewise, when I look at the IESO’s 2026 Annual Planning Outlook, it is full of planned new transmission lines. All are being built by Hydro One. Again, I think that is a mistake. The new push, and need, to expand the transmission capacity is an opportunity to develop a second provincial transmitter. It would take time but it would give transmission customers at least a benchmark even if it is still not real competition. The proposed competitive process for the underwater transmission line to Toronto is a good first step in this regard. More could be done.
Generation
There are four separate types of generation in Ontario that can be looked at separately in this competitive context.
Nuclear energy is the largest source of electricity in Ontario and the Government of Ontario has determined that nuclear energy will be the source of most future supply growth. Nuclear energy’s high capital costs, extreme safety requirements and highly specialized skills means there can be only a few suppliers. In Ontario, both Bruce Power and Ontario Power Generation (OPG) manage nuclear generation and both have been tasked with growing the supply. I support having two separate providers so they can be benchmarked and there is always an alternative.
Hydro generation is the next largest source of electricity. It is the lowest cost source of electricity. It is dominated by OPG. There are concerns with cost management at OPG as rates for hydro power seems to be rising faster than they should. Having said that, there is a strong public sentiment that the hydro assets in Ontario should remain in public ownership. There are, I believe, some small steps that can be taken to improve performance. The hydro generation assets could be owned by a separate publicly owned company and not OPG. This company would therefore be entirely focused on hydro generation with the matching skill set. I believe this focus would offset any small loses of economies of scale from being part of OPG. The IESO should also continue to offer hydro generation contract opportunities to companies other than OPG as I believe they do through their competitive tenders. Finally, and speaking from experience, some of the regulatory requirements around implementing new hydro power could be eased to reduce the substantial up-front costs.
Carbon-based (gas) energy is the third largest source of electricity. This supply source is needed to manage the fluctuations in demand that base loads (nuclear, hydro) and intermittent sources of energy (renewals) cannot. There are still a number of different gas generators in the Province though this number was reduced when OPG was allowed to purchase several of the larger gas generation facilities. I believe this was a mistake as a further concentration of generation in OPG was not beneficial. This goes back to my early point about governments not understanding and promoting the benefits of competition.
Finally, renewables such as wind and solar are widely owned. There is no competitive market in the sense that this generation still relies on fixed price contracts. However, the steps the IESO has taken to make the pricing and awarding of these contracts a competitive process is a good one.