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Electricity: learning from the shocks - Globe and Mail

July 15 2004, updated March 12 2009,
Jamie Swift and Keith Stewart
Globe and Mail

They have become predictable spectacles, these ritual parades of men in fine suits and handcuffs. The "perp walks" are staged every time an accused corporate criminal is indicted for fraud, conspiracy, embezzlement or some other form of malfeasance.

Last week saw former Enron chief executive officer Kenneth Lay being led through Houston's stifling heat into a courtroom amid much head-shaking about greed. Mere mention of Mr. Lay's company elicits knowing nods, for the Enron brand has -- for good reason -- become synonymous with seemingly pervasive business swindles. The spectacle seems to promise justice and a crackdown on what is delicately called "white collar" crime.

But if Canadians want to avoid having their lights go out on hot summer days, we would do well to take a hard look beyond the spectacle and focus on the new energy rules that Enron helped write south of the border. It would also be a good idea to think about a regulated power system based on long-term planning instead of entrusting our electricity future to the whims of the market.

The deregulated free-market regime created exciting opportunities for enormous profits to be made from the manipulation of markets for essential utility services such as electricity. And they are coming to Canada, as the U.S. Federal Energy Regulatory Commission continues to push Canadian utilities to deregulate in order to gain access to the U.S. market.

It is worth remembering that Enron wasn't simply filled with liars and thieves (although it was that, too). Enron went from being a medium-sized natural-gas company in the early 1990s to the seventh largest company in the United States by 2000 on the strength of being the leading U.S. energy broker. It began selling electricity as well as natural gas in 1994 and, by 1997, it was the largest electricity trader in the country.

The self-described "world's greatest company" designed and implemented a system in which liars and thieves could make a killing. In the process, it spent millions on lobbyists, ad firms and political donations. Enron and other marketeers also set up phony front groups with populist-sounding names such as "Americans for Affordable Energy."

In December of 2000, Enron made a staggering $440-million (U.S.) in trading profits from California -- the same month that the state was declaring Stage 3 power alerts and bracing for rolling blackouts because energy sellers were withholding supply to force up prices.

And they were praised for it. Fortune magazine named Enron "America's most innovative company" for five years running, from 1996 until 2001. That is, until its "innovative" accounting practices made Enron the largest bankruptcy in U.S. history and brought its accountants down with it.

The Enron ideology, meanwhile, came to Canada. Unlike most of the country, Alberta never had a provincially owned power utility and was much closer to the U.S. model of privately owned but publicly regulated utilities. Ralph Klein's Tories were the first to go down the Enron-style deregulation road. They are still paying for it. Prices jumped. But Alberta, awash in petroleum revenue, could write large cheques to defray rising electricity costs.

In Ontario, Enron not only inspired the marketeers, it even helped to write the Mike Harris government's electricity legislation. And along with industrial power consumers, pro-privatization academics, Energy Probers and other privatization zealots, the provincial Tories put an Enron man on its market design committee to work out the fine print.

In hindsight (against the background of the biggest political train wreck in recent Ontario history), it is easy to smile with self-satisfaction at Enron's Canadian vice-president for telling an Ontario legislative committee how the company's market design would "make sure that consumers benefit and are protected from less than credible providers in the marketplace."

Yet, at the time, Enron and its advice were taken very seriously.

The province is still living with the legacy of years of laissez-faire thinking about its electricity future. Before that, Canada's biggest power grid was run by a utility committed to a bizarre form of nuclear gigantism that drove the old Ontario Hydro so deeply into debt that it was easy political prey for the privatizers.

As the weather heats up, maybe those sinkholes for capital that are Candu reactors will provide the power to keep the lights on and the air conditioners humming. That is, if we fork over billions more to patch them up.

Contrary to popular belief, Ontario's wholesale electricity market is not closed. Its effects are simply disguised for most consumers by a price cap and cheap hydroelectric generators. It looks like the new power supply will come from private producers as filthy coal stations close and the creaky Candus wind down, leaving behind their thousands of tonnes of deadly radioactive waste.

Ontario faces a stark choice. It can take the soft energy path of renewable power and conservation. Or it can repeat the nuclear errors of the 1970s and compound them with the shrill, let-the-market-decide mantra of the 1990s.

Just before Ken Lay took his perp walk, the Ontario government, spooked by the prospect of summertime blackouts, decided to spend $900-million on a mothballed nuclear reactor at Pickering. Meanwhile, having asked for proposals for 300 megawatts of green power, it got offers for 4,400 megawatts from windmills and small hydro dams. More than the entire Pickering station could produce if it actually worked. More than its Nanticoke coal plant -- the largest source of air pollution in the country -- generates on the hottest day of the summer.

Kingston writer Jamie Swift and Toronto Environmental Alliance campaigner Keith Stewart are the authors of Hydro: The Decline and Fall of Ontario's Electric Empire 

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