Executive Summary

This report is an assessment of the potential for efficient operations of the restructured wholesale electricity markets in Ontario. We analyze the market rules outlined by the Market Design Committee and further developed by the Independent Market Operator (IMO) Technical Panel, and also discuss the provisions of the Market Power Mitigation Agreement embodied within the licenses issued by the Ontario Energy Board (OEB) to Ontario Power Generation (OPG) and other market participants. We believe that the market rules contain many well-conceived provisions consistent with the efficient operations of an integrated grid for electrical service; however, the rules fall short in several key aspects. In addition, as presently structured, the Market Power Mitigation Agreement is likely to fail in promoting a competitive market. We recommend the inclusion of a few essential market elements and a more aggressive mitigation of OPG’s dominant position. The restructuring of Ontario’s power industry is following a unique path. The transition to a competitive industry structure will not occur until after a competitive market framework is put in place. All of Ontario Hydro’s generating capacity was transferred to OPG, which remains at arms-length from its sole shareholder, the provincial government of Ontario. The fear that lo