In this article:
- How Ontario’s hybrid energy market operates.
- The history and restructuring of Ontario Hydro.
- What changed with the introduction of competition in 2002 and the Regulated Price Plan (RPP) in 2005.
- How electricity pricing works today.
- The evolution of natural gas deregulation in Ontario.
- The role of the Ontario Energy Board in regulating energy delivery and overseeing the market.
Ontario’s energy market is not completely run by the government, nor is it a fully open market. Instead, it operates as a hybrid system, where the Ontario government remains involved in oversight and regulation, while competitive companies are allowed to sell energy to consumers. Although this structure provides choice, the majority of Ontario residents and businesses continue to receive energy through their local utility under regulated or default pricing plans.
Regulated Electricity in Ontario
For much of the last century, Ontario Hydro (now restructured into multiple entities, including Hydro One and Ontario Power Generation) was responsible for generating and supplying electricity across most of the province. During this time, electricity rates were fully regulated.
Beginning in the 1970s, rising costs associated with maintaining aging infrastructure, building new generation facilities, and subsidizing electricity prices led to significant financial challenges. To address this, the Energy Competition Act was passed in 1998, initiating the restructuring of Ontario’s electricity market and allowing private sector participation.
As part of this restructuring, Ontario Hydro’s functions were separated among several organizations, including Hydro One (transmission), Ontario Power Generation (generation), the Independent Electricity System Operator (grid operation), and the Ontario Electricity Financial Corporation (debt management), alongside other regulatory bodies responsible for system oversight and safety.
In 2002, the electricity market was opened to competition, allowing consumers to purchase electricity from retail providers. Following price volatility that same year, the government introduced measures to stabilize rates, leading to the creation of the Regulated Price Plan (RPP) in 2005. Today, the RPP includes multiple pricing options, such as time-of-use, tiered, and ultra-low overnight pricing.
Consumers continue to have access to both regulated and competitive electricity options, while transmission and distribution remain regulated. This structure enables a range of plans, including fixed-rate and renewable energy offerings, while maintaining system reliability.
Regulated Natural Gas in Ontario
Prior to 1985, the federal government regulated the pricing and distribution of natural gas in Canada. At the time, regulation was intended to ensure stable supply and energy security. During this period, TransCanada Pipelines (now TC Energy) operated as the primary interprovincial pipeline operator, limiting pricing flexibility for local distributors.
In 1985, agreements between the federal government and major gas-producing provinces led to the deregulation of the natural gas commodity market. This allowed gas prices to be determined by market forces and opened the market to competition. By 1992, consumers were able to purchase natural gas from retail suppliers rather than exclusively from their local utility.
Today, while the natural gas commodity market is competitive, transmission, distribution, and storage remain regulated by the Ontario Energy Board. The OEB sets delivery rates and oversees the system, while the cost of natural gas itself is typically passed through to consumers based on market prices, with periodic adjustments to reflect differences between forecasted and actual costs.
Electricity and natural gas deregulation in Ontario
The Ontario energy market is deregulated for both natural gas and electricity. In 1998, the Energy Competition Act was passed by Ontario to restructure the electricity market so that consumers would have a better choice in choosing a retailer for their energy needs.
More specifically, the electricity market was deregulated in 2002 initially, and once again in 2005 following a pause in order to keep price plans stable for consumers via a regulated price plan. While consumers can choose what retailer to buy their electricity from, the transmission of electricity is still regulated.
As for natural gas, the natural gas market has been deregulated in Ontario since 1985. The Ontario deregulated energy market allows consumers to be able to shop around for the best electricity and natural gas rates, since natural gas and electricity prices are decided by the retailers themselves. However, consumers are able to still obtain energy from their local utility if they prefer not to make a choice.
Sites like EnergyRates.ca can help you compare rates between Ontario utility companies, as well as learn more about the history of electricity and natural gas deregulation in Ontario.
Key takeaways:
- Ontario’s energy market is a hybrid system combining regulations with competitive retail options.
- The restructuring of Ontario Hydro led to the creation of separate entities for generation, transmission, and system operation.
- The Regulated Price Plan (RPP) provides regulated pricing options alongside competitive alternatives.
- While delivery and infrastructure of natural gas are regulated, the prices are market-based.
