Thursday, 12 April 2012


By: Jamie Haggart & Erin Neipage

Toronto Hydro as a Monopoly Power


Introduction:
·         Toronto Hydro is a government-run company that generates electricity through resources such as coal, nuclear power, hydroelectric energy, natural gas and alternatives sources such as renewables.

·         They provide their services to approximately 700,000 residential, commercial and industrial customers. This represents 19% of electricity consumers in the province of Ontario.

·         Toronto Hydro serves customers that are located in the City of Toronto whereas Hydro One is provincial wide.

·         It was established in 1879 and has since been in monopoly power.

·         They are the second largest municipal electricity distribution centre in North America.  They are the largest in Canada.


Economies of Scale:
Toronto Hydro has a lower long-run average total cost because of:
Labour Specialization:    Toronto Hydro hires many different types of workers such as:
·         skilled tradespeople
·         design technicians
·         engineers
·         leadership roles
Employees of Toronto Hydro have rated their workplace to be exceptional. McLean’s Magazine places Toronto Hydro in top 100 employers.





Managerial Specialization:

Toronto Hydro has an elite board of directors. They have people such as:

·         Clare R. Copeland     à Current CEO of Falls Management Company

·         Patricia Callon          à Former Advisor of Ontario Securities Connection

·         Paulette Kennedy    à Audit Committee of The University of Toronto




Efficient Capital:

Toronto Hydro has:
·         Total capital expenditures for 2012 are 402.4 million dollars. This is a combination of a nuclear power plant (located in Pickering) and head office (located in downtown Toronto). They also have service trucks to repair broken lines and Honda Civic cars for management.

·         Toronto Hydro has access to resources including: coal, hydroelectric energy, natural gas and alternatives sources such as renewables. Not only does Toronto Hydro have the ability to purchase and distribute these goods, they can also store them in an environmentally friendly fashion. 
                                                    






Barriers to Entry:

·         Ontario Energy Board à In order to enter the market, one has to become a member of the Ontario Energy Board (OEB). They regulate the energy all across Ontario.

·         Government Support à In order to enter the market, one has to earn government support. There are environmental concerns and sustainability. Government also subsidises and controls Toronto Hydro (and there are Toronto City Counsellors on the Board of Directors).  There is blocked entry because of government involvement (i.e. nuclear power).

·         Trust of Torontonians  à Toronto Hydro has been in business since 1879, and Torontonians are very content with the idea of Toronto Hydro controlling their electricity.



·         Infrastructure              à It was cheaper to buy property and land when Toronto Hydro first opened for business. If a new competitor entered the market, they would have to pay current market prices, which are expensive.  


Control of Resources:
·         Toronto Hydro is the largest municipal electricity distribution company in Canada. It is the second largest municipal power distributors in North America.

·         Distributes approximately 19% of electricity consumed in Ontario.

·         Toronto Hydro deals with hazardous and environmentally damaging materials.

·         It is a highly regulated industry, which dictates how one can purchase, distribute and dispose of these materials.



Pricing Strategies:
·         Toronto Hydro is a price maker; however they have to follow the regulations of the Ontario Energy Board (O.E.B).

·         The O.E.B controls Ontario’s electricity and natural gas sectors.



Beside are the current Toronto Hydro Prices:  à à                         7.1 cents kWh/first 1,000 kWhs
8.3 cents kWh/ remaining kWhs


·         Electricity and natural gas is a necessity, so therefore it is an inelastic good.

·         Therefore, it Toronto Hydro raises its rates, then total revenue will increase. This is why the O.E.B regulates this monopoly.


How Toronto Hydro Gained its Monopoly Power/Maintain It:

·         It was established in 1879 and has since been in monopoly power in the city of Toronto.

·         From 1879-2002, Toronto Hydro had a complete monopoly in providing electric and natural gas to Torontonians.  Then in 2002, the government started to deregulate the industry.  

·          It is the most well know, and largest distributor of power.

·         It is a government-run organization, so it has the support of the government.

·         It is a very large company, with lots of capital. It has hundreds of millions of customers as well as many different employees such as engineers and technicians.

·         It is a different market to enter, because there are many regulations. For example, in order to be a registered company in this business, one has to become registered with the Ontario Energy Board.


Media:

YouTube clips:

Photos:

Many technicians working laying underground cables

Toronto Hydro logo





Technician fixing broken wires 








Bibliography:

McConnell, Bruce. Economics . New York: McGraw Hill, 2009.

 "Ontario Energy Board Home." Ontario Energy Board. N.p., 12/04/2012. Web. 12 Apr 2012. http://www.ontarioenergyboard.ca/OEB/

 "Power Up." YouTube. N.p., 17/11/2011. Web. 12 Apr 2012. http://www.youtube.com/watch?v=rBb8p5tF09U.

"Toronto Hydro Home Page." Toronto Hydro. N.p., 12/04/2012. Web. 12 Apr 2012. http://www.torontohydro.com/sites/electricsystem/Pages/hometorontohydro.asp&xgt

"Toronto Hydro's Smart Experience." YouTube. Toronto Hydro, 22/12/2010. Web. 12 Apr 2012. http://www.youtube.com/watch?v=Pv7wogBM-1A.

"Universal Energy/Power Hydro Reseller Scam Part 1 Hydro." YouTube. CBC, 12/2007. Web. 12 Apr 2012. http://www.youtube.com/watch?v=dVmnHSLZMGg







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