Paul Vieira
National Post
June 20, 2003

The federal government will commission a study of Ontario’s $10-billion electricity market to determine what impact the province’s cap on power prices might have on complying with environment treaties – such as a Canada-U.S. clean air accord and the Kyoto Protocol.

Environment Canada is seeking bids by parties to take on the study, which will determine the future electricity mix in Ontario and the costs the power sector faces in dealing with environmental regulations.

“The electricity sector in Ontario has undergone and is still undergoing major changes due to numerous environmental commitments, new regulations, and federal and provincial policy decisions,” the department said in a tender outlining the assignment.

The study was prompted by two major events last fall: the ratification of the Kyoto Accord and the controversial decision by Ernie Eves, the Ontario Premier, to cap the price households pay for electricity after much furor over hydro bills following deregulation.

“Environment Canada wants to understand the influence of these events on the future electricity mix in Ontario,” the tender said, adding it also wanted to determine the economic impact on power generators – such as direct costs to industry and competitiveness – if the affected companies decide to meet regulations without using emission credits.

The study is to be submitted by June 30 and will pay the author $68,000.

Tom Adams, executive director of Energy Probe, a power industry watchdog, said the federal government has good reason to examine Ontario.

“The feds are scratching their heads about what’s going on in Ontario. It’s very close to the way a lot of people involved in Ontario are reacting – they are doing the same head-scratching exercise. There’s so much uncertainty that really nobody knows what’s going to happen.”

The Liberal government passed the Kyoto accord late last year. Under the treaty, Canada must reduce its greenhouse-gas emissions – caused by the burning of fossil fuels, such as coal – to a level 6% below those produced in 1990. In practical terms, that means Canada must reduce emissions by nearly one-third by 2012.

Also in play is a 1991 Canada-U.S. air quality pact that calls on power plants in Ontario, Quebec and the Atlantic provinces to reduce their emissions by 44%.

About one-quarter of Ontario’s power supply comes from fossil fuel-burning coal plants. Other provinces that depend on fossil fuel-burning plants to supply power include Nova Scotia (66% of the province’s power supply), New Brunswick (61%), Saskatchewan (69%) and Alberta (78%).

John Hamm, Nova Scotia’s Premier, has warned Kyoto could mean the province would be forced to rebuild its electricity system without coal – and the cost would fall on local residents and power consumers.

Meanwhile, Saskatchewan’s Crown power producer, SaskPower, says it may have to spend up to $3-billion to replace its fleet of ageing coal-fired generating stations to meet Kyoto standards.

But the Ontario situation is muddled by a number of factors: promises from the governing Conservatives and the Liberals to phase out coal plants in the province; the opening of the province’s wholesale electricity market; and the price cap, which freezes the price of power at 4.3¢ a kilowatt hour until at least 2006.

The opening of the electricity market last May was an attempt to attract private-sector utilities to the province to build new plants. If new generation facilities were built, perhaps the fossil fuel operations could be phased out.

However, a series of issues has caused investors to think twice about Ontario. Namely, the near-monopoly status of Ontario Power Generation Inc.; the fate of laid-up nuclear reactors; and government meddling in the liberalized electricity market, from killing the planned privatization of Hydro One Inc. to capping the price consumers pay for electricity.

“The general point here is coal is a very large fraction of Ontario’s overall power supply,” Mr. Adams said. “That supply will be very difficult to replace in the current environment. Not just difficult but uncertain as to how and when and if it can be replaced in the current environment.

“What is the emission lookout for next year, that’s uncertain enough. But if you look out beyond next year, God only knows, because there is no solid way of forecasting what that emission is going to.”