Karen Howlett
Globe and Mail
November 12, 2005

The province wants Ontario Power Generation to operate as a commercial enterprise, but a new agreement reveals that the electricity utility is on a short leash, requiring it to shape strategic decisions according to government policy.

Everything from the prices the government-owned utility charges for electricity to its expansion plans is already controlled by Queen’s Park rather than OPG’s board of directors.

The agreement tightens the government’s hold over OPG even further by setting out a formal process for the Ministry of Energy to intervene in the utility’s affairs.

The agreement between OPG and the government stipulates that the utility has a mandate to operate much like a private-sector company. Under its terms, the government also can issue a "shareholder directive" to OPG when it wants the company to pursue a project "that it would not normally undertake," OPG chief executive officer Jim Hankinson said yesterday.

The government has exercised this authority twice since the agreement was signed on Aug. 17, Mr. Hankinson said in a conference call to discuss OPG’s third-quarter financial results.

Tom Adams, executive director of Energy Probe, an energy watchdog, said the agreement is simply a way of spotlighting that the political leadership in Premier Dalton McGuinty’s government makes all key decisions.

"The CEO of OPG is Dalton McGuinty and the board of directors is the cabinet," Mr. Adams said.

Opposition leaders also said OPG is a political tool of the government. It’s little more than a "charade" for the utility to have its own board of directors if the government is making the key decisions, Progressive Conservative Leader John Tory said.

Jamie Rilett, a spokesman for Energy Minister Donna Cansfield, countered that the public has the opportunity to find out how the government directs OPG in an open and transparent manner because the agreement is posted on both the OPG’s and ministry’s websites.

"Sometimes we make decisions that aren’t always about the bottom line," he said.

The first time the government issued a directive was Oct. 6, when it told OPG to convert its coal-fired generating station in Thunder Bay to a natural-gas plant by the end of 2007.

The utility would not have done this on its own, Mr. Hankinson said. Rather, he said, it reflects Mr. McGuinty’s plan to shut down the province’s coal-fired generating plants by 2009 and replace them with other energy sources.

A week later, the OPG board received its second directive when the government struck a deal with Bruce Power to refurbish mothballed nuclear reactors at a generating station on Lake Huron. The reactors are owned by OPG and operated by Bruce Power, a private consortium, under a long-term lease.

This time, the government informed OPG that it was slashing the lease payments that Bruce Power makes to the utility on the refurbished reactors to $5.5-million a year from $25.5-million.

Mr. Hankinson said OPG could have sought compensation for the lower lease, but that the utility will not be "out of pocket" because it will still receive enough money to cover the used fuel disposal costs.

In each instance, the government agreed to indemnify OPG’s 11 board members from any lawsuits that might arise from the decisions.

The arrangement makes it difficult for directors to make long-range plans, Mr. Tory said.

"On any given day, you’re either coping with a government decision already made or wondering if there’s one coming tomorrow."

New Democrat Leader Howard Hampton said the government is using OPG as a political tool by having it subsidize Bruce Power through the lower lease payments and act as a buffer against high electricity prices.

Electricity prices averaged 8.6 cents a kilowatt hour in the three-month period that ended Sept. 30. OPG received an average price of 5.4 cents during that period. But under a revenue cap set by the government, it gets to keep only 4.7 cents for most of its electricity output.

OPG’s profit climbed to $181-million in the third quarter from a loss of $15-million in the same period a year ago, thanks to higher prices and production.

"This does not mean OPG is getting a windfall from rising electricity prices," Mr. Hankinson said.