Tom Adams

April 30, 2003

Ontario Electricity Financial Corporation, the Crown’s legal successor to the former Ontario Hydro, yesterday released its plan to give Ontario a little more margin to avert potential rolling blackouts. The plan is to contract for 200-400 megawatts of emergency generation to be installed ASAP and to run for at least the summer and fall of 2003. Extensions beyond that are specifically allowed for in the plan.

Based on widely accepted electricity price elasticity estimates, the increase in Ontario’s electricity usage due to the rate freeze probably exceeds the amount of emergency generation OEFC is seeking. The emergency power will cost OEFC several times the revenue it will get paid for the power under the rate freeze.

OEFC’s emergency efforts to keep the lights on may not be enough. The government is banking heavily on the restart of three old nuclear reactors to supply about 2,000 megawatts of capacity. One of these reactor restarts, the government’s own Pickering Unit 4, is already 2.5 years behind schedule. Further delays now appear probable, although the government-owned generating company refuses to provide an updated schedule. Another reactor, Bruce 4, under private management, is also behind schedule. The private operator, Bruce Power, promises that the delay will not be longer than six weeks and the unit and its sister unit, Bruce 3, will be available to meet electricity needs this summer. All three reactors had spotty production records when they was last in operation in the mid 1990s, and further unplanned downtime should not be ruled out.

Ontario’s government-owned coal-fired stations, which supply about a third of its needs, are another reliability risk. They are old and tired, having been called on to respond recurring emergency conditions which have been prevalent for the last several years. Some of the units are almost 40 years old and are scheduled for closure soon.

OEFC’s evaluation criteria for the new emergency generators includes "environment" at 20% of the points. Contributing environmental factors include NOX and SOX emissions, fuel containment provisions, and noise abatement effort. OEFC says that natural gas is "preferred" over liquid fuels but there are no guarantees will be selected. Most of the contract generation will probably be diesel.

Potential locations include Leslie/Finch and Kipling/Dundas in Toronto. (It looks like I might have been wrong in previous public statements guessing that the Toronto waterfront might get the units.)

Even without the cost of emergency generation, OEFC’s finances are now sinking faster than the old Ontario Hydro’s. In November, Premier Eves panicked in the face of political attacks against the electricity market by NDP leader Howard Hampton, many public sector unions, and consumers upset primarily with their air conditioning bills during the hot summer. Eves froze electricity distribution rates and the portion of the bill that recovers charges for power imports. He also froze the commodity electricity prices for over half of Ontario’s total electricity usage at a rate about 15% below the prices charged by the old Ontario Hydro for that portion of the bill. The costs of these rate freezes are primarily being picked up by OEFC. Government officials refuse to confirm estimates that the rate freezes have already cost OEFC about $700 million.

Prior to the rate freezes, it look like Ontario might evolve toward a real power market. Then, the private sector had proposed thousands of megawatts of relatively cheap and clean new generation. As successive Tory policy flipflops accumulated, market-based proposals for new investment dissipated.

Now, having scared away the private sector, Ontario is reverting to dirty, expensive government-contracted generation.

The first anniversary of the opening of Ontario’s electricity market is May 1, 2003. Ontario will celebrate the occasion by readying a fleet of stinky, expensive diesel generators and borrowing the funds to pay for them.