Janet McFarland
Globe and Mail
August 19, 2003

Toronto: The Ontario government needs to clarify its long-term electricity plans and tell the private sector what the future holds for Ontario Power Generation, the chief executive officer of TransCanada Corp. said yesterday.

Harold Kvisle, whose company is already one of the largest private investors in Ontario’s power system, said business is willing to make investments to meet the province’s pressing need for more electricity generation capacity. But it needs to know the long-term game plan, he said.

Mr. Kvisle said the future of OPG, a Crown corporation whose power plants generate 66 per cent of the province’s electricity, needs to be clearer. He said investors don’t know whether OPG is going to be privatized, or whether it is still facing a requirement to sell many of its plants to reduce its market control to 35 per cent.

"If the Ontario market is going to have one monster generator that generates two-thirds of the power in the marketplace, that makes for a different playing field from the competitive side than if one monster generator only has a 35-per-cent share of the market."

TransCanada owns 31.6 per cent of Bruce Power LP, which operates the Bruce nuclear plant, and owns five small power plants in Northern Ontario.

Long-term power planning was thrown into disarray last November when the province closed its recently opened market for retail electricity and reimposed a rate cap of 4.3 cents a kilowatt-hour.

For seven years, the provincial government’s plan for electricity supplies was based on the assumption that the private sector would build new plants under a deregulated system. But prices soared after the market opened in May, 2002, and the government shut down the experiment after just six months.

With deregulation on hold until at least 2006, the private sector has scuttled many of its investment plans. Ontario’s tight capacity has become a focus of attention since a power failure plunged parts of Ontario and seven U.S. states into blackness last week.

Tom Adams, executive director of Energy Probe, said Ontario needs a new long-term plan to ensure its electricity system will be adequate as demand soars and no new capacity is built.

"We’re living in limbo between central planning and the market," he said. "I call it central planning without a plan. And the system simply can’t hold for very long."

In June, the provincial government announced a new task force to draft a strategy. Co-chaired by Enersource Corp. president Gunars Cekster and Toronto lawyer Peter Budd, it is supposed to report early next year.

Mr. Kvisle said the task force is a good idea, because the province needs a comprehensive high-level plan to figure out how future power demand will be met.

"I believe that either a regulated or deregulated world would work in Ontario. All I think the industry needs is a clear set of ground rules and clarity," he said.

Geneviève Lavallée, an analyst who follows the Canadian electricity market at Dominion Bond Rating Service in Toronto, said the political uncertainty in Ontario has deterred future investment.

She said the retail price caps have not been a significant problem, however, because the wholesale electricity market still trades openly.

As a result, she said, the Ontario government may be able to win back private-sector support by developing a new long-term plan and sticking to it.

Donald Dewees, an economics professor at the University of Toronto, said responsibility for long-range planning for electricity supply used to be in the hands of the former Ontario Hydro, which has been broken up into separate companies.

Today, Ontario Power Generation, a Crown corporation, has no mandate to build major new plants.

Someone else must take clear responsibility for long-range planning, Prof. Dewees said.

"With the private investors scared away, I don’t think the current situation is going to work. We have to do something. Since the government introduced restructuring and then changed course in mid-stream, and hasn’t told OPG it has that responsibility, I think it’s up to the government to say ‘We’ve got it’ or to say who has it."

Although the private sector is on the sidelines, Hydro One and OPG may not be able to afford future construction.

Ms. Lavallée at DBRS said neither Ontario Power Generation nor Hydro One can undertake huge new construction projects without private-sector money.

She said the two Crown corporations cannot raise funds in the equity markets, and have highly leveraged balance sheets that cannot easily absorb new debt to pay for big projects.

But with government, normal market rules don’t always apply.

She said the province could decide to supply money for big projects, or be willing to allow major new debt to erode credit ratings.