Paul McKay
Ottawa Citizen
December 10, 2002

Santa Claus came early this year, bringing the gift of emergency power imports that barely kept Ontario’s Christmas lights, shopping malls and heavy industries from flickering into blackouts last week.

Ontario citizens might pray that Santa or another cold snap shows up again during next summer’s dog days. Chaos in Ontario’s power supply system is just around the corner, industry experts warn.

"I think there is a high probability of rolling, controlled blackouts this winter, or next summer, or both," says Tom Adams, a power industry analyst with the Toronto watchdog group Energy Probe. "We are still stuck with the power plant portfolio and transmission system that caused the collapse of the old Ontario Hydro."

Mr. Adams calls the Eves government "a panic-stricken owner. Every decision they make is political, and they are profoundly, dangerously ignorant of the real problems facing the power supply system."

Last Tuesday, bone-chilling weather and disabled Ontario power plants combined to leave a shortfall of 3,000 megawatts of power. That’s twice the base demand of Ottawa, or six Pickering-sized nuclear reactors.

However, Ontario Energy Minister John Baird contends Ontario’s power supply is secure.

"We didn’t have enough power," Mr. Baird said yesterday. "The electricity we were producing wasn’t enough to meet the needs of the province. When we have 300 power plants, some go off line from time to time. Some go off for planned maintenance. That’s inevitable. Last week, (coal) units at Nanticoke and Lambton were putting on pollution abatement equipment."

Mr. Baird predicts the 3,000 Megawatt shortfall will be erased when six privately leased nuclear units at the Bruce complex on Lake Huron begin to operate next summer.

Last week’s emergency power imports came with a stiff price, reaching a peak cost of 23 cents per kilowatt hour. That is far above the 4.3 cents-per-kilowatt-hour retail price freeze recently promised by Premier Ernie Eves, which became law in Ontario’s legislature yesterday.

Since the government guarantees payments to suppliers of imported power, those extra charges will be paid by Ontario taxpayers.

Last week’s narrow escape from blackouts has been a long time coming, but may occur next summer because:

The Pickering A reactors will require years and as much as $3 billion to finish fixing;

The province-owned Ontario Power Generation (OPG) has virtually no replacement projects under construction, and no money to build them;

The Eves price-freeze edict has caused potential financiers and builders of private power projects to abandon Ontario, and put many municipal utilities on credit risk;

A decade of power prices below the cost of inflation, and reversals in building code standards and energy efficiency programs, has fostered soaring power demands.

"When you tell everybody the power price is capped at 4.3 cents, you are telling everybody they don’t have to worry about conservation," says David Poch, a Perth-based specialist in regulatory and energy law. "The fastest, cheapest way to bring the system back in balance, and prevent blackouts, is with giving the right price signal and making utilities deliver cost-effective efficiency programs. The Eves government is doing neither."

Arthur Dickinson, president of an association representing Ontario’s biggest industrial power consumers, says the province has always been "vulnerable" to the nuclear plants.

"If two units at Bruce A and one at Pickering come back from shutdowns by next June, we should be all right," Mr. Dickson said. "But heaven knows what will happen there."

The output and production price of four 750 Megawatt reactors at the Bruce B complex on Lake Huron remains uncertain because they are leased to a British private company now facing bankruptcy in England. It has announced plans to refurbish two adjacent crippled Bruce A units by next summer. New owners for those six leased reactors are being sought, but the recent 4.3-cent price-cap edict has jolted potential purchasers.

Mr. Adams says betting on the Bruce reactors to avert blackouts is a long shot, and perhaps a dangerous one.

"The prospective new (private) owners of the Bruce reactors have no experience or knowledge about how to run nuclear plants. They are rank amateurs. So we have asked federal regulators, as a condition of re-start, that any new owner is proven competent, and that those reactors first be stripped down and examined for safety’s sake."

Energy Minister Baird counters that public safety is not at risk, and that the six Bruce reactors will perform well next summer despite the current ownership upheaval and regulatory barriers.

"The federal regulators will make their determination on any transfer of the (Bruce) lease, in the best interests of safety," he said.

Robert McLeese, an energy project financier and past president of the Independent Power Producers Society, says the Eves government is playing "a crap shoot" by pinning its hopes on power plants that have repeatedly failed to perform.

"Nobody at Queen’s Park is taking responsibility to make sure there’s enough power for Ontario. There’s now nobody left standing who can get power projects financed here, except the government. It’s partly because of Enron and the meltdown in the North American energy sector, but the Eves government has made it worse. It has cut potential investors off at the knees."

Mr. Dickinson agrees the Eves government has failed to heed warnings about increasing reliance on imported power and has driven potential power projects from Ontario.

His association represents 64 of Ontario’s largest industries, such as steel smelters, pulp mills, mines, chemical refineries and auto makers. They account for almost one-fifth of Ontario power demand and collectively pay more than $1 billion annually for electricity.

Many member industries are acutely vulnerable to power interruptions as brief as a second or less because they can degrade product quality or cause expensive shutdowns. Auto assembly plants, for example, may lose hours or even entire production shifts to reset computers and robotics after a split-second power break.

"Because we are in an extreme supply squeeze, and there is no margin for maintenance or repair outages, we could be in crisis mode if we get hit with really hot weather next summer," Mr. McLeese said.

That’s just when the first of four 850-megawatt Darlington reactors is scheduled for additional extensive overhauls, leaving Ontario even more exposed to blackouts and reliant on expensive imported power.

Four 500-megawatt Pickering reactors are currently shut down for extensive overhauls, and four 750-megawatt reactors at the Bruce A complex are mothballed due to chronic breakdowns.

That loss of 5,000 megawatts – 20 per cent of provincial peak demand – has knocked a huge hole in Ontario’s power supply system,and put intense strain on OPG’s other nuclear, coal and hydro plants to perform flat out. Now that the province is facing heavy peak demand in both winter and summer, there are only narrow time windows for critical annual maintenance and repair shutdowns. Last week, OPG was ordered to defer all maintenance shutdowns at its plants.

"We are concerned," says Mr. Dickinson, whose members were caught off guard by the close call last week. "We need to know what power plants are going down, the repair timelines, and which ones will perform. Our industries depend on that, but we can’t get any answers."

Mr. Baird recently promised to proceed with a 500-megawatt expansion of the venerable Beck hydro plant at Niagara Falls, which should provide pollution-free power at a cost below the 4.3-cent price cap. However, it will take at least four years to construct an additional water intake tunnel at Niagara to supply more generators. And, pleading empty pockets, the Eves government has sought private-sector partners for the $1 billion in estimated capital cost.

However, those in the business say the Eves price freeze has "vapourized" the potential for private capital investments in Ontario’s power sector, while the related credit-risk downgrading of OPG and municipal electric utilities has left them with no money to finance new power plants.

"The banks have just run away from this industry. All our lenders have gone," says Ian Bains, vice-president of Canadian Renewable Energy Corp., an Ontario-based green power company that has wind and water power projects under development in Eastern and Northern Ontario. Mr. Bains’ company is just completing a modest $6 million hydro project near Kirkland Lake, and has plans for a windfarm near Kingston.

Mr. Bains says no new power projects can be built and financed for 4.3 cents per kilowatt hour, and that his own banks called their loans within 48 hours of Mr. Eves’ freeze edict.