John Spears
Toronto Star
May 18, 2001

Up to 70 per cent of the electricity from the newly privatized Bruce nuclear generating plant is destined for big Ontario industries, says the firm holding the lease on the facility.

Meanwhile, critics of the deal say the private lease could break Ontario’s electricity market wide open, forcing the province to open its power grid to U.S. buyers, and driving prices higher.

Ontario Power Generation, or OPG, closed a deal on the weekend to lease the Bruce nuclear facilities until 2018 to Bruce Power, a partnership headed by British Energy with a nearly 80 per cent stake. Uranium producer Cameco Corp. of Saskatchewan has 15 per cent. Two unions representing plant employees have the remainder.

"Our intention, our calculations and forecasts are based on selling to the Ontario market," Bruce Hawthorne, chief executive of Bruce Power, said in an interview from the site at Douglas Point, on Lake Huron just west of Tiverton.

Bruce Power has agreed to pay $625 million up front for the lease of the facility, consisting of the B unit, which is operating, and the mothballed A unit, which is being brought back into service.

Bruce Power will pay a combination of fixed and variable yearly payments over the life of the lease, depending on markets and production. Payments in 2002 are estimated at $150 million, of which the fixed part is $62 million. Fixed payments will rise to $92 million by the final year.

Bringing the A unit back into production will cost about $350 million, Hawthorne said. It can produce 1,000 megawatts of power; the B unit produces 2,500 megawatts. Total Ontario demand yesterday at midday was 17,402 megawatts; Ontario’s all-time peak load was 24,007 megawatts.

Hawthorne said Bruce Power wants to lock up most of its output in long-term deals so it won’t face price fluctuations on the spot market.

The company had lined up long-term contracts with big industries for about 70 per cent of its output.

Delays in opening Ontario’s market to competition – it was due to open last November but has been put off until as late as May, 2002 – mean the contracts will have to be reconfirmed.

In the meantime, Bruce Power will sell all its production to OPG.

Even when the market opens, Hawthorne said Bruce Power will focus on Ontario. It has not applied for a licence to export power, he said.

But Myron Gordon, professor emeritus at the University of Toronto’s Rotman School of Management, said U.S. customers may be able to force the issue.

Gordon said the North American Free Trade Agreement may give New York and Michigan utilities equal access to Ontario’s power grid with Ontario businesses and utilities.

"As of today they can come up and try to buy from British Energy, and if British Energy says, ‘No, we promised to sell it exclusively here in Ontario,’ then we start the legal process" of forcing entry into the market, he said.

It wouldn’t be a short process, Gordon acknowledged. "It’ll take maybe two or three years, but the sooner you start the sooner you’ll get there."

They’ll get backing from President George W. Bush, he added.

"Mr. Bush wants a continental market in energy, in all forms of energy. I’m sure the U.S. federal government would back up New York and Michigan and any other state that wants access to our power."

Since prices south of the border are about 50 per cent higher than in Ontario, U.S. buyers would be willing to bid up prices in Ontario.

Gordon said he’s been unable to get answers from OPG or the provincial government about the legal ramifications of NAFTA on the power market.

The old Ontario Hydro bought and sold power across the border, but was able to stop the flow if power was needed in Ontario.

With the Bruce privatized, and an open market, can Ontario still say no, if a U.S. buyer comes calling?

An aide to Energy Minister Jim Wilson said electricity market operators both in Canada and the U.S. are mulling the implications of new trade rules as electricity markets are opened.

"There’s no final position on this," he said. "We’re still developing our market rules to determine the priority of different electricity transactions."

OPG’s position is similar.

"OPG believes many factors will impact how the market will operate and has no position on the potential impact of NAFTA," the company said in response to the question.

But it added that markets will be the determining factor.

"Market power and market forces – including costs and transmission constraints – will be the key to north-south flows of power."

The Independent Electricity Market Operator, or IMO, which will run Ontario’s competitive marketplace, said it’s still reviewing the rules that U.S. market operators have in place to limit access to their local markets.

Kevin Dove of the IMO noted that transmission bottlenecks limit the amount of power that can flow across the border, and exporters have to get a licence from the National Energy Board.

"We are looking at NAFTA to ensure we are able to do what we want to be able to do in terms of domestic supply," he said. "The rules haven’t been written up in full. We feel pretty confident we aren’t going to run into any issues here, but we haven’t finalized the rules."

John F. Wilson, an engineer and former member of Ontario Hydro’s board who has worked with Gordon analyzing Ontario’s electricity market, said Ontario may not appreciate what it’s up against in bargaining with the U.S.

"The Ontario government is hopping up and down saying, ‘What we want to do is compete,’" he said. "What the Americans are doing is saying, ‘We want to win.’"

But Tom Adams, executive director of Energy Probe, said the fears of Gordon and Wilson are misplaced. Electricity flowed across the Ontario-U.S. border under the old monopoly system run by Ontario Hydro, and it increased energy security for everyone, he said.

Quebec and Manitoba – which have much power to export – are part of that grid and increasingly will be able to supply Ontario with power produced at low cost, he said. In any case, keeping prices too low discourages conservation.

British Energy said yesterday its pre-tax profit for the year to March 2001 was in line with analysts’ expectations at just £10 million, or $22 million (Canadian), down from £241 million a year ago. Falling British electricity prices and power station shutdowns were blamed for the drop.

With files from Reuters