Paul Vieira
National Post
May 6, 2002

Ontario Power Generation Inc. (OPG) has yet to cut deals for four assets it put on the block almost a year ago even though there are parties willing to fork over cash for the Crown-owned plants.

"We have had interest expressed in those plants," said John Earl, a spokesman for the electricity producer. "We still hope to move forward quickly with our [sale] efforts, but at the same time we want to make sure we protect the interests of the shareholder [the Ontario government].

"We want to make sure we get best value for these plants. And we are still in the process of finding best value," he added.

But one industry observer said this will be a difficult task.

"The bids are coming in very very low," said Tom Adams, executive director of Energy Probe.

He added the assets have a number of factors working against them – most notably, environmental concerns because all four plants are powered by fossil fuels (three of them coal, one of them coal and natural gas).

"The market evidence is that they are damaged goods," Mr. Adams added.

The four plants are part of a package of assets the Crown-owned utility – a successor company of the old Ontario Hydro monopoly that controls about 75% of the power production market – must shed as required by reforms in the province’s $10-billion electricity market, most of which took effect on May 1. They were put on the block last July and OPG entertained bids through an auction process, hoping to announce sales prior to May 1. Most of the sales proceeds would go toward paying down the $21-billion "stranded" debt accumulated by Ontario Hydro.

However, OPG has said the power production market has softened, largely because of low electricity prices and fallout from the Enron collapse, so the sale will take longer than expected. Also, Ron Osborne, OPG’s chief executive, has vowed there will be no "fire sale" of the company’s assets.

Nevertheless, that doesn’t hold water with one industry insider, who’s familiar with the bidding process.

"The whole process seems to have gone on hold," said the source, who did not want to be identified. "You put it out on the market and the market bids for it. You can’t then turnaround and say this is all post-Enron and it will get better or it will be much better when we get Kyoto settled. You’re always going to have these question marks. So you have an auction and you carry on."

The source added he had concerns about OPG’s thinking, because it reminded him of how Ontario Hydro used to operate. "This whole command and control philosophy, that we know better than the market, we’ll take those units off the market and we’re sure the market will be better a year from now. Since when are [these] guys God. Most times you do stuff like this, [market conditions] get worse."

Under Ontario’s restructured electricity regime, OPG must shed 4,000 megawatts (enough power for a city of four million) of so-called "price-setting" generation, or electricity tapped at times of high demand, by November, 2005. The four plants for sale – Lennox, Lakeview, Atikokan and Thunder Bay – are considered price-setting plants and combine for 3,800 MW of capacity.

OPG has sold one of these assets, the 490 MW Mississagi hydroelectric complex near Sault Ste. Marie, to conglomerate Brascan Corp. for $340-million. That deal will close sometime this month.