Valerie Lawton
The Toronto Star
August 14, 1997

It’s Ontario Hydro’s darkest hour, but plenty of businesses in the province see new opportunity.

“It augurs really very well for the private sector, people like ourselves,’` James Temerty of Toronto-based Northland Power Inc. said yesterday.

“The folks at Northland are feeling pretty good,” said Temerty, chief executive of the province’s largest independent power producer.

Temerty thinks Hydro’s plans to shut down several problem-plagued nuclear reactors means he’ll be able to sell more power to the crown utility.

And – maybe – Northland will finally be able to add to its customer list. Temerty and others hope Hydro’s woes will zap the Ontario government into moving a lot faster on opening up power-industry competition.

“The pressure is on the government, that’s the good news,” said Norman Rubin of Energy Probe.

Yesterday Ontario Hydro announced it was shutting down seven of its 20 reactors for repairs. “It’s not a good investment,” Rubin said. “I’d rather have Bre-X stock.”

The shutdown and overhaul could cost between $5 billion and $8 billion over five years. Hydro is considering writing off $2 billion in assets this year.

The head of the Independent Power Producer’s Society of Ontario also thinks Hydro’s troubles mean his members are a step closer to being able to sell power to big industry and municipalities.

“The alleged surplus that Ontario Hydro said it had in the past is gone,” said Jake Brooks. “So there’s no plausible reason to prevent alternative suppliers from entering the market.”

His group’s members include large Ontario companies that now generate their own power and would like to sell their surplus.

Advocates such as Brooks argue competition would mean lower power rates for industry and, ultimately, for individual consumers in the province. Others, however, believe large power customers would be able to strike deals at the expense of small users.

The Ontario government is on record as supporting the concept of competition. But Queen’s Park still hasn’t said how that might work.

The province is ultimately responsible for Hydro’s huge debt load, which won’t be getting any smaller during the overhaul. Hydro bonds are guaranteed by the government.

Two major bond raters confirmed their ratings for the province and Ontario Hydro yesterday, but pointed to challenges ahead.

“The effect of these additional costs on Ontario Hydro is to reduce its ability to lower its debt load significantly by the year 2000, as previously planned,” said the Dominion Bond Rating Service.

“And (it) reduces its ability to deal with the future challenge of potential competition due to deregulation.”

New York-based Standard &d Poor’s said the province could accommodate the financial impact of the restructuring but it “has the potential to push back the over-all improvement in the province’s credit profile, notwithstanding the province’s continuing progress with its own deficit.”

Hydro’s nuclear, hydro and fossil-fuel plants generate more than 90 per cent of the average daily electricity supply for Ontario. Independent producers make up the rest.

Competition advocates say the government’s first step should be to give control of Hydro’s transmission system – the network that carries electricity – to an independent body.

Hydro rivals would then be able to send their power to customers.

Top officials at Ontario Hydro have voiced strong public support for competition.

Chairman William Farlinger said the utility would have to meet the rates of would-be competitors.

“At the moment, we are constrained by regulations as to what we charge industrial customers,” Farlinger told a packed news conference at Hydro’s downtown headquarters yesterday.

“With a free and open market, we could have different rates for customers.”

In the meantime, Hydro has promised to continue a freeze on rates, despite the huge costs.

But big companies, such as Falconbridge Ltd., that buy surplus Ontario Hydro power at lower rates, may not have as much of it to choose from after the reactors shut down.

That could mean higher prices, said Lauri Gregg, energy and technical services manager at the mining company.

John Fox, executive vice-president and managing director of Ontario Hydro Generation, said the question of when competition happens is up to the province.

“We are operating with the expectation that Hydro has the obligation to continue to ensure reliable power.”

The utility plans to rely more heavily on its own fossil-fuel power to make up for the shortfall. Hydro will have to consider other options if it eventually decides not to bring its Pickering nuclear plant back up.

“We’d have to look at where additional generation could come from, either from purchasing out-of-province, or developing additional resources within the province, either by Ontario Hydro or by the private sector.”

Hydro said its ability to export power will be reduced. By how much is still unclear, but Fox said the corporation will be talking to its U.S. customers.

Over at Northland Power, Temerty is thinking about projects scrapped and gutted a few years ago, when Hydro told him it didn’t need the extra power.

“We’re just dusting off those old papers and taking a look at them,” said Temerty, whose company has three power plants in Northern Ontario.

“There may be an opportunity to go at some point in the future, and the near future, and say, `Hey look, this made sense for you four or five years ago; it perhaps makes sense again, in light of the changed circumstances.’ ”

“I think the day of building these huge giga-projects is well past.”

AEP Resources Inc., an Ohio-based utility that wants to become a power provider to Canada’s biggest industries, also believes competition is a step closer in Ontario.

“It would appear the situation here in Ontario that’s just emerged in the last few days does mean that generically there will be more opportunities down the road, probably a little bit sooner than anyone had guessed,” said Thomas Drolet, managing director for AEP’s newly opened Toronto office.

“That isn’t clear yet, because we’re not sure of the surplus or deficit power situation” at Hydro.