Energy Probe
October 20, 1997

SELECT COMMITTEE ON ONTARIO HYDRO NUCLEAR AFFAIRS Chair / Président Mr Derwyn Shea (High Park-Swansea PC) Vice­Chair / Vice­Président Mr Monte Kwinter (Wilson Heights L) Mr Sean Conway (Renfrew North / -Nord L) Mr Doug Galt (Northumberland PC) Mrs Barbara Fisher (Bruce PC) Mrs Helen Johns (Huron PC) Mr Monte Kwinter (Wilson Heights L) Mr Floyd Laughren (Nickel Belt ND) Mr John R. O’Toole (Durham East / -Est PC) Mr Derwyn Shea (High Park-Swansea PC)

Clerk / Greffière Ms Donna Bryce

Staff / Personnel Mr Lewis Yeager, research officer, Legislative Research Service Ms Anne Marzalik, research officer, Legislative Research Service Mr Richard Campbell, consultant Mr Robert Power, legal counsel

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The committee met at 1709 in room 228, following a closed session.

The Chair (Mr Derwyn Shea): We are prepared to carry on now in public session. I’d like to welcome the deputants, the witnesses for this afternoon and for this evening. For the record, to remind us, this committee has been in session since 2 pm. It is now almost 5:15 pm. It has been in private session on briefings and it is now prepared to return to the witness schedule.

In response to several of the requests of the committee, you will note that the clerk has been moving quickly to try to present some documentation that will be dealt with over the next two or three days. So that will give you an opportunity to read, mark, learn and inwardly digest and be prepared to deal with these matters when they come forward in the next several days.

ENERGY PROBE The Chair: Having said that, now we turn our attention to the presentation scheduled for 5 pm by Energy Probe, and I welcome Tom Adams and Norm Rubin. If they will, for the purposes of Hansard, identify themselves and whoever else they may wish to bring forward to the witness table, we’ll carry on.

Mr Tom Adams: Good evening, Mr Chairman and members of the committee. My name is Tom Adams. I’m the executive director of Energy Probe. With me is Norm Rubin, Energy Probe’s director of nuclear research.

Energy Probe is a national environmental and consumer advocacy organization specializing in energy issues. In Ontario our foundation represents approximately 20,000 supporters. We have been actively addressing issues related to Ontario Hydro for about 25 years. Since 1982, with the publication of a book by our still-working colleague Larry Solomon called Breaking up Ontario Hydro’s Monopoly, Energy Probe has been advocating a power system based on the principle of customer choice.

Mr Doug Galt (Northumberland): On a point of privilege, Mr Chair: There seems to be a problem with the audio. I’m not sure what’s going on.

The Chair: I agree with you. It’s something with the sound level. It’s not your problem, Mr Adams. It’s just a problem I think of the volume. We will ask our technician if they can just double-check that.

Mr Adams: Do you want me to speak up?

The Chair: If you can do that as well. It may be the volume’s not picking up. Okay, it’s boosted right up, so try again.

Mr Adams: For the purposes of our presentation today, we want to briefly summarize what went wrong, and why, with Ontario Hydro’s nuclear program. We want to outline the extent of Ontario’s nuclear dilemmas and address two questions we consider key to the committee’s deliberations: What can we expect to go wrong or right in future, and where does Ontario go from here?

When we conclude our remarks, we will be running through the recommendations that are attached at the back of the presentation package you received just now.

The presentation binder that was supplied to you on Friday contains materials, mostly of an archival nature, designed to illustrate some of the key moments in Ontario Hydro’s nuclear history. As the materials document, Energy Probe clearly warned Ontario Hydro about the business risks of nuclear investment in 1981. We attacked the official estimates of nuclear cost as incomplete and inadequate in 1989. From 1989 through 1991 we analysed and published the declining nuclear performance and a mathematical model of that performance. It has since accurately forecast the outcome of the production from the nuclear plants.

In all three cases, our predictions were based on factual evidence that’s come true. In all three cases, Ontario Hydro and its political masters continued to increase the province’s nuclear risks despite all of this evidence.

The Chair: Let me just pause for a second. I want to give you help. We want to make sure we hear. This is very important. Would you just move to the other microphone. Let’s see if we can get your dulcet tones coming through. Try that again, please. Just test it out for a moment.

Mr Adams: The scope of Ontario’s nuclear problems is sweeping and grave. I think this is working better. The health and security of Ontarians and our environment is threatened by the continuing operation of our nuclear plants. Taxpayers and ratepayers are facing probably tens of billions of dollars of costs caused by uneconomic nuclear investments. Electricity reliability in Ontario is now hanging by a thread. To keep the lights on this winter, Ontario Hydro is hoping to restore Bruce units 3 and 4 to partial service, having declared on Friday they’re not going to attempt to restart Bruce unit 1. The four-unit Darlington station is now limited to 55% of full power due to the discovery of a design flaw, and they’re hoping to restore that to full power.

If these units are not restored or if other unexpected difficulties arise, we could see a number of negative outcomes for customers. Industrial customers would be cut back first. Following that, Ontario Hydro would make an appeal to customers to cut consumption. If that was not sufficient in balancing supply and demand, they could opt to brown out the province with planned voltage reductions, as they did in 1989, or possibly engage in more drastic measures.

I’ll turn the comments on the question of what went wrong, the safety of Ontario’s reactors and the role of liability to my colleague Norm Rubin.

Mr Norm Rubin: Energy Probe agrees with Ontario Hydro that their nuclear problems can be attributed to bad management. But our analysis is much more fundamental than Ontario Hydro’s. They focus on the bad management of reactor operating staff. We think the worst management decisions were the decisions to bet tens of billions of dollars on an experimental, untested and inherently unsafe technology. Those errors were made in the 1970s and early 1980s. They were compounded by Hydro management decisions throughout the 1980s to maximize nuclear production and delay nuclear maintenance. Those decisions successfully deferred Hydro’s day of reckoning until Darlington was virtually complete. Hydro thwarted the short-term goals of its critics. Hydro also slashed its own wrists financially and politically in the longer term. The 1980s were a triumph of political gamesmanship and empire-building over wisdom and prudence. Unfortunately, Ontario Hydro management is still playing for a Hydro win rather than an Ontario win.

The creative nuclear accounting that let Hydro pretend it was a provider of low-cost electricity in the 1980s is reaching even more absurd lengths in the late 1990s. As a result, Hydro is planning to run fiscal deficits comparable in size to this government’s painful spending cuts. In addition, Hydro is planning to leave our children with environmental liabilities for nuclear cleanup that will cost $15 billion in today’s dollars, according to Ontario Hydro’s own estimates. Just as in the 1980s, the goal is to freeze the price of electricity, while the cost of electricity continues to skyrocket. That strategy may or may not work until the next election, but it can’t work for long.

More ominously still, Hydro is still applying wishful thinking in nuclear safety. Throughout the IIPA report, despite its rather honest and brutal examination of Hydro’s human failings, there is a laboured attempt to convince the reader that the Candu reactor is an inherently safe, forgiving piece of technology. It is not. It’s worth remembering that virtually every analysis of real-world technological disasters, from Bhopal to Chernobyl to the Challenger, has found that a root cause of each of those accidents was that the owners overestimated the safety of their technology.

Many Ontario residents now know that a federal law called the Nuclear Liability Act protects Ontario Hydro and all its suppliers from liability for any reactor accident except the most trivial. Specifically, Hydro’s insurers would be held responsible for the first $75 million of damages. The designers, suppliers and builders would not be responsible for any damages at all. The federal Parliament could appropriate funds for victims, if Parliament chose to do so. As some of you may know, Energy Probe, the city of Toronto and Dr Rosalie Bertell were unsuccessful in striking down this law in the lower court and were unable to proceed to appeal, largely because of Ontario Hydro’s energetic courtroom defence of this federal law. Bottom line: If, God forbid, there is a major reactor accident in Ontario, the polluter will definitely not pay.

Meanwhile, as Ontario Hydro’s reactors continue to shut down, we are entering a period of instability and high risk, for a number of reasons. I’ve iterated three: Morale among Hydro’s nuclear operators is now at an all-time low, and understandably so; the field of nuclear energy and reactor safety, which used to appeal to some of the best and brightest of technology students when I was in university, before I had these grey hairs, is now correctly seen as a dead-end job; in addition, Hydro can no longer afford its traditional style of gold-plated engineering to solve its nuclear problems, simply because Hydro’s customers and competitors can now undercut Hydro’s costs and its prices.

We think this situation places an unrealistically difficult burden on the federal Atomic Energy Control Board, an agency historically much closer to and more comfortable with the nuclear industry than the concerned public. In short, we believe it’s unrealistic for this committee to expect a safe sunset for nuclear energy in Ontario, especially as long as those who can do the most to protect the people at risk are artificially protected from being responsible for their neighbours’ losses.

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Mr Adams: Before we turn it over to questions, I’d like to just run through the recommendations we’ve proposed and have attached at the back of the package.

First, we recommend the committee find that the eight reactors at Pickering A and Bruce A should be written off and the units permanently closed.

Second, we urge the committee to investigate all opportunities for financing future nuclear investments outside of the public purse.

Third, we have a series of recommendations on improving financial reporting and the accuracy of Ontario Hydro’s reports of expenditures and liabilities.

Fourth, we recommend that Ontario Hydro be broken up, with a view to permitting customers to buy power from producers of their choice and making producers accountable to both customers and investors.

Finally, we recommend that Ontario begin a transition to a regime of full nuclear liability.

With that, I’d like to invite any questions that committee members might have for either of us.

The Chair: All right. I’ll begin with the Liberal caucus for the questioning today.

Mr Monte Kwinter (Wilson Heights): I’m just curious to find out exactly where you are coming from. For example, are you absolutely opposed to nuclear energy of any kind or are you just concerned about the specific technology that’s in the Candu and the lack of maintenance and the problems that are concerned with that?

Mr Rubin: I don’t think anybody on our staff, for example, is religiously or unalterably opposed to the splitting of nuclei. I’m certainly not. I certainly approve of a number of medical uses of nuclear technology.

I guess the answer is the latter. But I do think that the large-scale generation of centralized electricity with the kind of technology we’re using today is on its way out, and properly so, and that the more the public as a whole, the investors and the neighbours of this technology know about it, the more quickly it will be phased out.

Whether 50 years from now, 100 years from now, there will be a generation technology, an energy technology that involves nuclear fission, or indeed nuclear fusion, is a good question. I don’t have a firm answer on that. I think some of those technologies, some of the future technologies, have been oversold as badly as today’s nuclear fission was oversold when I was a kid. Electricity too cheap to meter, safe, environmental etc – all those things that some of us are old enough to remember as the dreams of tomorrow. Well, it’s today and it’s not true.

Mr Kwinter: Have you done a comparison in other jurisdictions that are heavily dependent on nuclear energy as to what their status is and what their safety records are?

Mr Rubin: We’ve certainly seen that the forecasts for future investment, for ongoing investment in nuclear power, which were very aggressive around the world, even 19 years ago when I started working in this field for Energy Probe, those forecasts have vanished and now we’re discussing the rate at which we’re going to shut reactors down. Except for a few despotic regimes in Asia that are still looking to invest money, we’re basically backing out and the debate is over the rate at which we’re backing out. We have that international comparison. Ontario is certainly not unique in shutting down reactors that on paper have decades more life left to them.

Mr Kwinter: The reason I am asking you these questions is that in your recommendations you suggest, "The committee should urge the government to investigate all opportunities for financing future nuclear investments…." It would seem to me there is a contradiction. On the one hand you’re saying, "Get rid of these things," and on the other hand you’re saying, "Here’s a recommendation of how you should finance future nuclear investments."

Mr Rubin: Yes, I understand how we confused you, and we probably confused most of you with that, so let me hasten to clarify that. We are now in a situation where Ontario Hydro is planning a nuclear recovery plan. That plan, in addition to recognizing the costs of shutdowns and replacement power and some other items that are being visited on Ontario Hydro, also envisages the investment of new money, to the tune of roughly $1.6 billion. That’s the money we’re addressing in that recommendation.

We would like our provincial income tax form to have a little box where we can checkmark, "No, thank you," so that money will be on somebody else’s bill, because I am sure I speak for Tom and myself in saying we don’t have investors’ confidence that that money is going to be money well-spent and we would like not to be investors. We don’t think the taxpayers, your constituents, should be unwilling investors in that nuclear recovery plan.

Fortunately, there seems to be a pool of willing investors, namely, the members of the Power Workers’ Union and the society. They have over and over and over, shall we say, out-Hydroed Hydro in their enthusiasm for putting new money into old reactors. We hope this committee could find a way that was both reasonable and legal to put those two loose ends together and let the people with the most enthusiasm invest and stand to benefit if they’re right in their enthusiasm.

I would love to see a situation where the Hydro pension plan, for example, doubled its money by making wise investments in nuclear recovery. If they lost their money, then that’s also the right answer. But I don’t want in, and the taxpayers should get out of this dole and let this industry stand as an investment, because that’s what it is. It’s a speculative investment. We now know how speculative. It’s too late to claim we don’t know.

Mr Floyd Laughren (Nickel Belt): Welcome to the committee. I wanted to ask you about your recommendation 4, at the end of your presentation: "The government of Ontario should break up Ontario Hydro with a view to permitting customers to buy power from producers of their choice and making power producers accountable to customers and investors." I think I understand the concept, but I don’t know how it works, where that fits with the privatization agenda and where it fits with the debt Ontario Hydro now has, in the neighbourhood of $32 billion, and where it fits with the private sector operating nuclear stations that are of, as you would put, a dubious quality or safety standard. I wonder if you could help me out there. What happens when you break up Ontario Hydro in terms of the generation, the distribution, the retail end of it? Can you expand on that a bit?

Mr Adams: We have a number of concerns about the way Ontario Hydro is currently managed. One of them is that the good parts of the operation, the financially successful parts of Ontario Hydro, are subsidizing the rest of it. As a result, the good parts are being driven into the ground.

The problems that were identified in the IIPA report, about the failure to adequately invest and maintain resources and the problems of communication not moving through the corporation appropriately, those problems are not at all restricted to nuclear. They’re happening in the other assets as well.

What we’ve got is a pool of good assets – a transmission system, hydro-electric and transformation resources – that are not in proper repair. They haven’t been maintained. We’ve seen, for example, some hydro-electric stations – they should be the patrimony of Ontario – that have been run into the ground. Ontario Hydro’s had a number of pen stock ruptures. These are the pipes that carry the water down into the turbine generator that have not been appropriately maintained and have ruptured. One of the principles in this unbundling proposal, breaking up the assets of Ontario Hydro, is to prevent this kind of thing from going on.

The whole concept of retail competition in electricity has been demonstrated in Ontario in natural gas, where –

Mr Laughren: Excuse me. You’re not just talking retail distribution here, though, are you?

Mr Adams: No, we’re talking about retail competition in the purchase and sale of the commodity itself.

Mr Laughren: And generation too.

Mr Adams: That’s absolutely right. For the commodity of electricity, there are many close analogies. There are electricity jurisdictions elsewhere that have been successful in moving in this direction. The state of Victoria, Australia, for example, is a very exciting example. But the example we have in Ontario of the progress in natural gas deregulation is another good example. Twelve years ago, when we started to deregulate the gas markets, Energy Probe was very active in gas – we’ve been close observers. What we saw there was an innovation that hadn’t been tried and hasn’t been tried elsewhere. When the competition was opened up in the retail gas market, it was opened up not just for big industrial consumers of gas but also for small residential customers. The benefits have been very evenly shared.

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Mr Laughren: But be fair, now. There’s a big difference when you’re dealing with Hydro, which has this cumulative debt and so forth, and facilities like the nuclear facilities. I don’t think it’s a fair analogy. But anyway I really want you to deal with that issue of those stranded assets and the debt Ontario Hydro has.

Mr Adams: In the natural gas industry, when deregulation was first brought in, there was a major stranded cost problem. It was dealt with by a mechanism called Topgas. It related to the contracts the local distribution utility had with suppliers of gas in Alberta and the transmission utilities that carried the gas here. It was dealt with. It was efficiently managed. It allowed the transition to take place.

One of the principles that guides a lot of our policy recommendations is to not let the past be an impediment to making good decisions in future. We have some past and some historic liabilities that we have to deal with. That’s very important and very significant. It’s a question of dividing up the cost and who pays what and how much and what the total pie will be.

If we leave Ontario Hydro alone, our assessment is that the liabilities will continue to build. We want to cap the liabilities and deal with them, but deal with them in such a way that allows us to move forward.

Mr John O’Toole (Durham East): I haven’t had a chance to go through all your material, but I am a little bit familiar with it from the past. I think you’d agree primarily, without being too simplistic, that we do need power. Our whole society is based on having some source of power.

Mr Adams: No disagreement.

Mr O’Toole: That’s establishing that you’re not going to just operate under candles. I sort of naturally flow to that. Following it, are you basically opposed to nuclear, without oversimplifying the issue, or is it the Candu technology?

Mr Adams: First of all, we’re not opposed to electricity. Electricity is nice stuff.

Mr O’Toole: We’ve established that. I’m trying to establish sequentially here that, first, we want power; now I’m asking, are you for or against nuclear? That’s kind of easy and straightforward, or is it that simple?

Mr Adams: The available nuclear technologies, including the ones that are used in Ontario, we think are not in the public interest.

Mr O’Toole: How I’m going to ask my next question is, so you’re in favour of fossil, then, of some sort, gas or coal or something?

Mr Adams: We think there need to be alternatives.

Mr Rubin: There are alternatives.

Mr O’Toole: How are we going to provide the 20,000 megawatts or whatever it is we need? How are we going to actually provide it, windmills, pedal-operated turbines?

Mr Adams: Right now Ontario Hydro is in court preventing a couple of the alternatives from coming into being, alternatives that are very environmentally responsible and economically attractive, district heating cogeneration stations in both cases. One is located in the city of London and another one is in Ajax. The Ajax facility is interesting because it’s fuelled with wood waste; it doesn’t use fossil fuels. It uses fossil fuels to some extent, I think as a startup fuel, but its primary fuel is biomass that would otherwise go to a landfill site.

Mr O’Toole: So you’re not for energy from waste or any of those kind of European strategies, are you?

Mr Adams: We think Ontario needs a very diversified mix of energy supplies. We think if we open the market up, the market would come up with a lot of good solutions: industrial cogeneration, combined cycle, gas-fired generation, district heating cogeneration, a certain amount of renewables from waste fuels like landfill gas, for example, or waste wood or biomass.

Mr O’Toole: You’re for a diversity of supply-side. I want to get down a little bit more to your traditional role. Have your past criticisms of Ontario Hydro been fully recognized by the IIPA report?

Mr Rubin: No. As I indicated in my presentation, the IIPA report, while listing most of the known failings of staff and management and some of the cultural problems within the stations and a number of things that are very important to get on the public record, maintains the argument that this is an inherently safe technology. They don’t use those words in that order, because I think the authors would realize it’s not true if they said those words exactly that way. But the impression is given that this is a technology that’s basically as safe as houses, however we really have to have good management when we run it.

I think all you have to do is lean back for a minute and squint and say: "What if these people were running a marshmallow factory or what if they were running the facility in Ajax that’s turning wood waste into electricity and heating homes in the Ajax region at the same time? What if we found beer bottles in the control room of that facility? Would we have to have a big press conference and have everybody show up and make it front-page news?" The answer is no. The reason is obvious: because one is an inherently unsafe technology and the other one doesn’t have that problem. This is a technological problem, and IIPA has not acknowledged that and Hydro has not acknowledged it.

Mr O’Toole: So you haven’t really agreed with the IIPA report because it sort of legitimizes the nuclear side. Whether it’s the writer itself, it’s more of a HRM problem. How do you think the government should deal with, or for that matter the last several governments should have dealt with the correctness of that decision on handling a stranded asset or whatever you call it? Say there were decisions to make with respect to alternative supplies. How do you propose the distribution of this liability should be managed? The cost-recovery plan is a bad plan, then?

Mr Rubin: The cost-recovery plan is not about distributing stranded assets; the nuclear recovery plan is about shaping up the B stations while Hydro makes believe it doesn’t own the A stations. We’ve suggested a couple of amendments to that. One of the amendments is that Hydro in effect make believe it doesn’t own the A stations for the rest of Hydro’s life. The second part is that the new investment, something approaching $2 billion by Hydro’s reckoning – it might turn out to be more – that money not come from government-guaranteed funds.

If you look at the 1981 exchange I had with Hugh Macaulay, the brighter than average chairman of Ontario Hydro, and you look at his response and how wrong his response was, knowing what we know now, and you ask yourself, "How could such a clever fellow be so stupid on that day?" I believe you would come to the kind of conclusion we came to: He was under incentives to come up with the wrong answer; he was under virtually no incentive to come up with the right answer.

We’ve suggested the investment community of Ontario and North America be more involved in balancing fear and greed in making investment decisions in technology to generate electricity, because that’s one of the things they do well. Government doesn’t seem to balance fear and greed very well when buying industries or when making business decisions.

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Mr Sean G. Conway (Renfrew North): I want to come back to the recovery plan as Hydro has proposed it. Taking into account environmental considerations and financial factors, do you have any particular additional comments to make with respect to the specifics of the non-nuclear part of the recovery plan, as best you understand it today?

Mr Rubin: You’re talking about the plan for replacement power?

Mr Conway: Yes.

Mr Rubin: Certainly my response is that we’re dealing with monopoly power. This is just the way the utility company in China or in the former Soviet Union would have made these decisions. Hydro has always said there’s a choice here between coal and nuclear. They’ve always been wrong, except in one narrow framework. If you set up a corporation like Ontario Hydro, you will find it gravitates to those two rotten choices; it always has.

The things Hydro is trying to beat off with a stick, the things it’s fighting in court, the things it’s fighting with special sweetheart deals to its major power consumers that the rest of us can’t get, despite the fact that we have a democratically responsible, publicly owned monopoly – I can’t get the deals that Suncor and the oil companies and the rest can get. Isn’t that ironic? Those things that Hydro is fighting off with those heroic measures are the solution. They are not coal-fired central generating.

Mr Conway: The fundamental evil remains, not just nuclear but monopoly of any kind? Because I think there would be –

Mr Rubin: I’m not sure it’s true in principle, Mr Conway. It is true in the universe we inhabit that the unaccountable monopolies, the centralized monopolies in the electricity business around the world choose the nastiest sources of electricity, and the people who are risking their own buck to try to make a buck by generating electricity happen to gravitate towards high-efficient, relatively renewable, nicer technologies. I just sort of woke up to that situation. I’m not sure it’s inherently true. There may be parallel universes in which it goes the other way, but we live in this one.

Mr Conway: But certainly it is your view that this current and longstanding difficulty, malaise and worse at Ontario Hydro has not been helped by the fact it has been a monopoly, correct, in your view?

Mr Rubin: Yes.

Mr Conway: What I want to know is, if monopoly is part of the problem, do you have any advice to the committee? Since there is no question that people like yourselves have been substantially vindicated by the recent testimony of people like Mr Farlinger, accepting that we will not see a continuation of Hydro’s monopoly on generation, can you give the committee any thought or advice around regulation? There are those who would argue it’s not just monopoly, public or private – it doesn’t really matter – but it’s that this has been a monopoly, in this case a public monopoly, that has been unregulated, unlike the gas sector to which Tom was referring earlier. Do you have any comment, any view about a new regulatory framework for this unfolding electricity sector?

Mr Rubin: Let me first address a small part of that, and then I’ll let Tom handle the rest. One important part of that is nuclear regulation, by which we usually mean safety, public health and environmental regulation. I have certainly been a long-time critic of the way that activity is carried out and have urged the province and many earlier select committees, for example, to get the province involved in that regulatory vacuum.

In all fairness, the AECB regulatory vacuum isn’t quite as vacuous as it used to be on the reactor safety side; it is still pretty vacuous on the routine emission and environmental side. The province continually looks the other way, whether it’s tritium in drinking water or whatever. The province loves to say: "That’s a federal matter. They know it. It’s not our jurisdiction." "Oh, it is our jurisdiction? Oh, well, it’s not our expertise. We’ll find a way not to deal with it." That part has to be fixed. That’s obviously not the whole story on regulation, because there is also market regulation, and we’ll let Tom talk about that.

Mr Adams: On the market side, in terms of rationalizing Ontario’s electricity system along the principles that have, for example, been guiding the gas market, what we have is a very effective, efficient regulatory agency through the Ontario Energy Board that controls the transmission and distribution system, and that model of having open public regulation of the transmission and distribution, which are inescapably monopoly aspects of the electricity business, is an effective model.

What we are recommending for this unbundling of Ontario Hydro is to separate the naturally competitive enterprises and let the market rule, but with the monopoly aspects, the transmission and distribution system, you make them subject to something like the Ontario Energy Board.

Mr Conway: Norm has done a very good job at describing from his point of view the problems with the public enterprise that is Ontario Hydro, but there would be those who would argue that if we open up, particularly on the generation side, and have a competitive marketplace, that if we get Bechtel or if we get Hughes Energy or if we get the Acme Private Energy Corp of Nowhere, USA, or France or Britain, we may find that the kind of business practices of Ontario Hydro, big and powerful as they are, may not in fact be the province of Ontario Hydro alone.

What would you have to say to those critics who would argue that the business practices and the behaviours of Ontario Hydro, so articulately and ably described by your colleague a few moments ago, may in fact attach to other big players in the sector, whether they are public or private, and how does that get dealt with by some kind of new regulatory environment?

Mr Adams: The key for us is to demonopolize the parts of the enterprise these people might be engaging in. If they’re purchasing generating assets, they need to be beholden to their customers, and we think customers will do a pretty good job of –

Mr Conway: But how do they get regulated? If you look at the US and Britain, one of the things that is striking about the new environment is that very quickly a couple of major players – it’s been a move, by and large, to fewer, bigger players.

Mr Adams: I don’t accept that suggestion. If you read the financial press, it appears there are all these mergers going on. In fact many have been struck down by US regulators, for example.

Mr Conway: The British government had to intervene just a year and a half ago at the cabinet level to stop consolidations that were occurring in that marketplace.

Mr Adams: If you take the British electricity market as an example, when they demonopolized their electricity system in 1989, 100% of the market was controlled by three big companies. Now their market share I think is down to under 60% and falling. The competitive players jumped in the first five years to 11% of the market, and since then I think they’re at 17% of the market. There are other players in the market as well.

The point is that if you have good rules of operation, if you have an independent system operator and you have efficient regulation in the transmission and distribution system, the kind of market power concerns you are raising can be dealt with by ensuring that the pieces are small enough.

The Chair: Mr Laughren.

Mr Rubin: Excuse me, Mr Chairman. Can I add just a couple of words to the answer there? Because we didn’t talk about environmental regulation, and I don’t think any of us wants to suggest for a moment that there isn’t a need for regulating, for example, what comes out of smokestacks, what goes into public water bodies. These are things that have to be regulated whether the owner of the facility is public or private.

Right now I certainly see on the nuclear side sweetheart regulation, privileged pollutants coming out of the nuclear generating stations, but if those nuclear generating stations were made private tomorrow, were sold off, given away, whatever, those problems don’t go away. Heck no, they’re still there. And the problem of regulating acid gas emissions is one that actually needs regulations to be changed. They should have been changed already, because our current regulations really only apply to Ontario Hydro. That’s silly. It’s not the name of the corporation that determines whether you can acidify a lake or not.

For example, in our submissions to the Macdonald committee, we were quite clear on a number of changes that have to be made to environmental regulation whether or not the system is restructured. Some of them are made easier by restructuring, some of them are made harder, and we went into that in an appendix to our brief.

The Chair: That was a good question, Mr Laughren.

Mr Laughren: I’m trying to get a picture, the same kind of picture you have in your mind, of energy at the end of the day. I’m wondering, is there any part of Hydro you would not privatize?

Mr Rubin: I can give you my answer to that. My answer used to be that there was no advantage to privatizing the transmission grid, that it was a public carrier in the benefit of all and that it was part of the birthright of Ontario etc, and that it’s role was to be a public clearing house in effect where producers of electricity and purchasers of electricity met.

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I have since changed that view, and now, partly through dealing with private monopolies a lot more than I used to, namely, the gas monopolies whose regulatory hearings and quasi-regulatory meetings I attend fairly regularly, I see that privately owned monopoly working at least as well as the publicly owned monopoly in Ontario ever has. The key, of course, is public regulation. Public regulation, combined with private ownership, I think is an extremely potent mechanism for getting the public interest views heard and maintaining leverage over the monopoly.

There is a certain lack of leverage. If we had the Ontario Energy Board telling Ontario Hydro to do A, B, C and D, or select committees – and we’ve all been involved with select committees telling Hydro to do A, B, C, and D – the key question that’s never answered is, or else what? With a private monopoly that’s publicly regulated that answer falls into your lap: or else we cut your rate of return next year. It is obvious. It is a sharp instrument. It is ever present. It makes private monopolies pay a lot of attention to the happiness of the regulators.

My current answer is that except for, for example, the political unwillingness of the population of Ontario to part with Niagara Falls – that I believe is a reality; therefore it would be foolish to lead by playing into the hands of PWU ads, because they’re right, the public doesn’t want to sell Niagara Falls – so let’s not sell Niagara Falls, from a public policy point of view, I don’t believe there’s a part other than the regulatory institution itself that has to be publicly owned.

Mr Laughren: That part of your vision I believe I understand. The second part that I don’t understand is the role of nuclear at the end of the day. Do you see nuclear continuing to be a supplier of energy in the province, let’s say privatized for argument’s sake for the moment, and if so, for how long?

Mr Rubin: The short answer is nobody knows. I’m on the steering committee of the Campaign for Nuclear Phaseout. The title of that organization makes its goals clear. The sooner the last reactor shuts down, in general the happier I will be. I don’t think it’s a good technology. I think it’s a toxic, inherently hazardous technology. That said, it is conceivable the rules could be set up so that neighbours of nuclear stations are protected, so that environmental regulations are enacted, so Mr Andognini and his pals could slap the Hydroids around the face enough times that they behave in an exemplary, near perfect manner for long enough to combine – I mean, he believes that good management can combine high reliability and economic output with safety, with safe management. He can demonstrate, he and his team, some places where that seems to have been happening for the last few years.

Personally I don’t think it’s sustainable in the long run. I think the technology will out. I think ultimately you are dealing with trade-offs between safety and economics, but I’ve been wrong before. I also was willing to bet against the privatization of the nuclear reactors in the UK. It has now happened. They seem to be success stories in combining good management on the bottom line and in the safety indicators. Obviously, if you have to be a neighbour of nuclear reactors, it’s better to be a neighbour of well-run nuclear reactors than poorly run nuclear reactors. If they’re well-run, they will run for longer before they’re shut down, either by irate neighbours or irate regulators or lack of economic performance.

Mr Galt: I would like to follow through with some of the questioning that Mr O’Toole – you were expressing concern about safety. We had a presentation by the Atomic Energy Control Board, a very impressive presentation, and what I’m hearing from you is you either don’t have faith in or don’t trust the AECB.

Mr Rubin: I think that’s right. First of all, the AECB, as I indicated in my presentation today, is trying to push water uphill by trying to enforce safety. The AECB is a tiny organization compared to Ontario Hydro. The incentives on Ontario Hydro are intentionally cockeyed. Ontario Hydro labours under a Nuclear Liability Act that says, just in case your constituents – those of you who represent constituents near nuclear generating stations – suffer losses of billions of dollars due to, god forbid, a nuclear reactor accident, that it isn’t Ontario Hydro’s problem. It’s not on their bill. They have fought recently and hard to make sure that cockeyed law stays exactly where it is.

In that crazy environment in which we have forgiven the potential polluter in advance for doing the unthinkable, it is then extremely hard to enforce safety even if you have enough troops and if they’re sharp enough and if they’re vigilant enough and if they think like critics; in other words, if they’re aggressive, if they’re loyalty is to public health and safety and not to the industry. I have questions about all of those ifs.

Mr Galt: A moment ago you talked about the British system which is of interest and you talked about privatization of nuclear reactors. The man and woman on the street here in Ontario is pretty concerned about privatization of the nuclear reactor. Why do you think this is so great in Britain?

Mr Rubin: I think what’s happened in Britain, as you probably know, is that Maggie Thatcher, determined to build a bunch of new nuclear reactors, and determined to privatize the electricity system, found out towards the end of 1989 that you couldn’t have both of those things, because the private sector would not invest a nickel in existing nuclear reactors, much less new nuclear reactors.

She chose privatization and kept the nuclear reactors in public hands. I thought, as I indicated a moment ago, they would remain in public hands. What has happened since is that the public entity that ran the nuclear reactors in Britain shaped itself up apparently, and whipped itself into shape where, with relatively minor public guarantees to the private owners of nuclear reactors, willing investors could be found. As I said, I was surprised by that, but a number of indicators are up, including their output and including their safety indicators. Tom Adams wants to add a few words to that if he may.

Mr Galt: Just quickly, you’re saying if there’s to be nuclear out there you would prefer it to be private, is that the bottom line?

Mr Rubin: One of the reasons why –

Mr Galt: With good regulations.

Mr Rubin: Again, coming back to what I said to Mr Laughren, I think regulation is much more powerful when whoever is regulated has something to lose. When you’re regulating Ontario Hydro, it’s like regulating the government. It’s not exactly clear what you threaten them with. With a private entity it’s crystal clear.

Mr Adams: I don’t want to leave you with the impression we are advocates of the British system. Keep in mind that when they sold the nuclear plants in the UK, they sold eight stations. The price they obtained was equal to about half of the cost of construction of the last of the eight stations. It’s like building eight houses as a developer and selling them for the price of half of the cost of construction of your last unit. The value of these assets as represented by market prices just shows an incredible, incredible loss to the public purse. So that’s nothing for the British public to be at all proud of. I just wanted to complete your perspective on our views of the UK system.

Mr Galt: You talked in your last recommendation, I think it’s recommendation 5, you don’t exactly say privatization; you talk about breaking up and it’s very suggestive. We’re sitting here with this stranded debt and that’s got to go some place. If that was to happen according to your recommendation, what would you propose be done with this stranded debt?

Mr Adams: We think the stranded debt ought to be divided. Part of it becomes the liability of taxpayers and part of it becomes the liability of future electricity customers.

Mr Galt: For what reasons?

Mr Adams: Well, for a couple of reasons. The primary reason why taxpayers ought to take a portion of this burden is that when Ontario Hydro was borrowing money, we the taxpayers of Ontario co-signed the cheques. So we really, from a legal point of view, have acquired a liability there. Ontario should be good to stand behind its name. We should not walk away from our obligations. That’s an unsavoury prospect, to have taxpayers bail out Ontario Hydro, but I think legally that’s part of the answer. The reason electricity customers ought to pay is related often to history.

One of the groups you’ll probably hear from will be the Association of Major Power Consumers in Ontario and the Municipal Electric Association. Both of those organizations were vociferous advocates for nuclear expansion. Up until very recently they were proposing Darlington B and C and D. Some of the key customer groups are really part of the problem here, so I think it’s appropriate that electricity customers share a portion of the burden.

In allocating costs to electricity customers, one of the things we want to do is ensure we do it in such a way that cost recovery, those surcharges on the bills, interferes as little as possible with the decisions that customers make, or that other energy producers might make. What we’re proposing is something like a transmission charge or a hook-up charge. It’s a cost associated with the privilege of being connected to the grid. That’s unavoidable by customers who self-generate and customers who take all their requirements from the grid.

The Chair: Thank you very much committee. We have gone past the time. Mr Adams, Mr Rubin, thank you very much for appearing before the select committee. I appreciate your time and your interest. The committee will now stand adjourned until the hour of 7 pm. I will remind members of the committee that very light refreshments are prepared for you in the dining room. If we’ll be back promptly on time, please, our next witness is Maurice Strong, the former chairman of Ontario Hydro.