Energy Probe

Tom Spears
The Ottawa Citizen
October 8, 1997

Three earthquake experts say a newly discovered fault under Lake Ontario adds to the risk that Pickering and Darlington, as well as four U.S. nuclear plants, are on shakier ground than anyone thought.

Seismologists Joe Wallach, Arselan Mohajer and Richard Thomas explored the deepest part of Lake Ontario last May.

They say the bottom of the "Rochester Basin" in eastern Lake Ontario has heaved and cracked during the past 11,000 years — recent time in geological terms.

Mr. Wallach says this shows the same fault that still causes earthquakes along the St. Lawrence River extends well into Lake Ontario, and maybe into Lake Erie as well.

Yesterday, he presented their results publicly for the first time at the annual meeting of the Seismological Society of America’s eastern section in Ottawa.

"That area is not as seismically quiet as people would like to think," he said in an interview.

He estimates an earthquake measuring 7 on the Richter scale could happen somewhere along that fault, and says the greatest danger would be if it damaged a nuclear plant and released radiation.

Big earthquakes don’t happen often. Mr. Mohajer, a professor at the University of Toronto, has estimated a big one might happen once in 10,000 years in western Lake Ontario, near the Pickering and Darlington plants.

But there are plenty of smaller quakes. Ontario Hydro has recorded more than 50 little ones, some too small to feel, in the past six years near the lake’s west end.

There have also been mid-sized quakes in modern history.

Ontario Hydro says it won’t comment until it sees a written version of the Wallach team’s study. Hydro has always insisted it built its nuclear plants strong enough to withstand any earthquake likely to hit southern Ontario.

Mr. Wallach is a consulting seismologist who used to work for the Atomic Energy Control Board. His team descended in a submersible to more than 200 metres beneath Lake Ontario last May, and found sheer drops of 15 metres where the lake bed had shifted.

He says it’s almost proven that this is an extension of the St. Lawrence Valley fault — which was supposed to come no farther west than Cornwall.

And he said the rock that has been sliced and shoved around is brand-new rock, formed since the last Ice Age ended a little more than 10,000 years ago. That shows these aren’t just leftovers from earlier earthquakes.

"There’s a whole series of faults (in eastern Lake Ontario) and they’re geologically young," he said. "If that structure goes through Lake Ontario, and I suspect it does, then it definitely has a bearing on the earthquake risk at the nuclear power plants."

"We’re looking at all these things as contributors to an elevated seismic risk," Mr. Wallach said. "It can’t be ignored."

The new findings are the second evidence of a fault near Pickering and Darlington. Mr. Mohajer and others found a fault running down to Pickering from the north in the early ’90s.

And divers have since found "pop-ups" in the lake near Pickering and Darlington. These are places where the rock on the lake’s bottom has been squeezed sideways and heaved up.

He said plants near the fault zone include four U.S. nuclear stations: the Ginna station near Rochester, the James Fitzpatrick and Nine Mile Point stations near Oswego, N.Y., and the Perry station in Leroy, Ohio.

"The more you learn about the nuclear plants and their circumstances, the more dangerous they seem," said Tom Adams of Energy Probe, a critic of the nuclear industry.

Tom Spears
The Ottawa Citizen
October 16, 1997

Bruce A plant may be lost for peak winter season

The giant Bruce A generating station on Lake Huron, which can supply 15 per cent of Ontario’s electricity, has shut down because of rust and cracks and may never reopen.

Ontario Hydro insists it plans to get the plant working again in time for winter. But it needs permission from a federal regulator, which says this may be "difficult."

Meanwhile, one energy analyst warns Ontario may have winter power brownouts if the Bruce A isn’t fixed before the peak demand season of December through February.

The confusing picture of nuclear power in Ontario, in short, just got muddier.

The Bruce A’s three working nuclear reactors, each big enough to power the city of Ottawa on the coldest day of winter, are due to shut down in March. A fourth reactor in the station is already shut down indefinitely.

But late in the summer, the three working reactors had to shut down unexpectedly when Ontario Hydro, which owns the plant, found a new type of corrosion and cracking in it.

Now the Atomic Energy Control Board of Canada, which regulates nuclear safety, says the rust and cracking may be too poorly understood to justify letting the plant run any time soon.

If so, says the board, the plant may not be allowed to reopen before its official closing date next spring.

"The nature of the defects and the inspection technique may make it difficult for Ontario Hydro to make a timely case for short-term operation of any Bruce A units," the board’s safety experts wrote.

The neighbouring Bruce B station, which also has four reactors, is not affected. It is operating near full power.

Hydro says the plant should work again within a month or two. "We’re still planning to restart the units. We haven’t changed from our original position, which was to have them running over the peak period in the winter time," said spokesman Terry Young. "We’re looking at (starting) somewhere in the November-December period."

The loss of Bruce A would threaten Ontario’s energy security for the winter, said Tom Adams of Energy Probe, a frequent Hydro critic.

Two-thirds of Ontario’s energy comes from its string of nuclear stations. But the giant Darlington station has scaled down to just over half power because of computer glitches in its safety systems. Its four reactors are delivering two reactors’ worth of power.

"The remaining issue is: Is any juice coming out of Bruce A?" Mr. Adams said. "The reliability of Bruce A over the winter peak could undermine reliability and cause brownouts, or even blackouts."

The AECB says Ontario Hydro doesn’t even understand what went wrong yet.

"What they have here is a fairly significant corrosion problem," said AECB spokesman Bob Potvin. "The nature and type of this corrosion is somewhat different" from what Hydro has seen before.

"In order for Ontario Hydro to make a case to us that they can restart these things, they have to have a damn good understanding of the nature of the phenomenon, of the rate at which it works, and the progress of this particular defect," Mr. Potvin said.

"Our approval is definitely needed, and before we give our approval they have to give us an awful lot of information that is not there yet," he said.

"So all of that is a pretty significant quantity of work that has to be done by Ontario Hydro. What our people are saying is: Will they be able to do this work? Will it be worthwhile for them to do this work for what is a relatively short-term operation?" he said.

The problem isn’t the reactors themselves. It’s in the boilers, also known as steam generators, attached to them.

A nuclear power plant is just a big steam engine that uses radioactive uranium fuel for heat.

The reactor heats one body of water, and sends it through sealed tubes into a separate tank of water, the boiler. There the sealed tubes of hot water from the reactor act like the heating element in an electric kettle: They boil the big tank of water and make steam. That steam turns a turbine and a generator to make electricity.

The trouble at Bruce A is that some of the sealed tubes carrying water from the reactor are corroding and cracking. The danger is that the water sealed inside has become radioactive by passing through the reactor core, and it would release radioactivity if it leaked.

Tom Spears
The Ottawa Citizen
October 18, 1997

Utility scrambles to revive two reactors at crippled Bruce station

A reactor at the giant Bruce A nuclear station died prematurely yesterday, as Ontario Hydro gave up trying to repair internal cracks and rust.

The fate of two others at the station is still in question. The fourth was shut down two years ago, needing hundreds of millions of dollars in repairs.

As the Citizen reported this week, newly discovered corrosion and cracking inside three reactors at the Bruce A station on Lake Huron has interfered with Hydro’s plans to run the reactors until spring. They were to be shut down then because of poor performance. Instead they were shut down temporarily, pending repairs.

Yesterday Hydro announced its Unit 1 reactor at Bruce will be shut down indefinitely, which was not to have happened before next spring.

Hydro is now throwing its efforts into resurrecting the two remaining reactors at Bruce A, which is near the town of Kincardine. It said yesterday it will try to re-start one in November and the other in December.

The entire Bruce A station and the four-reactor Pickering A station east of Toronto are to be shut down indefinitely next year.

But Hydro badly needs them to get through this winter, when the demand for electricity is highest. Two-thirds of Ontario’s electricity comes from nuclear plants. And each Bruce reactor can supply the entire city of Ottawa on the coldest day of winter.

Hydro was surprised this summer to find corrosion that caused tubes to crack in the boilers attached to the Unit 1. The reactor itself is not damaged, but the tubes carry radioactive water from the reactor into the boilers, where cracks could release radiation.

It checked Units 3 and 4 and found the same problem there, though it has not progressed as far. (Unit 2, the station’s only other reactor, has been closed for two years because it needs repairs worth hundreds of millions of dollars).

This week the Atomic Energy Control Board of Canada said Hydro still doesn’t know enough about the problem to justify re-starting the reactors.

"The nature of the defects and the inspection technique may make it difficult for Ontario Hydro to make a timely case for short-term operation of any Bruce A units," the board’s safety experts wrote.

The board controls nuclear safety in Canada, and reactors can’t run without its permission.

Yesterday, Hydro said it plans to find out what’s wrong fast.

"Due to the limited availability of boiler tube inspection equipment and analytical staff between now and the end of the year, Ontario Hydro has focused these critical resources on Units 3 and 4 at Bruce A and Unit 6 at Bruce B," an announcement from Bruce vice-president Jim Ryder said.

In a printed announcement he said Hydro "has a high level of confidence in successfully re-starting" Units 3 and 4 in the next two months.

The problem is two-fold. First, the job of inspecting boilers is huge.

Each reactor has eight boilers more than two storeys high. Each boiler has thousands of tubes, arranged in bundles, to carry radioactive hot water. And the trouble seems to be affecting tubes at the centres of the bundles.

"It’s a very nasty place to inspect. It’s high (in) radioactivity, and physically difficult to reach," said Tom Adams of Energy Probe, a Hydro critic. Probe predicted a week ago that corrosion and cracks could keep the reactors shut down permanently.

The inspections are so difficult that in the three months since it found the trouble, Hydro has only checked 45 per cent of Unit 1’s boiler tubes. In fact, the boilers had already undergone three months of inspection before the corrosion and cracking were even discovered.

The second problem is that the type of corrosion is new. It appears corrosion slightly deforms the metal tubes, which subjects them to stress, which makes them susceptible to more corrosion, Mr. Adams said.

Mr. Adams said it’s possible that Ontario may face electricity shortages this winter if Hydro is fails to save the two remaining reactor units and the whole Bruce A station remains shut down.

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

——————————————————————————–

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.

October 20, 1997

Based on the evidence of a senior Ontario Hydro official presented to the Ontario Select Committee on Ontario Hydro Nuclear Affairs, Ontario Hydro believes its incremental cost of power over the next five years, mostly from coal-fired stations needed to replace production lost from declining nuclear performance, will be 3.9 cents per KW.h. Even assuming that Ontario Hydro is accurately forecasting its costs, this cost for dirty coal-fired power probably exceeds the total cost of much cleaner high efficiency natural gas-fired power.

On October 6,1997, Ontario Hydro Senior Vice President for Generation John Fox told the Ontario Select Committee on Ontario Hydro Nuclear Affairs:

"We will be increasing our fossil operation by approximately 67 terawatt-hours. This will result in additional coal costs to us of about $2.1 billion over the next five years. Additionally, there’s approximately $500 million total associated with the increased needs of operating the existing fossil fleet, and we anticipate a lost contribution of about $500 million from exiting our export contracts."

Energy Probe’s Tom Adams and Norm Rubin will be making a presentation to the Committee on Monday October 20th from 5-6 PM.

 

Thomas Adams and Norman Rubin
Energy Probe
October 20, 1997

 

Good evening. My name is Tom Adams, Executive Director of Energy Probe. Joining me today is Norman 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 has 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 colleague Lawrence Solomon called Breaking up Ontario Hydro’s Monopoly, Energy Probe has been advocating a power system for Ontario based on the principles of customer choice. Since then we have been continuously advocating competition, fair and open access to the electrical grid for all power producers, financial accountability, and strict environmental regulation.

The purpose of our presentation today is to briefly summarize what went wrong and why, to outline the extent of the nuclear problems that beset Ontario, and to address two questions we consider key to this Committee’s deliberations:

• What can we expect to go wrong (& right) in future?
• Where does Ontario go from here?

We will close our prepared remarks by presenting our recommendations to the Committee.

We have provided materials in a briefing binder for each member of the Committee. The materials, most of which are archival, illustrate some of the key moments in Ontario’s nuclear history. As the materials document, Energy Probe clearly warned Ontario Hydro about the business risks of nuclear investment strategy in 1981, we attacked the official estimates of nuclear cost as incomplete in 1989, in 1989 through 1991 we analyzed a steady decline in nuclear reactor reliability that was already mathematically demonstrable. In all three cases, our predictions based on factual evidence have come true; in all three cases, Ontario Hydro and its political masters continued to increase the province’s nuclear risks despite that evidence.

The scope of Ontario’s nuclear problems are sweeping and grave. The health and security of Ontarians and our environment are threated by the continuing operation of our nuclear plants. Taxpayers and rate payers 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 and the four Darlington units to full service (they are now limited to 55% of their full output due to safety concerns over a design flaw). If these units are not restored or if other unexpected difficulties arise we could see industrial customers cut back, Ontario Hydro appealing to consumers to cut consumption, periodic brownouts due to planned voltage reductions, or worse.

What went wrong, the safety of Ontario’s reactors, and the role of liability

Energy Probe agrees with Ontario Hydro that Hydro’s nuclear problems can be attributed to bad management. But while Hydro’s recent reports focus on bad management of reactor operating staff, our analysis is more fundamental: we think that Hydro’s worst management decisions were made when Hydro decided to "bet" tens of billions of dollars on an experimental, untested, and inherently unsafe technology. That error was made in the 1970s and early 80s. It was 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 — thereby thwarting the short-term goals of Hydro’s critics. They also assured Hydro’s financial and political demise 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 1980’s, 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 cannot work for long.

Even more ominous, Hydro persists in applying wishful thinking to the field of 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’s worth remembering that virtually every analysis of actual technological disasters, from Bhopal to Chernobyl to the Challenger, have found that a root cause of each of those accidents was the owners’ overestimates of the safety of the 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, Ontario Hydro’s insurers would be responsible for the first $75 million of damages, and the designers, suppliers, and builders would not be responsible for any damages at all. 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 defense of this federal law in court. So if (God Forbid!) there is a major reactor accident in Ontario, the polluter will definitely not pay.

Meanwhile, as Ontario’s reactors start to shut down, we are entering a period of instability and risk:

• Morale among Hydro’s nuclear operators is at an all-time low;
• 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, is now correctly seen as a "dead-end job";
• 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.

We believe 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 is 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.

Energy Probe’s Recommendations to the Ontario Select Committee on Ontario Hydro Nuclear Affairs:

1. The eight reactors at Pickering A and Bruce A should be written off and the units permanently closed.

2. The Committee should urge the government to investigate all opportunities for financing future nuclear investments (beginning with Ontario Hydro’s planned ~$1.6 billion for "nuclear recovery") outside the public purse — e.g. out of the ~$9 billion Ontario Hydro pension fund, or by outside-financed equity transfer to Ontario Hydro’s unions.

3. Ontario Hydro’s financial reporting should be thoroughly revised to accurately report all expenditures and liabilities. In particular:

   3a. Ontario Hydro should not be allowed to capitalize any costs related to operating or maintaining its reactors.

   3b. Depreciation of nuclear assets and all financial implications related to depreciation period should be based not on 40 years of reactor service life as is currently the case but on 25 years.

   3c. Nuclear waste disposal and decommissioning liabilities should be funded in an external account. If Ontario Hydro is unable to produce the money (roughly $2.8 billion) it has collected from customers for the purpose of nuclear waste disposal and decommissioning, the government must produce the money, to avoid burdening future Ontarians with the costs of cleaning up after us.

    

4. 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.

    

5. The Committee should recommend that the Ontario Government begin a transition to a world of full nuclear accident liability. The Ontario Government should legislate that as of a date certain in the near future (perhaps 2005) no nuclear reactor will be permitted to operate in Ontario unless its owners and operators are liable without limit for the off-site consequences of a reactor accident, and have demonstrated the capability of discharging that liability.

Thomas Adams & Norman Rubin
Energy Probe
October 20, 1997

Ontario Select Committee on
Ontario Hydro Nuclear Affairs

Background Documents for
Presentation of
Energy Probe

Presenters:

Thomas Adams, Executive Director
Norman Rubin, Director of Nuclear Research

October 20, 1997

EnergyProbe
225 Brunswick Avenue, Toronto, Ontario M5S 2M6
Telephone (416) 964-9223
Facsimile (416) 964-8239

 

 

Contents of Energy Probe’s briefing binder to the Select Committee on Ontario Hydro Nuclear Affairs

Part One: A Pattern of Unaccountability

Tab 1: Correspondence between Norman Rubin, Energy Probe, and Hugh Macaulay, Ontario Hydro (including Energy Probe press releases), February to April 1981.

Three letters delivered to Ontario Hydro’s Directors before three successive crucial Hydro Board meetings — meetings that could have saved Hydro from its present fate. In the letters, Energy Probe’s Norman Rubin presents Hydro’s Directors with the evidence — most of it from Hydro’s own documents, or from other utilities — that Hydro’s aggressive expansion program (especially the construction of the then-barely-begun Darlington nuclear station) threatened the Corporation with financial ruin. Energy Probe offered to "arrange presentations by one or more international experts on utility forecasting, financing, and expansion." Hydro Chair Hugh Macaulay’s February 16 response, declining Energy Probe’s offer and dismissing its concerns with scorn, is powerful testimony that even a very intelligent person can make, and justify, foolish decisions when put in a position of virtually total unaccountability. In our submission, neither Hydro’s present Directors nor their political masters are significantly more likely to be held personally accountable for today’s nuclear investments than their predecessors.

Tab 2: "The Draft Demand/Supply Planning Strategy Review — Ontario Hydro’s Response to Select Committee Recommendations", by Ontario Hydro, March 1989 (copy of Norman Rubin’s annotated desk copy).

This document, like many others, demonstrates Ontario Hydro’s unaccountability to this Select Committee’s predecessor. Required to respond to the Committee’s recommendations on Hydro’s approach to creating a 25-year expansion plan, Ontario Hydro alternatively ignores, patronizes, and misrepresents the Committee’s generally sensible recommendations. More fundamentally, Hydro avoids actually changing its strategy, even where the Committee has apparently recommended it do so, by finding sections of it strategy that can be interpreted as somehow enveloping the recommendation for change! (Hydro’s annual responses to the recommendations of the Ontario Energy Board are generally similar, though they usually rely more heavily on new information, only made available to Hydro after the end of the O.E.B. hearing.)

Part Two: Costs, Liabilities, and Financial Risks

Tab 3: "Too cheap to be true: Uncovering the real cost of nuclear electricity" by Norman Rubin, Energy Probe, 1989.

In 1989, Energy Probe corresponded with Ontario’s Deputy Minister of Energy regarding Ontario Hydro’s estimates of nuclear cost and the findings of the Ontario Nuclear Cost Inquiry, chaired by Ralph Brooks. This document examines the missing cost factors, the undercounted costs, and the heroic assumptions which made Ontario Hydro’s estimates of nuclear cost too low and the conclusions of the Ontario Nuclear Cost Inquiry inaccurate. In our 1989 analysis of the "business risk" of Hydro’s nuclear investments, we concluded, all too prophetically, "The downside includes items like a chance of a general lack of plant reliability, lack of electrical demand growth, competition from newer sources, need for safety upgrades or shutdown, and many other potentially serious occurrences." (See the last page of Appendix A.)

Tab 4: "Statistical modeling of nuclear performance decline" by Thomas Adams, Energy Probe, 1991.

In 1989, Energy Probe created a statistical model explaining the ongoing deterioration of Ontario Hydro’s nuclear production as a function of aging and presented it to the Ontario Energy Board. The model was subsequently improved and presented in two subsequent Ontario Energy Board annual rate reviews. Ontario Hydro, the Association of Major Power Consumers (AMPCO), and the Municipal Electric Association (MEA) opposed the use of the model and its conclusions, arguing that aging was not a factor driving nuclear performance decline, and that the declining trend in nuclear performance would reverse. This document is the last of the series, and led to an Ontario Energy Board recommendation that Ontario Hydro examine the impact of aging on its reactor performance. Subsequent reactor performance shows our model to have produced a reliable forecast.

Tab 5: "Taxpayers on hook for Hydro mess: Reactor shutdowns make shambles of plan to pay $15B cleanup bill" by Tom Spears. Ottawa Citizen, August 19, 1997.

A summary of the unacceptable, unsustainable situation of Hydro’s totally unfunded legacy of radioactive wastes and reactors. Ontario Hydro has not established an actual fund to finance reactor decommissioning and radioactive waste disposal — despite a recommendation from Hydro’s 1994 Task Force on Sustainable Energy Development (SED) and approval in principle from Ontario Hydro’s Board of Directors on June 13, 1994. We have been informed by Hydro officials that they believed that the fund could not be established without amendments to the Power Corporation Act, and asked the previous Ontario Government for such amendments and were refused. As a result, not one penny has been set aside, of the roughly $2.8 billion collected from ratepayers ($2.601 billion by the end of 1996), or of the remaining $12 billion required to do the job according to Ontario Hydro’s own estimates.

Part Three: Safety — In the Eye of the Beholder?

Tab 6: "Branch Strategic Planning Initiative: Input Regarding Nuclear Safety" and "Safety Report Updates: Issues Addressed, Impacts Arising and Benefits" — two internal Hydro memos by J.C. Luxat, Thermal-Hydraulics Engineer, Nuclear Safety Department, November 1991. (Exhibit 1022 from the Nuclear Liability Act trial.)

In response to criticism from other Hydro staff that Hydro’s Nuclear Safety Department (NSD) looked too hard for safety problems, "generates too many design changes because we retain excessive conservatism in our analyses and do not `sharpen our pencils enough’", a nuclear safety engineer corrects these false impressions. When periodic updates to safety-critical reports find that required safety levels aren’t being reached, actual changes that increase safety "are, generally, considered as the means of last resort to resolve unacceptable results." Another benefit of having a talented Nuclear Safety Department working for Hydro is to prevent the AECB from resolving safety issues "simply by telling us to correct apparent design deficiencies . . ." The impression that CANDU safety analysis is characterized by large amounts of conservatism is false, though it "appears to be prevalent amongst some people not directly involved in safety analysis." (We fear that it is prevalent among AECB Board members as well.) Finally, Mr. Luxat presents a lengthy set of tables of safety problems that could have led, but did not lead, to "design changes, tighter operational limits or modified trip setpoints [a kind of tighter operational limit]." Instead, most were resolved "through additional, more extensive analysis" which in many instances had not yet been formally accepted by the AECB as valid. (According to our recent follow-up, some of these issues still haven’t been resolved six years later, although the reactors continue to operate.)

Tab 7: "Uncertainty, Reassurance and Nuclear Safety", by Peter Fraser (now an employee of the Ministry of Energy, Science and Technology), in Energy Studies Review 1990.

In 1987 and 1988, Peter Fraser, a physicist and former employee of AECL, was the staff scientist for the Ontario Nuclear Safety Review chaired by Dr. Ken Hare. The conclusion of Hare’s report was often quoted by nuclear industry advocates and Ontario government officials as endorsing the safety of Ontario Hydro’s reactors. In this paper Fraser argues that the content of Hare’s report, particularly the extensive evidence in the body of the report about uncertainties in nuclear safety issues, is at odds with the confident tone of its principal conclusion about safety.

Tab 8: The Hazards of Old Reactors, by Tom Slee and Norman Rubin, Energy Probe, 1987.

This document was one of Energy Probe’s four submissions to the Ontario Nuclear Safety Review. It discusses the safety significance of nuclear aging and documents many safety problems created by aging and obsolescence. The document examines deficiencies in the functioning and approach of the Atomic Energy Control Board. The document also examines the problem created by improper liability limitation for nuclear operators and its role in increasing risk to the public.

October 27, 1997

Power privatization and competition introduced in the electricity market in the State of Victoria, Australia in 1994 has caused electricity prices there to drop for homeowners by 6% in inflation adjusted terms. The rate drop has occurred despite unexpectedly high prices paid by the new owners of the electricity system after an intense bidding war broke out during privatization.

first in the UK in 1989, a system which has so far resulted in UK homeowners seeing their rates drop by 15% in inflation adjusted terms The model of electricity reform used in Victoria was adapted from a system used rms.

October 28, 1997

Fears We May Freeze in the Dark, and Ontario Hydro’s Hemispheric Expansion Plan Exposed

Ontario Hydro has decided to increase some industrial rates in 1998 and will decide whether to increase general rates for the Province at a meeting November 10, according to internal correspondence provided to the Ontario Select Committee on Ontario Hydro Nuclear Affairs from Ontario Hydro’s chairman William Farlinger to Ontario’s new Hydro minister, Jim Wilson, dated October 15. Ontario Hydro is now seeking a special exemption from the Harris government from the existing legal requirement to present the rate increases to the Ontario Energy Board for public review before they are implemented January 1, 1998. The pressure to increase rates results from Ontario Hydro’s faltering nuclear program.

The same letter, which reports on Ontario Hydro’s October 7 Board meeting, states that Ontario Hydro is reviewing the reliability of the province’s electricity supply and is considering its "ability to meet Ontario customer capacity and energy demands during the winter of 1997/98." The utility informed the minister that "continency plans are in place to provide load relief, if necessary." At the same meeting, Ontario Hydro’s board approved a deal to supply Shell Canada Products Limited with subsidized power in return for Shell’s agreement to shelve its self-generation plan for three years. At its meeting April 15 of this year, Ontario Hydro agreed to subsidize Domtar in return for its agreement to not self-generate at its Packaging Facility in Red Rock for five years. Industrial self-generation is usually at least twice as energy efficient as comparable Ontario Hydro’s generation and reduces demands on the Provincial grid.

Unchastened by its investment and operational problems in Ontario, the documents reveal that Ontario Hydro is planning a large investment and marketing expansion in the Western Hemisphere. Ontario Hydro’s "Corporate Strategy", adopted July 9, 1996 but not previously released publicly, indicates that it is targeting "a North American market for energy sales and services." The "Corporate Strategy" says that Ontario Hydro will "search for merger and acquisition opportunities as well as strategic partnerships and alliances with other energy and services providers which will allow commercial growth and add value for consumers." At the March 14, 1997 meeting, Ontario Hydro’s directors decided to invest up to US$100 million in the Latin America electricity sector. At the June 10 meeting of Ontario Hydro’s board, it approved in principle "a Gas Convergence Strategy which establishes a continent-wide presence in energy trading/marketing as a new core business involvement."

Tom Adams

October 30, 1997

 

Introduction

This document scopes some of the environmental issues that might inform the design of a CMO for Ontario. It is intended that this document will assist TAT Team #3 in deciding what environmental issues it should consider for further examination. The document is intended for circulation to all interested parties and the author invites any comments.

One of the guiding principles used in drafting this document is that the CMO, as a pure intermediary, should not be responsible for the environmental impacts of power production upstream of the CMO or social considerations related to consumer behaviour downstream.of the CMO. Some advocates propose that the CMO be responsible for dispatching on an environmental merit order and propose adders that do not flow through to price directly. Some also suggest that the CMO should be responsible for DSM. Some have suggested that the CMO might play a role in collecting environmental surcharges on imported power. Those approaches are not adopted here.

There are actions the CMO can take to facilitate some types of environmental initiatives. An example that is discussed here is green power marketing. In addition, a discussion is included here about some of grid access rules that might have particular significance for distributed generation.

This note does not address the issues of appropriate environmental regulation mechanisms or the environmental rules that might apply to suppliers to the Ontario market or users of the Ontario transmission system who are located outside of Ontario

Items that might go forward for further examination are identified as bullets.

Green Power Marketing

The basic concept of green power marketing is that individual consumers might someday be able to discriminate between power suppliers and might exercise this choice in favour of renewables, "ABCAN" (i.e., Anything But Coal And Nuclear), or similar products. Some advocates, including Energy Probe, hope that customer choice could promote renewable supplies without making renewables suppliers dependent on government or regulatory intervention for set-asides (which have been proposed by IPPSO in its submission to the Macdonald Committee). Optimistic green power supporters expect that bidding up the price of greener, more efficient sources, might have the effect of depressing the price of "black energy", an effect that would tend to retire or phase out less preferred options more quickly than would otherwise be the case. Green power is now being sold at a premium value in some jurisdictions.

In my view, green power marketing schemes should address the environmental consequences of the electricity required to meet green market requirements, not the particular technology required to generate the power (although there is often a relationship). It is important that the emissions profile of all units, new or otherwise, be reflected in the value of the unit (in part because such valuation will help get less environmentally preferred units shut down faster). One way to ensure this is to encourage existing units with environmental advantages (i.e. existing hydropower) to sell their product into a premium green market. A problem with this approach is that attaching a preference label to existing resources does little in the short run to promote changes in the generation mix.

Measurement, quantification and reporting, all of which the CMO might play a role in, are important for the credibility of green power products. Some kind of an independent auditor (perhaps the CMO or a separate industry-sponsored body) will be required to check up on marketers claims, see that it was any power claimed to be produced actually was, and confirm any claimed amount of emission reductions. In Ontario Hydro’s discussion paper "A Regulatory Framework to Promote Sustainability (29 February 1996), the suggestion is made that generators could be required to submit annual environmental reports which describe the impacts associated with the generation it is selling into the Ontario market. This proposal would help make the auditing function transparent.

A key verification issue is double counting. Green power markets must be able to demonstrate a one-for-one correspondence between "green" power sold and green power produced/procured. The CMO could report periodically on the balancing for green power producers/marketers.

There has been some of public discussions of the alleged "green washing" by green power marketers in New England. A basic problem for green power is to be that usage of the grid allows only an indirect interface between customers and producers. Another basic problem relates to the incrementality of alleged "green power". Attachment 1 and 2 discuss these issues.

The choice of a "poolco" or a "bilateral" market/dispatch mechanism would have implications for green power marketing. In a marginal price pool-based power market, one method of dispatching green power would be to have green power producers under contract with consumers for an environmentally enhanced product to bid a zero price when available (wind power producers and perhaps others will probably want to do this anyway). In order to calculate foregone emissions, all producers would have to report the type of facility they are using and producers serving the green power market might be required to identify themselves. The displaced emissions should be easy to verify by looking at what would have happened without the contracted green power. Consideration might be given to having all the information in the dispatch bidding public. A contract for differences between producers and consumers will probably require terms to specify minimum running requirements for the environmentally preferred units. Some standard balancing calculation–for example annual production or procurement meeting annual sales–might become an accepted standard for such CFDs.

Some environmentalists advocated a bilateral market and dispatch mechanism, the attraction being a perceived enhancement of transparency and assurance of "greenness". Specific minimum running requirements for particular units will be required in a bilateral market. The load balancing methods used in the bilateral market will have to be audited, as it will under the pool approach.

Recommendation

• Team #3 might seek examples of actual or proposed green power contracts from jurisdictions with different market and dispatch mechanisms.

   

System dispatch, generation reserve, and transmission pricing

Dispatch rules for intermittent generation should be established by the CMO. Day ahead bidding and/or scheduling could present a significant problem for intermittent units, particularly if bid quantities must come in the form of hourly or half-hourly firm deliveries.

If a pool is adopted, the design of the pool needs to allow non-dispatchable/intermittent units (like wind) to bid a zero price. Some advocates like Enron suggest that a price of zero "contains no information". My view is that the volume available at a price of zero is a matter of significant informational content. Unless, a large portion of the power supply comes from such non-dispatchable sources, having some zero bid power may not present a issue requiring resolution.

The method used for managing reserve requirements may have to take special account of intermittent units. The principle that should apply is that generators should be responsible for their own reserve requirements. Should there be a pool, intermittent generators may receive pool payments that reflect any special reserve requirements these units impose on the system. If the market share for intermittent units is small, the reserve impacts will be small, but that should not justify ignoring the problem.

Transmission access and pricing will be a particularly important for distributed generation. Some method of locational pricing of power or at least valuation of regional voltage support should be used by the CMO. Ultimately, the result should be some fair method of crediting local suppliers for any transmission system cost avoidance.

Recommendation

• Team #3 might seek information on how wind power is dispatched and marketed in Alberta.

   

*******************

Attachment # 1

GREEN SHELL: Clean Power’s Dirty Secret

June 1997

By JON ENTINE

Special to The Progressive Populist

The coming deregulation of the country’s last monopoly, electricity, has some mega- utilities and New Age "green" marketers working hand-in-hand, with both poised to reap a financial windfall. Consumers and the future of green energy may not fare as well.

Many renewable energy advocates contend that this alliance may slow or even end the move toward a viable, long-term clean energy market. The result of the current deregulation strategy, they say, would be to create dozens of energy marketing "shells" with little protection for consumers or assurance that renewable energy will have a significant place in the future energy mix.

This problematic union comes with the quiet blessing of two lobbying groups that normally are at odds: ultra-conservative Republican lobbyists and high-profile environmentalists. It’s an uncomfortable relationship, with each side betting it can ultimately control the process.

Congress and many states are laying the groundwork for the breakup of the electric utility industry. They are using as a model the deregulation of long distance service, which has reduced rates for long distance users, although costs for basic phone service have gone up. Studies indicate that competition could shave as much as 40 percent off the average electric bill, although the greatest savings are expected to go to industrial and large-volume consumers.

At stake is an estimated $220 billion a year spent on electricity generated by private industry. At risk is the future of the fragile renewable energy market which seeks to develop long-term alternatives to dirty fossil fuels and potentially dangerous nuclear energy. The potential spoils from energy deregulation has led to an unusual alliance between energy deregulation supporters and green pricing advocates:

House Commerce Committee Chairman Tom Bliley, the Virginia Republican congressman also known as Mr. Tobacco, who is favorite of the nuclear utility industry and a strong free-market advocate;

 

 

Working Assets Long Distance, which has become a successful niche long distance telephone service provider by leasing lines from Sprint and tacking on a hefty green premium;

 

New England Energy Systems, ENRON, Northeast Utilities and othe major utilities and marketers who expect to become major players in the deregulated future;

 

Mainstream environmental groups like the Natural Resources Defense Council and the Environmental Defense Fund which have reluctantly supported the write-off of utility debts in exchange for utility support for "clean" energy projects;

 

Large utilities with billions of dollars in money-losing investments in nuclear facilities – Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric are prominent examples – which have aligned with mainstream environmentalists.

 

Based on the early returns in New England, green pricing has not faired nearly as well as advocates hoped. In pilot deregulation projects in New Hampshire and Massachusetts, electricity rates have dropped, but almost entirely as a result of below-market pricing by marketers angling to net customers. Rates will kick up considerably with full deregulation. State officials also say that the pilot has resulted in no clean energy being added into the overall energy mix, despite crafty promotions by green marketers who are charging consumers a price premium over other pilot participants.

Green Debits at Working Assets

In 1996, New Hampshire became one of the first states to open a fraction of its market — 3 percent — to competition. The most aggressive social marketer is Working Assets Green Power, a sister company of Working Assets Long Distance. The San Francisco-based company has developed a loyal following generating upwards of $500 million a year in revenue by giving away pints of Ben & Jerry’s ice cream and donating 1% of billings to activist social causes.

"Working Assets offers New Hampshire consumers NUCLEAR FREE ELECTRICITY," screamed a company press release. "No coal or Hydro-Quebec power either." CEO Laura Scher not only pitched clean energy, but low prices. "We are offering people a chance to save money and save the environment at the same time," chortled CEO Scher. Working Assets lured consumers with promises of "solar" and "wind" power, and Scher mused about the day her company could offer 100% renewable energy.

But Working Assets’ promises appear more green wash than green power. It charges its trusting customers the most of the thirty-odd pilot participants, as much as 53 percent more for an energy mix that is overwhelmingly nuclear, coal and oil. Not one electron in New England comes from solar or wind generators.

Working Assets has used similar green marketing tactics in its other businesses. Although CEO Scher is regarded as a star in the socially responsible business movement – she is on the board of Business for Social Responsibility and has been a featured speaker at the Students for Responsible Business annual gathering – her company’s most distinctive characteristic is not its vanilla collection of commodity services but its marketing acumen. Working Assets offers electricity, telephone access, Internet connection, credit cards and paging services through relentless campaigning on "liberal" issues, from gay rights to ‘saving the environment.’ It is best known for its full-page advertisements in liberal publications like Nation, E-Magazine and Utne Reader urging its customers to "save the world" by making lots of long distance calls.

Working Assets is structured like a classic "green shell" thriving on the idealism of its customers and feeding off the scraps created by the loosening of controls in the telecommunications industry. It has no proprietary products, but offers "pass-through" services developed by other companies.

Working Assets offers a consumer-unfriendly multi-tiered rate structure which defies consumer scrutiny. A quick call to familiar overseas destination like the UK can cost as much as 80 cents versus 12 cents for AT&T and MCI. Domestic rates tower over its competitors. While it claims its long-distance rates are "lower" than the "Big Three", they range from 33 percent more on domestic calls to 400 percent or higher than AT&T, MCI and Sprint on international calls. Working Assets rates range from 12 cents to 32 cents per minute using an indecipherable two-tiered, multi-celled plan based on mileage. Its competitors long ago switched to consumer-friendly one or two-rate plans.

Using numbers supplied by WALD, a long distance telephone customer that

it charges $1,450 a year would pay AT&T about one-third less under

AT&T’s One Rate Plus plan and 17% less than AT&T and Sprint’s no-fee

one-rate programs. Working Assets does pledge to contribute one percent

of billings to charity, which would amount to about twenty-five cents on a typical $25-a-month bill. The extra $24.75 would go into Working Assets’ bulging pockets. Smaller competitors like Affinity and EarthTones have lower rates and simple one-rate plans, and kick back a far larger slice of their profits to environmental causes.

Working Assets also offers a credit card with rates set at 18.65 percent far above the national average, and an uncompetitive Internet service. On the other hand, it has appealing ads with smiling lesbians

and pints of Ben & Jerry’s ice cream which it gives away "free" to

customers. We can only assume that Working Assets has learned that there

are plenty of environmentalists and gay activists who are eager to pay a

hefty "green premium" for what amounts to commodity services.

Brown Energy from Green Marketing

Until its dalliance in the green energy market, Working Assets green

marketing strategy could be considered little more than clever

marketing. The stakes in the energy business are far higher, however. To

the extent that it, or any company, was seriously committed to offering

cleaner energy, it could have contracted with hydro or renewable

generators who actually generate "green" electrons. However, Working

Assets did not contract with alternative energy producers, or even

propose a plan to nurture development of green energy.

It turns out that Working Assets buys its energy from New England Power

Company (NEPCO), a subsidiary of the $2.3 billion New England Electric

System (NEES), the region’ s

second largest utility. It’ s also the "dirtiest", according to Rob

Sargent of the Massachusetts Public Interest Group. NEES holds shares in

four nuclear power plants (including Seabrook 1) and has 40 Superfund

toxic waste sites. On the other hand, NEES has pledged to shutdown some

of its oldest coal plants.

As is increasingly familiar in the self-righteous green business

movement, reality is a lot messier than the rhetoric. The energy brew

that heats the designer coffee and toasts the morning bagel in the homes

of Working Assets’ trusting customers is generated almost entirely from

coal, nuclear, oil, natural gas and sources with some and hydropower.

Working Assets got away with its green branding tour de force because

under the deregulation pilot, marketers did not have to disclose energy

sources. And since everyone in the region, draws off the regional energy

pool, the identical electricity mix goes into all homes.

Stung by criticism, CEO Scher released a carefully-worded mea culpa,

saying that, "Time constraints limited our ability to incorporate more

renewable sources and work more closely with environmental groups." More

than a year after rebuffing disclosure requests from renewable energy

advocates, Scher also disclosed that Working Assets had arranged to

purchase shares of the output from 11 of NEPCO’ s power plants,

including hydroelectric,

natural gas, landfill gas, and oil-pumped storage facilities. "None of

these sources are nuclear plants [sic], Hydro-Quebec (which destroy

lands) or coal facilities," Scher now writes.

Working Assets is not the only company pushing the green marketing hot

button. Northeast Utilities, the primary owner of the region’ s nuclear

capacity, recently offered

customers in the Massachusetts pilot 100% hydroelectric power. Both

supply already-generated electricity from current sources, but arranged

for accounting contracts to justify their green market pitches.

Critics have raised two issues with the Working Assets/ Northeast

Utilities marketing claims in New England. Customers were not told that

all energy producers, clean and dirty, send their electrons to a central

grid where they are mixed and sent into homes. So regardless of where

the power is generated, everyone gets the same energy mix. According to

the New England Power Pool, 26 to 60 percent of that energy is nuclear.

Most of the water generated power comes from Hydro-Quebec. Less than 5

percent is non-hydro renewables, primarily

landfill gases and trash-burning incinerators.

The second criticism goes to the issue of whether green marketing will

result in more green energy. MIT economics chairman and NEES board

member Paul Joskow says that green marketers in New England did not

contract for any additional cleaner energy to be fed into the grid, but

merely rearranged existing contracts. "They’ re basically reselling

contracts that have been designated for hydroelectric facilities, for

example, that have no short-run effect whatsoever on the dispatch of

generation in the area, and have no positive effect on the environment."

And none of the marketers engaged the complex issue of what constitutes

green power – and whether nuclear energy is one viable alternative in a

long-term cleaner energy policy. In fact, nuclear energy is renewable

and with advances plant design and in deep core disposal technology,

many environmentalists consider it a better alternative to coal

generation.

In her defense, Working Assets CEO Scher says her intention is to

create a "critical mass" of demand so that "green" companies like

Working Assets will be able to offer "real" green energy in the future.

Debate Over Green Pricing

These revelations have sparked considerable outrage among renewable

energy advocates, who have repeatedly warned about the dangers of a sappy

affair with green marketing. One likely outcome, they say, is that in a market

dominated by major utilities and hot-button green marketers, and without

a comprehensive plan, slack demand could permanently relegate "green"

energy to a niche product.

The free market green pricing strategy represents a fragile tactical

alliance of conservatives and some key environmentalists. EDF and more

recently the Natural Resources Defense Council appear to have climbed on

the free-market bandwagon. Their goals diverge, however. While key

congressmen, such as Bliley, collect huge contributions from deep-pocket

utilities – USA Today estimated that energy industry lobbyists expect to

spend $50 million on this issue alone in 1997 – environmental advocates

are betting that there will be a steady increase in demand for cleaner

energy supplies, even at boutique prices.

That outcome rests on the risky demand-side proposition that residents

will pay more for so-called "clean" energy. Despite surveys that claim

that 60 percent of electricity customers would pay marginally more for

"green" energy, Working Assets was able to sign on less than 100 New

Hampshire homes and 750 customers in Massachusetts. Overall, only 1.2

percent of those eligible to participate in the Massachusetts pilot

chose the green option. The figures are far below predictions, and raise

concerns that the premise on which green pricing is based, backed so

fervently by the mainstream environmental groups, may be fundamentally

flawed.

EDF and NRDC argue that it is too early to give up on the free-market

model. California, which is the big enchilada of energy deregulation, is

building in mechanisms that should result in more clean-generated

electrons being added to the mix. In other states, like Colorado,

Minnesota, and Michigan, some marketers are actually proposing to add

wind-generated energy into the mix; Arizona Public Service has announced

a solar project. But energy advocates warn that without continued

regulations, these projects may relegate alternatives to permanent niche

status as boutique premium-priced products. The mix will only change,

they say, if increased demand for "green power" causes existing

renewable-fuel plants to be utilized more, or new plants to be built,

while nuclear and coal plants are shut down. But producers are not

likely to mothball less expensive "dirty" plants as long as customers

are willing to buy that output.

Undeterred, the Environmental Defense Fund recently jumped into the

green marketing game with two very different projects. In May, it

announced a deal with the Bonneville Power Administration to offer

"environmentally beneficial" energy at premium

prices. But as with the New England offerings, no new alternative energy

is being generated. In contrast, EDF has established a joint effort with

Massachusetts-based ReGen Technologies to add wind and solar electrons

to the New England grid.

In California, where full-competition begins January 1, the Natural

Resources Defense Council gave its blessing to a plan that will forces

consumers to pay for some of the utilities debt from unprofitable

investments in nuclear plants in exchange for the utilities’ backing of

green energy projects.

Citing support for green energy voiced by Bliley and other nuclear

utility industry supporters, renewable energy advocates warn against

deregulation fever. It "attacks the basic role of government to control

the power of monopoly corporations," claims Ed Maschke, executive

director of the Public Interest Group in California. "It is set up by

the political contributions of the large industrials who demanded and

got access to cheaper power

wheeled from other suppliers … and see [deregulation] as a brass ring

in paying off decades of bad economic decisions."

"The sham green power marketing schemes offered in some areas," adds

Bill Magavern of Public Citizen, "are already being used by

anti-environmental leaders as a rationale against enacting federal clean

air and other measures protections" to support the development of

renewables and energy efficiency.

Shake Out in the Environmental Community

The outbreak of misleading claims by social marketers was a major issue

at a recent Attorneys General meeting in Washington, DC., where New

England officials presented the details of their less-than-successful

experiences. Yet the alliance of the huge utilities with mainstream

environmental groups and conservatives in Congress could very well

result in utility deregulation going forward with little monitoring and

few if any disclosure requirements. The promise by deregulation

advocates of lower prices may

also turn out to be a mirage. The below-market teaser rates now

available in Massachusetts and New Hampshire will certainly go by the

wayside once the pilot period ends and companies have to pass along the

"stranded costs" from years of investments in problem-riddled nuclear

energy.

The green market controversy has exploded inside the environmental

community like a bombshell at a family reunion. In an attempt to

preserve its fragile alliance, mainstream environmental groups have

tried to keep the issue out of the press. However, the tight ship of

"silence" has begun springing leaks. Articles have already appeared in

some environmental journals, including an editorial in Energy magazine. But

other liberal magazines usually hot to crusade for environmental reform

have inched away. Although editors at E-Magazine was interested in

running with the story, they reportedly told writers they did not feel

comfortable criticizing "green businesses" with "good intentions," and

were reluctant to step on the toes of such a major advertiser as Working

Assets.

Paul Jefferiss of the Union of Concerned Scientists warns that the

romance with green marketing risks turning the future of renewable

energy over to those least interested in nurturing it. "We believe," he

said, speaking on behalf of the UCS, "that the biggest risk to

renewables development now is reliance on the unproved assumption that

renewable energy will prosper without policy support in competitive markets that

ignore external costs and benefits."

Renewable energy advocates note that similar to recycling, it may take

years before there is enough demand for renewable energy that is price

competitive with fossil fuels. Until that time, caution and deliberate

controls remain necessary. Adds Maschke, "In the end, deregulation is a

sham. At a time when we need focused regulation to increase

conservation, we are leaving this to the market."

The big test for green pricing comes in California. All sides stress

that for green energy to become a viable option, accountability and

disclosure are key. "Building a market on fraudulent advertising,"

remarked MIT economist Joskow, "is not a long-term formula for success."

***********

Jon Entine is a maverick journalist who specializes in business ethics.

He won a National Press Club award in 1995 for "Shattered Image: Is The

Body Shop Too Good to Be True?" published in Business Ethics magazine.

He has also written extensively on the questionable marketing of Amazon

"rainforest" products. His work appears in progressive journals like

Utne Reader, Dollars and Sense, and The Progressive Populist, as well as

mainstream publications including The Chicago Tribune, The Sunday Times

(UK), The Toronto Globe and Mail, and The Guardian (UK).

Entine has also won more than a dozen major awards for his television

reporting with ABC News and NBC News, including two Emmys for

documentaries on reform movements in China and the former Soviet Union.

He lectures on business and journalism ethics, has been a featured

speaker at the Natural Products Expo, and is finishing a book for

Macmillan on why blacks dominate sports based on his award-winning NBC

documentary "Black Athletes: Fact and Fiction." He is also an active

member of Business for Social Responsibility and Co-Op America.

Entine can be reached at (614) 258-9492; Email: runjonrun@earthlink.net

Excerpted from the article of the same name in;

The Progressive Populist, vol. 3, #6, June 1997.

copyright Jon Entine

All rights reserved

*******************************************************************

Appendix 2

(This is the first draft from summer ’97 of "Standards for Canadian Green Power" by Jason Edworthy, President, Nor’wester Energy Systems and Executive Director, Vision Quest Windelectric Inc.. A revised draft is not yet complete.)

Hello Group.

As discussed, here is a first cut at Standards for Canadian Green Power. It focusses on Electricity, and proposes six major criteria, with a variety of sub-criteria.

Please review and comment on these to the group. I hope this stimulates constructive discussion. I hope to have these reviewed over the next two weeks, then issue Round 2 versions.

Worries: I worry about these becoming too complex and/or too beaucratic. Let’s try to keep them as simple as possible. I also worry about clarity, especially to those outside of the group – we must be clear enough that there are no misunderstandings. I also worry about tangential discussions – if a discussion or thread starts which needs to be discussed, I would encourage that to be a separate thread, that when resolved is brought back to this one.

Thanks everyone – I look forward to your responses!!

Jason Edworthy

PS. The work follows as text below. If you want a Rich Text Format version as an attachment, please email me privately and I will be pleased to send it to you.

——————————————-

Green Energy/Emissions-Free Energy Standards – DRAFT

1.Electricity

Electricity is the main form of Green Energy currently under consideration. It is, however, likely that other forms will develop (see further discussion below)

1.1 Technology

The technology from which the electricity is derived or generated is the main criteria, but is closely related to others below since each technology has its own merits and pitfalls. There is confusion in the minds of the consumer about such concerns as: Which is greener, product X or Y? What is the difference between Green, Greener, Greenest? Is a blend or mix of technologies valid, or is it Greenwashing? In these draft criteria, the technologies are divided into Emissions-Free (the no brainers ) and Emitters (the ones that have smokestacks anyway). This division is purposely based on the optics, and at the burner tip , rather than the more contentious full fuel cycle determinations.

1.1.1 Non-Emitters

1.1.1.1 Solar PV. Photovoltaics operate without emissions of any kind. This does not include hybrids, and most likely will include the new grid-connected mini inverter systems.

1.1.1.2 Solar Thermal. These are the somewhat rare Luz type systems, where mirrors are used to heat fluids for fairly conventional steam turbines.

1.1.1.3 Wind. Windfarms or individual wind turbines.

1.1.1.4 Small Hydro. Run-of-the-river type (no flooding or dams purpose built, may take advantage of existing civil works). Other definitions suggest this must be under 15 (or 20?) MW, but this should be discussed (why limit it, if you have the other parts of the criteria?).

1.1.1.5 Other: fuel cells? other?

1.1.2 Emitters

1.1.2.1 Bio-mass (wood or wood related burning). Various versions of these technologies, without sustainable forestry practices are just about the same as coal for emissions.

1.1.2.2 Municipal Waste. Includes all sorts of materials from garbage to tires, even restaurant grease. Not much known about what sort of emissions, but must be specific to fuel type.

1.1.2.3 Sewage/Landfill Gas. Burns methane which leaks to atmosphere and converts it to carbon dioxide and other products.

1.2 Track-ability

Measurement, quantification and reporting are important for the credibility of these products. To say a product is cleaner or emissions-free without hard numbers and backup is in reality fraudulent. These products must be real, credible, instill trust, provide value, and ensure consumer protection.

1.2.1 Measurable. Must be able to accurately measure the energy, as in a certified metering system.

1.2.2 Demonstrable Emissions Improvement. Must be able to demonstrate that there is an offset, mitigation, reduction or avoidance of emissions with these technologies. Preferably a permanent one, not just storage or temporary sequestration.

1.2.3 Measurable Emissions Improvement. Not only must we demonstrate it, but it must be quantifiable by some means.

1.2.4 Verifiable. An auditor should be able to check up on the product, see that it was produced, it did result in reduced emissions somewhere, and the amount of reduction can be justified. This should also catch and prevent double counting .

1.2.5 Reportable. If the above criteria can be met, then the product should be reportable to compliance or voluntary authorities.

1.3 Incrementality

This means that a facility which uses the technology is new. Only new uses of these technologies can reduce emissions – we cannot claim benefits from existing ones. This is because existing facilities are already reducing emissions – the goal of setting standards includes increasing industry activity, reducing emissions more, and growing all related activities in order to have a sustained improvement. [this new argument needs strengthening – please help out]

1.3.1 New Facilities. This means new equipment, resulting in new generation. But, this is not easy to define:

is it new capital? is there a threshold or minimum?

is it a new interconnection or metering?

is it something that needs a new permit?

is it the addition of any new equipment which results in a measureable increase in output?

[Discussion. Is a new wind turbine New? Sure. Is an existing turbine with an upgraded generator or new set of blades, which provides a 5% boost to energy over a year, new? Well, maybe the new 5% is, but you must be able to demonstrate the incremental improvement. What if this is a variable speed technology wind turbine, like the Kenetech 33 MVS? That machine could actually be dialed up or down. It has less life when Up, but produced more. No capital cost, but this could be masked by some maintenance work that was needed anyway. One opinion is that only clearly new, separate facilities should be called incremental/new. Another is that clearly demonstrable, needed and measureable improvements which result in increased output will result in the new increment only being new.]

1.4 Sustainability

If one of the goals of this is to improve the sustainability of our energy sources, then an electricity source with a short lifetime should not rate as high as one which is endless . And, this may apply to the technology, or the fuel source.

1.4.1 Technology Life. A longer predicted or known life is better than a short one. In the example above, dialing up the wind turbines will shorten the life of the technology, and should be taken into consideration.

1.4.2 Fuel Supply and Risk. A comparison which includes solar PV, wind and biomass might result in rating the first two as having good long term fuel supply and low fuel risk, but the third one might be rated as having a five year fuel contract, and therefore higher risks.

1.4.3 Sustainable Management Practices. For some technologies, this goes beyond the technology itself and into the source of fuel or the disposal of wastes associated with the process. For example, a biomass plant which uses wood harvested purposely for it, must have a working sustainable forestry plan in place and practising to replace the wood which is burnt, on a schedule which matches or exceeds consumption.

1.5 Emissions Impact

This criteria addresses the relative improvement (or not) on the emissions being addressed. It ranks emissions-free technologies vs other technologies, in a quantitative manner. Think of this as the nutrition label on the green energy package.

1.5.1 Emissions at point of generation ( burner tip ). A list of all emissions which are measurable, whether regulated or not.

1.5.2 Emissions in full fuel cycle . Emissions related to manufacturing, assembly, transportation, construction, decommissioning and reclamation.

1.6 Social Impact

Is there a role for this criterium in green energy ? If so, would this include displaced peoples , or even extend to the practices of firms which generate energy?

Other forms of green energy. So as not to limit ourselves in the future, we may wish to consider, but shelve these other possible forms. Please concentrate on Electricity for now.

2.0 Transportation

3.0 Heat Energy

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—————– End Forwarded Message —————–

Jason Edworthy

1. President, Nor’wester Energy Systems

http://www.greenenergy.com/NESL_web/NESL.index.html

2. Executive Director, Vision Quest Windelectric Inc.

http://www.greenenergy.com

Suite #100, 3553 – 31 Street SW

Calgary, Alberta, Canada T2L 2K7

Tel 403-289-4399 (Nor’wester) or 403-289-4553 (Vision Quest)

Fax 403-282-1238

eMail: edworthy@greenenergy.com