Energy Probe

Tom Adams
Globe and Mail, Letters Editor
May 23, 2000

re. "Environmentalists victorious in fate of coal-burning plants" May 18, 2000

The Ontario government’s moratorium on the sale of coal-fired power stations unnecessarily increases the cost of cleaning Ontario’s air.

The Harris government’s coal-fired power station sale moratorium appears to be based on the theory that emissions from government-owned stations do less harm than emissions from privately owned stations. It may be no coincidence that the sale moratorium strengthens the monopoly of the government’s power generation company.

Rather than government fiat directing how power should be generated, government should instead establish overall pollutant emission limits and let polluters manage their own emissions down to the limit. To minimize costs, polluters should be able to buy or sell emission permits. This system has slashed sulphur dioxide emissions from large power stations in the U.S. by 38% since the program began in 1995 and has cut the cost of compliance with the tougher rules by about 5 times relative to a command and control approach. Seeing the success of the U.S. "cap and trade" program, in 1999 the Ontario government’s electricity restructuring advisory group, the Market Design Committee, recommended its adoption here. Ignoring this advice, the government announced its emission policy in January which effectively allows the coal plants to operate without pollution limits. Under this policy, actual emissions can be reduced on paper through the purchase of "emission reduction credits" created by other parties foregoing planned future emissions–a process likely to result in credits for phantom reductions.

We can have cleaner power cheaper and more reliably through government imposed emission limits combined with market mechanisms to meet those limits than if we rely on arbitrary moratoriums, phantom reduction credits, and government control over power plant investment and operations.

Tom Adams
Executive Director, Energy Probe

(Ph: 964-9223 ext. 239)

Editors Note: U.S. SO2 emissions in 1994 from regulated power stations was 8.5 million tons and in 1998 (the most recent EPA data) the emissions were 5.3 million tons. Click here for information on the U.S. acid rain program.

Peter Calamai
Toronto Star
June 6, 2000

New law replaces antiquated 1946 legislation

OTTAWA – With the sale of an Ontario nuclear power station looming, the federal rules governing atomic energy have just become a lot more stringent.

A private company buying the Bruce power station from the provincial utility, Ontario Power Generation, must now provide financial guarantees covering the huge decommissioning costs.

Several foreign companies have expressed interest in taking over the aged station on the shores of Lake Huron and a decision is expected this summer.

Ontario Power Generation estimates almost $20 billion will be spent between 2042 and 2071 to close all three of the province’s existing nuclear power stations and store the radioactive wastes.

The federal nuclear watchdog is now demanding that all nuclear power station owners, public or private, guarantee their share of the multi-billion dollar decommissioning bill.

The same guarantee condition applied previously to uranium mines but wasn’t considered necessary for nuclear power stations because they were all owned by provincial public utilities.

Ontario has multi-reactor power stations at Bruce, Pickering and Darlington. Quebec and New Brunswick have one installation apiece.

The financial guarantees are part of a major tightening of the rules governing Canada’s nuclear industry that finally became law last week, three years after Parliament passed new legislation to replace an antiquated 1946 law.

`We’ve finally got a modern piece of legislation’

The three-year interval was spent writing nine volumes of regulations to cover everything from radiation sources in some smoke detectors to nuclear medicine at hospitals.

“We’ve finally got a modern piece of legislation and now we have to ensure that the transition is smooth,” said Murray Duncan, the official overseeing the changeover for the federal regulatory body, now called the Canadian Nuclear Safety Commission.

Some of the tougher rules are effective immediately:

Maximum fines for breaking the nuclear regulations jump from a paltry $10,000 to $1 million and the commission adds new power to order the cleanup of radioactive contamination even if the offender is unknown or unco-operative.

The limits for acceptable annual radiation doses received by the general public or workers in nuclear installations drop to one-fifth the former level, formalizing 1991 international standards already being followed unofficially.

Other safety changes will be phased in over the following months, with some measures taking up to two years to be put in place because of the extensive retraining necessary.

One big ticket item is beefed-up anti-terrorist security at all nuclear installations, including uranium mines, refineries and reactors, at an extra yearly cost of $2.5 million. All visitors entering these installations will have to pass through airport-style metal scanners, in addition to the existing radiation monitors.

Also coming under tighter control is the transportation industry, which handles 800,000 packages of radioactive material every year. Every truck carrying these packages will have to be equipped with sensitive radiation monitors and all drivers trained in their use.

While the security and transportation measures have set phase-in periods, the new financial guarantees can go into effect as soon as the federal regulator decides what types of financial guarantees are acceptable.

Tom Blackwell
National Post
June 9, 2000

Jim Wilson, the Ontario Energy Minister, says he’s cracking down on cities and towns across the province that want to hike electricity rates by as much as 17%.

But a prominent consumer watchdog said the action Mr. Wilson is planning is a meaningless response to a problem that’s been festering for a year.

"It’s almost a comedy skit," said Tom Adams of the group Energy Probe. "The minister has stood by and watched the foundation [be] put in place for an outrageous and totally unjustified rate increase … and at the 11th hour it’s dawning on him there’s a problem. But he has no grasp of how to solve it."

For example, homeowners in Toronto could face an 8.7% increase on July 1 and another 4.3% next year if the Ontario Energy Board approves its request.

Mr. Wilson said he’s issued a directive to the Ontario Energy Board to make consumer interests its top priority in deciding whether to approve increases.

Legislation enshrining that principle is likely to follow, Mr. Wilson said. The board now has to consider a series of factors, but they’re not ranked in any order, he added.

"They decided, many of them, to gouge their customers," Mr. Wilson said of municipalities.

"I didn’t think that I or this government would ever have to protect ratepayers from their local politicians, but unfortunately we’re in a situation where we have to do that."

Under a sweeping overhaul of the electricity sector, the province broke up Crown-owned Ontario Hydro into three companies and is now allowing competition among electricity producers.

At the same time, it allowed municipalities to run the electrical utilities that actually deliver power to homes and businesses as corporations, either profit-making or non-profit. They still have monopolies in their communities.

The Conservatives had repeatedly promised that the retooling of the electricity business would not bring higher costs to ratepayers, and could ultimately lead to savings.

But at least 23 municipalities, from Toronto to Niagara Falls, Thunder Bay and London, have applied for rate hikes ranging from 10% to 17%, according to Energy Ministry figures.

The problem is that the energy board implemented a formula for setting rates last summer that allowed for huge increases and the government did nothing to stop it, said Mr. Adams.

The directive to the board announced yesterday will do little to rectify that shortcoming, he said.

Thomas Adams

June 29, 2000

At this time of uncertainty in our electricity restructuring, Ontario needs an energy minister who can protect consumers, restore investor confidence, restore the authority of the regulator, and protect taxpayers from politicized decisionmaking. Jim Wilson has undermined the fairness and efficiency of the market by grandfathering the industrial rate discounts to the detriment of small consumers and taxpayers. His legislation currently before the provincial parliament directed at the municipal electric utilities will not protect the long term interests of consumers. He is damaging the investment climate by capriciously changing the rules. His interventions have damaged the independence of the Ontario Energy Board which regulates our energy monopolies in transmission and distribution. Privatization of Ontario Power Generation’s (formerly Ontario Hydro) generating stations–which is necessary to the development of competition and is also required to resolve the conflicts of interest that have inhibited proper regulation of environmental performance in the past–is on hold. Energy Probe has lost confidence in Minister Wilson’s leadership and suggest that he should be removed. Given the ongoing damage to the restructuring and the magnitude of the challenges ahead, Mr. Harris should give the energy portfolio the attention it deserves to ensure that electricity reform is conducted in the public interest.

Ian McKinnon
National Post
July 7, 2000

CALGARY – A giant British firm will pay $912-million for the assets of Calgary-based Direct Energy Income Fund, a move that gives Centrica PLC an important toehold as the electrical industry deregulates across North America and ratchets up competition in the key market of Ontario.

Created in 1997 from the privatization of British Gas PLC, Centrica is a $20-billion behemoth that brings marketing expertise and financial might to Direct Energy, the largest unregulated seller of natural gas in Ontario where the bulk of its 820,000 customers reside.

Direct Energy officials said Centrica approached with an unsolicited offer in May, the second time in less than six months that a bidder tried to buy the income fund, which went public in 1996 at $10 per share.

The first offer was rejected last February in part because of the potential of Ontario’s multi-billion-dollar electrical industry, which was scheduled to open up retail sales to competition this November. The timetable has since been delayed indefinitely.

Direct Energy owns and operates gas properties in Alberta that supply up to 20% of its demand.

In addition to its Canadian operations, Direct Energy has a 27.% interest in Energy America. The joint venture with Sempra Energy sells gas and electricity to some 450,000 customers in the United States.

But the beachhead in North America was not cheap. Centrica’s offer for Direct Energy’s assets works out to a payment of $28.25 per unitholder, a 23% premium to the closing price of the units on Wednesday. Units of the income fund yesterday jumped 20% to finish at $27.60, up $4.60, in volume that was 14 times heavier than daily average of the past six months.

Chris Milburn, a Centrica spokesman, said the two companies have a lot in common despite the huge difference in size. The United Kingdom firm employs approximately 30,000 staff while Direct Energy has about 100 workers.

"Our asset over here is our customer base and that is very similar to the way Direct Energy sees things," he said. "The opportunity to have a management team with a similar vision to ours really gives us an opportunity to develop the sort of model that we developed in the United Kingdom in North America over time."

He said that Centrica has been looking to expand in North America and Europe for about a year.

Brad Hurtubise, senior vice-president of finance of the Calgary firm, said Direct Energy will keep its name, senior management and operating style.

"We think it will be the same as it was before with a $20-billion company behind us," he said. "They (Centrica) market a variety of products to their customers base so it would be logical to assume that they will export their modus operandi" to Canada.

Tom Adams, executive director of Energy Probe, said the entry of an experienced company such as Centrica puts more pressure on established players Ontario One, a successor to Ontario Hydro which has a marketing division, and Toronto Hydro than new players that don’t have any infrastructure. A number of retail chains, petroleum companies and energy mega-marketers, such as Enron Corp. and Duke Energy Corp., have been rumoured to be interested in entering Canada’s largest electricity market.

"Making a go of it in the unregulated market is something we expect to be a very tough haul," he said. "I think the pressure falls on those that have been investing money, such as Toronto Hydro and Hydro One, on their marketing."

A spokesman for Toronto Hydro, whose daily load of 4,600 megawatts accounts for roughly 25% of the province’s demand, said the firm is ready for competition.

Blair Peberdy, vice-president of corporate planning, said the municipal electrical utility has been building brand awareness and hiring sales staff in anticipation of a tough fight over the richest market in Ontario.

"As the incumbent, we have the bull’s-eye on our back. We accept it and welcome the competition … because we feel ultimately it will benefit the customer, " he said.

Generally, retail accounts for about 20% of a consumer’s monthly electrical bill, transmission eats up another 20% and power generation takes the lion’s share at 60%.

Increased competition will reduce inefficiency on the retail side but bigger gains for consumers could come from pressure exerted by retail players on other segments of the industry.

Jake Brooks, executive director of the Independent Power Producers Society of Ontario, said electricity sellers could use their customer counts to negotiate better rates from power generators as deregulation progresses. "We hope to see more sizable benefits for consumers by getting more competition for the underlying commodity as well as on the retail side."

Mr. Milburn of Centrica said it is too early to say whether his company will make other acquisitions in Canada. Alberta is scheduled to deregulate power generation and retail sales starting next year.

The price for Direct Energy includes $90-million in debt for its operating subsidiary plus another $90-million for convertible debentures.

The delay in introducing more competition into Ontario’s electrical sector may have some positive benefits, Mr. Milburn said. "It does give us the opportunity to compete the transaction, get comfortable with the business and prepare a strategy with the management team to take advantage of deregulation."

The purchase has to be approved by 67% of Direct Energy’s unitholders and a vote is scheduled for Aug. 18. The deal also needs regulatory approval in Canada and the United Kingdom.

Gillian Livingston
National Post
July 12, 2000

Consumers in Ontario could see higher electricity costs in the short term – as Albertans have already seen – after deregulation opens the market to competition, a consumer watchdog group says.

"At this stage we’re looking at increases, but it’s not clear how big those increases will be or when they will be felt," said Thomas Adams, executive director of Energy Probe, the national environmental and consumer watchdog group. Deregulation of the electricity market in Ontario has been hailed by the provincial government as the best way to ensure competitive hydro prices for consumers.

On Tuesday, Ontario Power Generation Inc. signed a $3.1-billion deal to have a private British energy company operate the Bruce nuclear plant on the shores of Lake Huron in southwestern Ontario.

The deal with British Energy PLC is part of a plan to reduce the market dominance of Ontario Power Generation – the former Ontario Hydro – and increase competition and lower rates for consumers.

Adams said policy changes and delays in opening the industry to full deregulation – it was expected to be done in November but is being postponed until next year – may cause some companies to think twice before coming into the market.

Policy shifts have altered the rules of deregulation, causing concern for some investors, he said.

If fewer companies enter the market, it will be less competitive despite being opened up, there will be less supply – and that means prices are more likely to go up, he said.

The uncertainty of the electricity market has caused the Ontario Municipal Employees Retirement Board to put any prospect of further investment in the market on hold until legislation tabled last month is completed, said Jane Courtemanche, manager of corporate communications for OMERS.

In March, the $35-billion pension fund bought a 10 per cent stake in Hydro Mississauga, just west of Toronto, and expressed an interest in acquiring stakes in other municipal utilities.

However, those plans are on hold until there’s more certainty in the market, Courtemanche said.

"With all the changes that came about in June, it does have a negative impact on us as an investor," she said. "We’re waiting to see what’s going to happen" to see if this is the type of investment the pension fund wants to keep pursuing.

TransAlta Corp., a major Alberta power producer, will wait until the Ontario market is fully deregulated before it makes any moves in the province, said Sue Le Breton, TransAlta’s manager of corporate communications.

Meanwhile, it’s focusing its energies on deregulated markets such as Mexico, Australia and some locations in the U.S.

Ontario Power Generation’s deal to lease the Bruce nuclear power station to Edinburgh-based electricity giant British Energy is seen as a big step toward privatization.

Investors watching the industry may be heartened by the fact Ontario has made this deal, said Ian Howcroft, vice-president of the Ontario region for the Alliance of Manufacturers and Exporters Canada, whose members buy huge amounts of electricity to run their businesses.

"We’ve been waiting for a while. We’ve seen the opening of the market delayed and there’s been a lot of concern," Howcroft said. "This is good because it pushes the agenda forward and is also going to inspire some confidence and show that there is some direction finally."

There are no guarantees that competition will bring lower electricity prices to the province, but a competitive market is the best option, Howcroft said.

In Alberta, where power industry deregulation is under way, consumers saw electricity shortages, higher costs and brownouts last year as demand outpaced expansion.

June’s hydro rate in the province hit the highest level since Alberta began deregulating the industry four years ago.

While explosive economic growth in Alberta contributed to the level of demand for electricity and the subsequent rate increases, Adams said policy shifts and uncertainty of the rules in the market delayed the arrival of some investors.

The service problems Alberta had – shortages and brownouts – could happen in Ontario if investors decide they don’t want to put out significant resources due to uncertainty in the market, Adams said.

"That’s a situation we could find ourselves in here in Ontario," he said. "The recent behaviour of the Ontario energy minister makes me very concerned that that’s exactly where we’re headed."

Other than postponing the opening of the market, the government also tabled legislation that would restrict the efforts of municipal utility companies to raise distribution rates, a factor that investors included in their business decisions.

That restriction didn’t break policy because Energy Minister Jim Wilson had told the industry he would protect energy consumers from unreasonable price increases even if he had to use legislation to do so, said Michael Krizanc, a spokesman for the minister.

"The whole idea of electricity competition is to provide the lowest possible rates to electricity consumers," Krizanc said.

Krizanc said there’s been $3 billion worth of new investment announced in Ontario’s hydro industry, which shows investors want to be part of this market.

Dan Macnamara, executive director of the Industrial Power Consumers Association of Alberta, said Ontario should delay opening the market as long as necessary to be certain it will be a smooth transition.

John Spears
Toronto Star
July 12, 2000

Province says 18-year deal could bring in $3.1 billion.

The privatization of Ontario’s nuclear power network surged into high gear yesterday with the announcement that a British energy giant has signed a long-term lease to operate the aging and often-troubled Bruce nuclear station.

The deal, which has been rumoured for months, marks the first time a nuclear facility in Ontario has been handed over to a private company and, according to Ontario Energy Minister Jim Wilson, the 18-year deal with British Energy should fetch more than $3.1 billion.

Using some of that cash to pay down debt at provincially owned Ontario Power Generation should lead to cheaper rates, he said. “What we’re saying is anything that helps to pay down past liabilities helps to bring lower rates in the province.”

About 40 per cent of each Ontario consumer’s electricity bill goes to service charges on Ontario Power Generation’s $21 billion debt load. Ontario Power Generation inherited Ontario Hydro’s generating facilities after the provincial government decided to break the monopoly into five smaller companies focusing on different segments of the power business.

Ontario Power Generation, which generates more than 80 per cent of Ontario’s electricity, is under orders to reduce its market share to 35 per cent within 10 years as the province opens up the electricity market to competition.

That process was supposed to accelerate in November, but Wilson recently pushed back the market opening for up to six months because proper market mechanisms weren’t ready.

Under the new system, consumers will be able to sign deals to buy from generators, or from brokers who buy large amounts of power to resell.

They will also see a breakdown on their bill of what they’re paying for pure energy, for long-distance transmission and for local distribution of electricity.

Several foreign companies other than British Energy have said they are interested in buying up Ontario’s power plants.

Spokespersons for large industrial power users and consumer groups yesterday welcomed the news of the British Energy lease deal but expressed some caution because little is known about the rates the company will offer.

“For the first time we have a real competitor in the marketplace,” said Arthur Dickinson, president of the Association of Major Power Consumers in Ontario.

But Dickinson and others noted that while the competition is welcome, it’s extremely difficult to assess the fairness of the lease price and the rates that will flow from the operation, based on the limited information available.

Norman Rubin of Energy Probe also welcomed the competition British Energy brings to the energy market but had serious reservations about the deal.

He said he would have preferred to see Bruce and Ontario’s other nuclear plants in Darlington and Pickering sold outright rather than leased.

That way, Ontario taxpayers would not have to pick up the unknown costs of decommissioning the reactors and storing the nuclear waste when the plants reach the end of their lifespan.

Rubin noted that British Energy appears to be paying more to lease the Bruce facilities than they might have to buy them – probably to avoid to decommissioning costs.

British Energy spokesperson Robin Jeffrey announced the deal yesterday with a commitment to “safety first” and no forced layoffs.

“I look forward to building a team to find new and innovative ways to increase output and reduce costs while confirming our commitment to our safety-first principles,” said Jeffrey. He’s the chairman and chief executive officer of Bruce Power Inc., a new Canadian company established by British Energy to operate the Bruce plant.

Jeffrey, 62, who has spent the past three years in Toronto, said he intends to move from his native Scotland to make Bruce County his home. He said Bruce County will also be the location of British Energy’s North American headquarters.

Jeffrey said there will be no forced layoffs amongst the 3,500 workers at the Bruce plant and the company will respect existing bargaining rights and collective agreements with the Power Workers Union and the Society of Energy Professionals.

Power Workers president Don MacKinnon said the announcement was “positive news.”

While Bruce Power is inviting the unions to acquire a 5 per cent share in the new company, the details are still being ironed out and no final decision on the unions’ participation or where the estimated $20 million would come from, has been made, said MacKinnon.

The Bruce plant, located 250 kilometres northwest of Toronto on the shores of Lake Huron, opened in 1959 and has eight Candu nuclear reactors.

Four of the eight reactors were mothballed several years ago as part of Ontario Hydro’s plan to improve performance in its nuclear division, and require extensive refurbishing.

Bruce Power believes it makes good business sense to restart two of the four nuclear generators presently mothballed at Bruce A.

With files from Roberta Avery, Canadian Press and Reuters News Agency

Bruce Livesey
Eye magazine
July 13, 2000

Will the troubled Pickering A nuclear power station be properly assessed before it fires up its reactors again next year? And is it too old and hazardous to be turned on at all?

This is what worries Lorenzo Berardinetti. The Scarborough city councillor introduced a resolution at Toronto’s city council last May calling on the federal government to set up an independent panel to conduct an inquiry into whether Ontario Power Generation Inc. (OPG) — formerly Ontario Hydro — should start up Pickering A’s four reactors sometime in 2001. The resolution was passed unanimously. "[OPG] wants a low-level assessment," says Berardinetti. "We’re saying that before we start Pickering A we must have a high-level assessment and an independent inquiry."

Two weeks ago a similar resolution was passed by Pickering’s city council. As Pickering city councillor Maurice Brenner observes, "There are a lot of unanswered questions — like why is there a higher rate of leukemia and various cancers in the Durham region than any other area of Ontario? Why is that? And you know, we don’t know."

Located just east of Toronto on Lake Ontario and opened in 1971, Pickering A is Ontario’s oldest nuclear reactor (combined with Pickering B, the entire station has a total of eight reactors). But in 1997, Ontario Hydro was forced to close down Pickering A because of a backlog of maintenance problems, a dearth of manpower and for barely meeting minimum international safety standards.

Now OPG is spending $1.2 billion to overhaul the four reactors. And all was going well until the federal nuclear regulator, the Atomic Energy Control Board (AECB), demanded an environmental assessment.

But anti-nuclear critics and the cities of Toronto and Pickering say the scope of this assessment is too narrow and the AECB is not arm’s-length enough to carry it out objectively. They even say restarting Pickering A is a bad idea, given the station’s history of safety, health and cost problems. "We’re taking the position that Pickering A should not be restarted," says Irene Kock, an activist with the anti-nuke Nuclear Awareness Project. "They haven’t got a good record on preventative maintenance."

In many respects, Pickering A symbolizes the failure of nuclear power to live up to its promise of being a cost-effective, safe and environmentally benign source of energy. As the anti-nuke group Energy Probe has long pointed out, nuclear power stations are enormously expensive to build, wear out much faster than expected and never pay back their initial investment. And, of course, they’re dangerous.

Three years ago, when Pickering A was closed down, the public utility had spent so much money on nuclear stations it had a stranded debt of $23.3 billion, a net negative value of $6 billion and Ontario’s utility rates were among the highest in Canada. Ontario Hydro once estimated it would cost $18.7 billion to phase out all of its nuclear stations.

"Nuclear plants are supposed to be cheap to operate and extremely expensive to build," says Norm Rubin, director of nuclear research at Energy Probe. "Owning a nuclear station is like owning a Ferrari that costs $100,000 but gets good mileage. The problem is, when it breaks down you keep having to pay back the loan for $100,000 and pay for taxi cabs to get you where you want. So you pay through the nose in both ways."

Pickering A has had a long history of problems. For starters, when they built the four reactors, the utility installed only one emergency fast-shutdown system instead of the two that subsequently built reactors have. In 1983, Pickering had a loss-of-coolant accident after a pressure tube ruptured, causing the entire station to be turned off and necessitating a $1 billion retubing job.

In 1988, radioactive iodine was released at Pickering after an error caused the damage of 36 fuel bundles. Four years later, the station had a heavy water leak from a heat exchanger that resulted in a release of 2,300 trillion becquerels of radioactive tritium into Lake Ontario. In 1994, Pickering had another major loss of coolant resulting in the spill of 185 tonnes of heavy water — the emergency cooling system was used for the first time to prevent a meltdown. By the time Pickering A was closed, it was operating at a bare minimum of standards.

When OPG indicated it wanted to restart Pickering A, initially it did not want to carry out an environmental assessment. Still, when the AECB persisted, the agreed-upon assessment turned out to have a limited scope and is being conducted behind closed doors.

Anti-nuclear advocates have fought against these restrictions. Moreover, they argue that the AECB has been long an apologist for nuclear power and is therefore not objective enough to conduct a proper review. "They’re too close to the operator," notes Brenner.

Not surprisingly, the AECB is refusing to hold public hearings for the environmental assessment. They gave community groups only 60 days to make written submissions, turning down requests to have this period extended. Moreover, the assessment is not looking at the possibility of a Chernobyl-like meltdown scenario, nor examining safer, cheaper alternatives to nuclear power like solar, wind or high-efficiency natural gas plants. "They are assuming the safety systems work, which is an absurd assumption because safety systems have a long history of problems," says Kock. "And there’s no discussion to alternatives or to the need of starting the plant at all."

Both Toronto and Pickering have demanded that an independent panel be established to do the assessment, along with public hearings. They want federal environment minister David Anderson to step in and order this.

Meanwhile, in their submissions to the AECB, Energy Probe and the Nuclear Awareness Project have criticized OPG for overlooking the age of Pickering A, ignoring the fact that radioactive toxins are emitted persistently from the plants, and that the emergency-shutdown systems are inadequate. "They haven’t incorporated the improvements in designs of nuclear reactors that have been made since the ’60s," says Rubin.

OPG spokesperson Ted Gruetzner says they have improved the shutdown systems and made other modifications to Pickering A. He says they conducted a cost-benefit analysis and found that reopening the station was the cheapest way to obtain energy at this time. Says Gruetzner, "For the type of energy needed based on current technology and costs, this was the best way to go."

Dan Westell
Financial Times
July 13, 2000

The Ontario government decision this week to lease some of its troubled nuclear electricity plants to British Energy signals a real beginning to the end of a monopoly that has shackled the province with almost C$21bn ($14.2bn) debt.

But a thick fog on the distribution side of Ontario’s C$9bn electricity market is muffling the glow produced by the progress in reducing the state’s role in generation.

The same government that is celebrating the beginning of real competition in generation has also introduced legislation to curb price increases by municipally-owned distributors. By changing the rules in mid-game, it has thrown the utilities and the investors who were to fund the industry restructuring into disarray, undermined the independent regulator and given the government’s own distributor an advantage.

Bill 100, introduced by the energy minister, Jim Wilson, dismays even those who see competition as the means to rein in the state monopolies. "Ontario is in a good position now to really embarrass itself," said Tom Adams of Energy Probe, an independent watchdog organisation that wants to introduce market forces into the system.

The province’s Conservative government began to deregulate by splitting state-owned Ontario Hydro into two arms, a transmission/distribution company, Hydro One, and a generator, Ontario Power Generation.

It also sought to make municipally owned distributors more efficient by compelling them to merge or restructure as corporations.

As part of the package, almost C$21bn of "stranded" debt was removed from the books of OPG and Hydro One, leaving them with normal levels of utility debt, rather than the unserviceable amounts inherited from Ontario Hydro.

That money, guaranteed by taxpayers, is now being collected from business and individual customers indirectly through a charge on all the companies in the business (the C$625m initial lease payment from British Energy for the Bruce nuclear plants will probably be applied to the stranded debt) and directly through a surcharge on electricity bills.

Many municipal distributors, especially those with a handful of subscribers, opted to be taken over by the government’s Hydro One. It has already bought 45, with 64,500 ratepayers, and has made offers on others.

But the cities that own the big operations, such as Toronto Hydro, opted for incorporation and took out hundreds of millions of dollars, expecting to recover the money through rate increases. Private investors began to move into the municipal sector, basing their return calculations on the rules then in place.

Even though the municipalities were operating within the law passed by the Conservatives, Mr Wilson was outraged. He talked of "value siphoned out of the local electricity system that was paid for over the years by electricity customers", who needed protection from local politicians taking "windfall profits."

In June he introduced Bill 100, entitled "An Act to Promote Efficiency in the Municipal Electricity Sector and to Protect Consumers from Unjustified Rate Increases", and directed the regulator, the Ontario Energy Board, to force municipalities to justify rate applications.

Investors are reassessing their options in the wake of the bill. A planned C$150m debt issue by Hydro Mississauga, the distributor in a booming suburb on Toronto’s western border, is on hold while the utility and its investor, a pension fund, assess the bill.

"Private buyers are going to look at this and wonder where the cash flow is going to come from," an industry insider said. The municipalities believe the minister is reacting to a crisis of his own causing. The restructuring raised costs and, they complain, distribution accounts for only 15 per cent of the costs in the system. Generation, at 70 per cent, represents a better source of cost cutting. The distributors could certainly be more efficient, Mr Adams said, but they were not facing the "financially unsustainable situation" at Ontario Hydro, which was squeezed between the need to service its huge debt and the requirement to hold down rates to prevent industry fleeing the province.

The bill does not apply to Hydro One, giving it the option to buy distributors and then seek rate increases that would be blocked if a municipality wanted the raise. Investors and the industry are lobbying the government to change the bill, which has had a first reading. The house has risen until the fall.

There is hope, said David McFadden, chairman of the Stakeholder Alliance, which represents most parties in the system. "The rules have not been changed. There’s a proposal to change them."

Janet McFarland
Globe & Mail
July 13, 2000

God knows there’s no defending Ontario Hydro’s safety record managing its nuclear facilities. But British Energy’s track record isn’t spotless either, and Canadians need to carefully monitor the province’s first effort at hiring a private company to manage a nuclear plant.

The British are way ahead of Canada in the privatization game. British Energy, now a publicly traded company, runs eight nuclear sites in Britain and has signed deals with an American partner to buy five nuclear plants in the United States.

On Tuesday, it announced its first Canadian contract, an 18-year lease to operate the Bruce nuclear plant in Ontario. British Energy owns 95 per cent of the new company established to run the plant, while two unions that represent nuclear power workers own the rest.

The British experiment at nuclear power privatization has been rocky. The biggest black eye for British Energy, which was established in 1996, was the leak last August of a confidential report by Britain’s Nuclear Installations Inspectorate (NII) — the government nuclear regulator — that said BE’s relentless quest to cut costs and boost profits had led it to severely cut staff levels in its nuclear plants.

Since 1996, BE has cut 1,500 jobs or 20 per cent of the work force, including many operating positions in the plants. Some have been replaced by outside contractors.

The NII said this was a threat to safety at the nuclear plants. The inspection report said the staff cuts were done on the assumption that there would be less safety work required in a privatized company, but instead the experience has shown no reduction in workload.

In a number of key safety areas, such as fire protection, BE now has just one specialist for eight different nuclear sites, the report says. It said there is no longer anyone working in the area of severe accident analysis.

The report cites a "widespread attitude" that the top priority was on electrical output and that it was acceptable to delay less immediate safety work. It faults management for not fully appreciating the difference between nuclear and conventional utility management.

Since last August, BE has indicated it still plans more layoffs. However, it has been prohibited by the NII from making further major cuts in key staff areas. Meanwhile, the NII says many if not most employees at the plants are working substantial overtime, and said the actual levels of overtime have been underreported by BE.

In Canada, BE has offered jobs to all 3,500 people working at the Bruce plant. The union partnership at Bruce has already ensured that BE has the unions on side, which could indicate we will not have the same cuts here — at least in the short term.

In the United States, there has been strong opposition by environmental groups to the AmerGen Energy Co. partnership (half owned by British Energy and half by Peco Energy Co.) that owns or is buying five nuclear facilities. Four environmental and anti-nuclear groups, for example, have conducted a campaign to prevent AmerGen from buying the Vermont Yankee nuclear station, citing concerns that safety will be compromised by private ownership. They have extensively quoted the NII report to support their safety criticisms about British Energy.

Nuclear watchdog Energy Probe in Toronto says it does not oppose private management by British Energy. Indeed, nuclear research director Norman Rubin says Ontario Hydro did too poor a job to advocate keeping it in charge.

All faith was swept away in 1997 with the release of a damning report commissioned by the hydro utility, which called the nuclear operation a rogue division that shrugged off serious safety problems. In the report’s wake, Ontario Hydro shut down seven of its 19 reactors, while chief executive officer Allan Kupcis resigned after accepting responsibility for the fiasco.

There’s no evidence to suggest British Energy will do a worse safety job than Ontario Hydro. But there must surely be some time spent acknowledging the British problems.

Ontario residents have been shaken by the Walkerton E. coli crisis and the message it sent about poor monitoring of privatized water testing. This is not the best time to sell the safety merits of privatized nuclear plants. The only way for the Ontario government and the federal nuclear regulator to reassure the public is to openly acknowledge the risks and to learn from the safety concerns in other jurisdictions. British Energy has to earn our trust.