Energy Probe

Tom Adams and Michael Hilson
National Post
October 22, 1999

Ontario’s municipal electric utilities – Toronto Hydro, Ottawa Hydro and other local distribution companies that deliver power to city consumers – will be allowed to raise their rates to the average customer by about one-third next year under a proposed Ontario Energy Board staff plan.

This massive increase would let municipalities, who under Ontario’s new energy legislation now own Ontario’s 250 municipal utilities, pocket a stream of profits in excess of $5-billion. That’s in addition to the windfall they received from being given ownership of the utilities, which before the legislation were effectively owned by no one.

In the case of Toronto Hydro, with assets of approximately $1.8-billion on the books, the city has three ways to capture the windfall. It could sell the utility immediately for a market value of perhaps $2.8-billion (its full book value plus another $1-billion for unregulated opportunities) and then spend the proceeds any way it wished. It could follow Energy Board rules and borrow $1.2-billion against its utility’s book value, pocket that entire amount, have electricity customers pay all interest charges, and earn $60-million per year – a 10% return on the remaining $600-million in equity.

Or it could receive no cash now, and take a dividend from Toronto Hydro of about $140-million per year.

Most of the windfall the cities stand to gain – perhaps two-thirds – would be a direct result of the cash flow stemming from the rate increases. The only complaint from many of these municipalities is that their share of the windfall isn’t rich enough. Lawyers and consultants for the municipal utilities, now for-profit corporations, are campaigning to add another $1.3-billion or so to their equity – or the amount some municipal utilities have received from previous development fees charged to new customers.

If the municipal utilities get their way, ratepayers would see a further 15% rise to their distribution rates, taking the total increase to about 50%.

Since distribution rates represent about 17% of city customers’ total electricity bills, their final bills will rise by as much as 6% or 7%.

Residential customers and small businesses will be hit with larger increases than big customers, because the distributor’s markup is a greater portion of small customers’ bills.

Until now, Ontario Hydro supervised the municipal utilities, and allowed them to follow many high-cost business practices. While utilities in the U.S. and other provinces minimize their costs and rates by financing their investments over a period of years, Ontario’s municipal utilities charged rates high enough to allow them to pay up front and in cash for all their long-term investments – everything from buildings and poles to wires and transformers. Overcharging consumers didn’t stop there: Together, the utilities have charged consumers enough to accumulate about $1-billion in cash and marketable securities. Energy Probe estimates that these utilities required no more than one-seventh of this amount to operate their activities.

Some municipal owners are already benefiting from their new booty. The City of Toronto has transferred to itself $100-million in cash, and $30-million in property, from Toronto Hydro. This is just for openers. The Ontario Energy Board staff approach could ultimately transfer well over $2-billion from electricity consumers to the city’s coffers. Owen Sound has taken over some of its utility’s buildings, properties and other marketable assets.

The proposed one-third rate increase is unnecessary. The provincial legislation that restructured the Ontario electricity sector requires the utilities to adopt more efficient commercial capital structures and accountability rules, and allows the Ontario Energy Board to eliminate the need for the proposed rate shock. Rather than letting the distribution utilities earn a profit on their entire existing assets – all of which have been paid for – the Energy Board should allow profit only on newly invested capital, such as new equipment required to service growing customer needs.

Excess cash should be rebated to the customers. The board should also eliminate the inefficient and unfair "pay up front" method of paying for investments, which leaves current customers to bear the entire costs of investments that will benefit future customers. Failure to make this last change would overstate the utility’s capital costs – and so boost rates – by double-counting some investments. Under Energy Probe’s alternative, customers who have previously paid up front for utility assets would continue to enjoy the benefits of those assets without having to pay twice. Customers would also see a benefit by eliminating "pay up front" in favour of "user pays." Municipalities would still have received billions of dollars in unencumbered electricity assets – assets worth even more if the Ontario Energy Board adopts a system of incentives to encourage utility managers to cut fat from their operations.

Next November, when the electricity market opens for competition, rates may increase. Consumers will have a tough time deciphering the cause – a confusion that may absolve rate-setters from fully accepting responsibility for their actions. When asked what would be an acceptable distribution rate increase, a consultant advising the board staff testified last month:

"It may very well be that consumers will object to the price increase, but at the same time one must also recognize that there is likely to be mass confusion in the market in any case as folks try to understand what has been done to the electric sector, and are in some senses unable to sort it out."

Consumers can be excused for feeling confused. The regulator doesn’t know how actual customer rates will be affected. Nor does the Ontario government.

While it continues to face criticism from municipalities who feel short-changed by provincial downloading, it has never pointed to the multibillion-dollar windfall coming to local governments. The Consumer Association of Canada and the Vulnerable Energy Consumers Coalition (affiliated with the Ontario Coalition Against Poverty) – groups that normally defend the interests of residential and vulnerable energy consumers before the Ontario Energy Board – have so far been strangely quiet, instead bringing in experts supporting the double-payment and double-counting proposal.

Under competition next year, consumers will be hit with several special charges imposed by the provincial government – some less obvious than others. Their proceeds will help pay down leftover Ontario Hydro liabilities. These charges, on their own, risk increasing overall customer bills. However, they are more legitimate than the proposed bonanza for municipalities, since Ontario Hydro’s historic liabilities – which are mostly due to its nuclear program – must be covered.

Raising distribution rates to hand $5-billion of customer-created equity to municipalities is unjust and unreasonable. Municipalities have not invested a dime in their utilities. Our municipal utilities are debt-free and flush with cash. Municipal politicians are unlikely to be prudent when playing with this record jackpot.

At the same time customers face rate increases for distribution services, they face provincial surcharges for Ontario Hydro’s past excesses, including a stranded debt of $21-billion. A fair resolution to this quagmire would see the entire proceeds of any rate increase used to pay down the old Ontario Hydro debt. This would avoid the need for one or more of the provincial charges, and perhaps lower overall rates. It would also lead to a more market-based pricing system in electricity, and bring us closer to the day consumers can enjoy the full cost-saving and environmental benefits to come from electricity deregulation.

Richard Foot
National Post
November 25, 1999

Efforts to reopen Canada’s oldest nuclear power plant — shut down for two years — aren’t receiving enough scrutiny because the federal government refuses to put the project through a full environmental assessment hearing, say groups of citizens who live near the plant.

Community groups want the government to impose a full series of public hearings and not what they call a "whitewash" review of plans by Ontario Power Generation to resume operations at its Pickering A nuclear facility, east of Toronto.

Without a proper assessment, says Irene Kock of the Durham Nuclear Awareness group, "the risk of a catastrophic accident increases. This is the oldest plant we have, and there must be a very clear need established before it is allowed to restart."

The four Pickering reactors have been shut down since December, 1997 because of massive efficiency problems and safety concerns. Ontario Hydro, the provincial Crown corporation that once owned them, has been working for nearly two years to overhaul the management and the infrastructure of its debt-ridden nuclear plants. Its restructured successor, the Ontario Power Generation company, wants to open the four Pickering reactors by 2001.

Ontario Power Generation had asked the Atomic Energy Control Board, the federal agency that regulates the nuclear industry, to allow it to proceed on reopening without an environmental assessment. The AECB said a review was required by federal law.

What upsets Ms. Kock and others is that the AECB has only demanded a shortened form of assessment called a "screening."

This means AECB officials will themselves review an assessment report submitted by the power company before deciding whether the reactors can reopen. A full assessment would require the federal environment minister to appoint an independent panel of experts to review the company’s report and consider the input of other groups at extensive public hearings.

"What we’re faced with now in this screening is absolutely no independent forum in which to raise our concerns," says Ms. Kock. "A full assessment also provides intervenor funding, so we’d be able to hire experts to review Ontario Power Generation’s evidence. Now, we have no resources to bring experts on some of these very complicated issues."

Those issues include how the power company has improved the structure and integrity of the 30-year-old reactors, how it will mitigate the pollutants and nuclear waste produced at the plant, and what economic justification there is for reopening.

Others, such as Norm Rubin of Energy Probe, say they simply don’t trust AECB staff to treat the assessment as objectively as an independent panel would.

"Every time anything in the nuclear industry is reviewed by independent people, the results are quite different from the results we get when the review is done by the guardians of the status quo."

Not so, says Sunni Loratelli, a spokeswoman for the AECB, who says the agency has full discretion under the law to decide what kind of an assessment to impose.

The public can make submissions on the project to the AECB. Ontario Power Generation has also scheduled public meetings.

Tom Adams
Energy Probe
March 16, 2000

Mike Harris’s electricity restructuring is degenerating into a nightmare attack on consumers, taxpayers, and the environment.

Your power rates are about to go up. Air pollution is about to get worse. Nuclear plants that are shut down and should stay mothballed forever may be brought back into production. The Ontario Hydro generating monopoly is virtually intact. And our independent regulator — the Ontario Energy Board — has been stripped of its independence and now takes orders from Mike Harris and his government.

After seven years of turmoil, during which the government was supposed to be deregulating the power system, privatizing it to take it out of the hands of politicians, and giving more power to the consumer, what has the government delivered? Not privatization — nothing has been sold. Not deregulation — if anything, the government’s grip on the power system is tighter than ever before. Not honest regulation — the regulator is now a toothless paper pusher in Mike Harris’s direct employ. Not lower rates — instead, tax upon tax is secretly being added to every aspect of the new power system. Not tougher air pollution controls — loopholes will let coal plant operators increase their emissions.

The electricity restructuring has centralized power with Mike Harris. As a result, the backbone of the old Hydro system — its highly polluting coal and nuclear plants — are protected from competition by cleaner and cheaper power sources, mostly cogeneration and high-efficiency natural gas plants, but also some renewable technology.

We must bring the Mike Harris government to its senses. Ontario doesn’t need to be under the grip of a new Hydro monopoly. We need true competition and strong independent regulation to lower our rates and clean up pollution. In the United Kingdom, which broke up its power monopoly in 1989, rates plummeted immediately and old polluting plants were soon replaced by clean modern ones.

If you agree, please send us a generous donation, to let us spread the word — through more letters and more articles like the one enclosed, through more speeches, more press interviews, and more presentations to government bodies. This government’s Hydro reforms are running off the rails. With your help, we can convince the government to get back on track.

Sincerely,

Thomas Adams
Executive Director

P.S. Please respond quickly with a tax-creditable donation. Time is of the essence. The longer it takes for the government to wake up, the higher our Hydro rates will go and the worse our environment will be polluted.

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