Energy Probe

Carlyn Zwarenstein
Eye magazine
April 12, 2001

Power to the People – that’s the title of a recent Royal Ontario Museum exhibit on the history of public power in Ontario. And real public power? Well, you’ve missed that too. In the real world, the electrical industry in Ontario slipped out of public control a couple of years back.

In April 1999, the Ontario government incorporated the successor companies of the former Ontario Hydro, turning them into commercial enterprises. Ontario Power Generation Inc. (OPG) – the successor corporation responsible for electricity generation – is still owned by the government. But it’s a for-profit company, parts of which are privately run. And, because it is incorporated under the Business Corporations Act, it’s exempt from access-to-information laws.

So what if safety is being compromised in nuclear plants, or if labour standards are not up to scratch, or the environment is being trashed, or deals are being made that end up hurting customers? The problem is, we just don’t know.

At the time Hydro went commercial, the Ontario Information and Privacy Commissioner made a submission to the Standing Committee on Resources Development. "We argued that the public had just as much right to demand access to records as under Ontario Hydro," says Tom Mitchinson, the assistant commissioner. The submission was denied.

In October, Nickel Belt MPP Shelley Martel raised a motion that a lease agreement between OPG and Bruce Power Partnership for the Bruce A and B nuclear facilities be examined by the Provincial Auditor, there being no other way to make details public.

Still, even if that goes through, the auditor can only make recommendations, and it would be too late to scrap the deal.

"The only thing you’re allowed to know is what they want you to know, or what their regulators force them to release," says Tom Adams, executive director of Energy Probe.

"Our position relates to the whole concept of privatization," Mitchinson says. "Our concern is that when the government decides there is a more effective way of providing a program that remains essentially public in nature, there should be no change in freedom-of-information law.

"The privatization, if you will, of Ontario Hydro was accomplished by the Electricity Competition Act."

Provincial NDP Leader Howard Hampton argues that the government’s continuing attempts to privatize lie behind the decision to remove Hydro from access-to-information laws by incorporating it as a business. "Ontario Power Generation and this government have enough on their plates trying to privatize without [also] telling people they’re privatizing," Hampton says.

Whether it’s a question of too much privatization or not enough, everyone agrees there is a problem with transparency. The Canadian Environmental Law Association warns that, as a result of privatization, we are unable to learn anything about nuclear emergency preparedness, radioactive spills, malfunctions, emissions, peer reviews and safety audits, environmental assessments or even safety communications with other CANDU operators worldwide.

"This government believes that the public services, and services which are publicly accountable, should be sold off wherever possible to the private sector," says Hampton.

"Once you sell off hydro generating stations, then the laws of the marketplace are going to operate."

Hampton says private companies will sell power where they get the best price. It is "outrageously wrong‚" he insists, to claim that the cost of electricity will go down in a free-market system.

"I think anyone who reflects for a moment would see that that’s completely phony," Hampton says of OPG claims that the private system will be run differently here than in blackout-plagued California. A seven-year lease agreement signed this summer allows British Energy, the private company that provides most of the electricity in the U.K., to operate the Bruce A nuclear reactor. While citizen taxpayers will foot the bill for debts or mistakes, the details of the leasing agreement are not public.

Several Conservative government employees have gone on to lucrative careers within Hydro One, another successor company to Ontario Hydro and OPG. These include Paul Rhodes, whom Hampton describes as a former "press hack," as well as Tory staffer Deborah Hutton. Back in the day, Ontario Hydro salaries routinely featured high on published lists of top-paid public employees. At the time Hydro was disbanded, the president earned around half a million dollars a year, and the average salary was about $80,000.

"Make no mistake," says Hampton. "Some people are going to make a lot of money from this."

The Power Workers Union of Ontario (PWU) and the Society of Energy Professionals, which represents white-collar workers, own a 5 per cent share in OPG’s Bruce Power, and thus could have an interest in keeping profits high and costs low in facilities like Bruce A nuclear, which is 95 per cent owned by British Energy. PWU has gone on record as strongly supporting further privatization of OPG.

In fact, its former president, John Murphy, left his union job last year to become executive vice-president for human resources at OPG. Don McKinnon, the current president of the union, did not return calls. Neither did Colin Throop, president of the Society of Energy Professionals. Ron Osborne, president of OPG, also declined an interview with eye.

"As a commercial entity, OPG is subject to the same regulatory regime as any other Ontario company, and OPG as a nuclear operator remains subject to the regulations of the Canadian Nuclear Safety Commission [CNSC]," says Osborne’s media-relations spokesperson, John Earl. "Safety performance is measured by a variety of indicators, and OPG operations are subject to a variety of internal and external safety regulations. OPG is confident that safety remains the No. 1 priority for the company."

The CNSC does not deal with emergency preparedness, but it does regulate other safety aspects of nuclear plants, and information can be accessed through federal access-to-information laws.

"We think they’re not a tough enough regulator," says Irene Kock, spokesperson for the Sierra Club of Canada’s Nuclear Campaign. Besides, she points out, how money is spent has an impact on safety. And the CNSC does not review financial information. "There’s a risk that cost-cutting will affect safety," says Kock.

She also believes that the public, monopoly system of the old Ontario Hydro needed to be changed, particularly to allow for independent green producers to sell electricity that is less environmentally damaging. "We’re sort of agnostic on the question [of privatization]," Kock says. "There’s this [misconception] that Ontario Power Generation is a private company. In fact, the province still owns these companies, and it’s in the public interest that the public is able to review these issues."

Kimberley Noble
Maclean’s
April 23, 2001

When Mike Harris’s Progressive Conservative government announced plans to open the province’s power market to private competition, it looked like the moment Mike Dupuis had spent his entire life waiting for.

Dupuis, 45, can’t remember a time when he didn’t love making electricity. The year he was born, his father built a minuscule hydro plant in their backyard on Waba Creek near Arnprior, Ont. As a child, Dupuis saw nothing unusual in watching his dad head down to the river with his toolbox when the lights went out – or helping him rebuild the dam after Ontario Hydro put in a power plant that cut the creek’s flow. "I didn’t realize we were unique," he says. "I just thought everybody had their own hydro."

Two decades later, Dupuis teamed up with his father to buy Ontario Hydro’s antiquated Galetta generating station on eastern Ontario’s Mississippi River. The deal was a landmark. It forced Ontario Hydro, for the first time in its history, to act as a power broker for independent producers who wanted to sell electricity into the provincial grid. It also inspired Mike Dupuis to go one step further. He figured that some day, some free-enterprise-minded Ontario government would decide to rein in Ontario Hydro, the Brobdingnagian utility that had controlled the province’s electricity business for nearly a century. When that day dawned, Dupuis wanted to have a company that was in the right place at exactly the right time.

He risked everything. In 1988, the family sold the generating business; in the years that followed, Dupuis sank every dollar he had or could borrow into setting up Canadian Hydro Components Ltd., a company that manufactures turbines for small hydro. The firm became known as one of the best of its kind in Canada, if not the world. During passage of the 1998 Energy Competition Act, Dupuis was praised in the Ontario legislature for his gumption and initiative. The sky appeared to be the limit.

Then, for reasons Dupuis still finds baffling, the sky fell. Today, his order book is empty and he’s desperately scrambling to hold his company together. After all the years he’s fought tooth and generator to compete with the government’s monopoly, he never imagined he’d be giving up just as the province was on the verge of opening its electricity market. But Dupuis doesn’t see much choice. "I don’t know if I can stay in the business," he says, deep frustration in his voice.

Granted, Canadian Hydro Components is a far cry from Pacific Gas & Electric Co., the San Francisco-based utility that filed for bankruptcy protection earlier this month. And when it comes to problems deregulating the production and sale of electricity, Ontario is a long way from California. But what happens to Dupuis will matter to every Canadian who pays an electric bill. Policymakers across the country are watching Ontario carefully as it wrestles with its planned electricity reform. New Brunswick, Nova Scotia and, depending on the outcome of this spring’s provincial election, maybe even British Columbia, are all looking at some sort of deregulation agenda. Former federal energy minister Donald Macdonald, who headed one of the Harris government’s first task forces on this topic, says: "You need to watch Ontario if you want to learn how to do this."

Or possibly, Macdonald notes, how not to do it. At the moment, Dupuis’s difficulties reflect growing fears among small – and large – players in the electricity business that the province might not finish what it started. He is the human face of a much larger problem: nothing less than the potential failure of Ontario’s much-ballyhooed efforts to establish meaningful competition for the government’s electricity monolith. Few are willing to declare the original plan dead, but Tom Adams, executive director of Toronto-based Energy Probe, a national industry watchdog, is blunt about it. "This," he says, "is going to crash, big time."

Rolling blackouts and skyrocketing power bills have made California and Alberta synonymous with electricity disaster. The Harris government, on the other hand, wanted Ontario to be known as the North American jurisdiction that got electricity deregulation perfectly right, showing all the others how it was done. When it launched its sweeping changes three years ago, provincial politicians and their private sector advisers were confident that between them they could come up with a way to carve up Ontario Hydro – a $10-billion public power monopoly – in such a way that other companies could compete on a level playing field against the massive and taxpayer-subsidized, government-owned entities. This, in turn, would enable the companies to pay down Ontario Hydro’s crippling debt while creating jobs. Somehow, at the same time, it would maintain or even reduce what historically have been among the world’s lowest electricity rates.

By now, most of these great expectations are gone. The province’s politicians will argue to the contrary, but their once-bold plan is on the brink of falling apart. The original legislation has been modified until neither diehard capitalists nor consumer activists seem to know what it means for shareholders or residential customers – except that prices are surely going to go up. And the playing field, far from being level, has been altered so much that it’s starting to look awfully bumpy. Last summer, in a controversial deal whose terms are still secret, the politicians even ordered four-year electricity discounts for some of the province’s biggest hydro customers – among them companies that had pushed for a free market in the first place. The deregulators are suffering from "stage fright," Macdonald observes. "They are spooked a little at the U.S. experience."

Ontario’s market opening, scheduled for November, 2000, was initially delayed until some time this year. And while government officials refuse to name a new date – and industry executives continue to lobby fiercely for an opening this fall – many say privately that they don’t expect anything to happen until at least a year from now, in April or May, 2002. The government, they say, doesn’t want to commit itself until it can be certain that the conditions are perfect – meaning, politically fail-safe. "The main issue is price," says John Brooks, chief executive officer of Toronto Hydro Corp. "There will be price increases, and the government is worried about the political impact. Whereas business is worried more about the delays."

The industry doesn’t even want to think about the possibility that Ontario might stop here – or turn back. "Anything’s possible," concedes Ron Osborne, president and CEO of the government-owned Ontario Power Generation Inc., one of five entities created when the old Ontario Hydro was split up. "But is it practical? I mean, can we really put the toothpaste back in the tube?"

Electricity prices in Canada have long ranked among the lowest in the world – generally around three to six cents a kilowatt hour wholesale, half the range in the United States. "Frankly, the general public does not pay attention to electricity," says Tony Jennings, president of the Municipal Electric Association, the country’s largest utilities lobby. "You flip a switch, and the lights go on." The California supply crunch changed that, sending shock waves and news bulletins across the continent. The way electricity is produced, transported and priced is now one of the hot business and consumer topics of the year. But it is still too eye-glazingly complex for all but a few experts, Jennings admits. Restructuring in particular is "more complicated than anything you have seen or can imagine."

Boiled down to its most basic elements, the electricity business is made up of three parts: generation, which in Canada means mostly huge hydro and coal-fired generating stations, with a smattering of natural gas and, in Ontario, Quebec and New Brunswick, nuclear power plants; transmission, which carries the power from its source along high-voltage lines; and distribution, which has traditionally been handled by municipal utilities responsible for actually getting electricity into neighbourhoods and homes.

In Ontario, one toxic-sounding phrase can sum up why politicians had to re-examine the traditional system: call it nuclear debt. From the 1960s through the early ’90s, the province built 20 nuclear reactors in three locations, and by the time the third one – the Darlington complex east of Toronto – was completed in 1993, at nearly five times its budget, Ontario Hydro was $38 billion in the hole and the province’s credit rating was in danger. Politicians decided they had to take a serious look at whether they could afford to keep making and selling electricity.

They were not the only ones. For more than a decade now, the cry has gone up around the world: break up the vast and sloppy-spending public utilities, end their stranglehold over who controls electrical power, and your province/state/country will be ripe for investment, innovation and new employment. In the words of Jim Dinning, the former Alberta treasurer turned executive vice-president of Calgary-based energy conglomerate TransAlta Corp., who now travels the continent preaching the benefits of deregulation: "Free the market, and we will build."

In practice, of course, it’s never that simple. More often than not, electricity deregulation has meant revising, rather than removing, government regulations. In many cases, it results in an even stricter regulatory regime. This was the case in Britain in 1990. Margaret Thatcher’s government opened its market but later imposed selected price cuts – which, energy analysts point out, played a big role in the subsequent lower prices commonly attributed to deregulation. Even Pennsylvania, Ontario’s favourite deregulatory role model, set rates for some existing utilities artificially high in order to allow new entrants to come in and compete. "Pennsylvania is cited as a success," says a senior Ontario energy official, "because a lot of residential customers switched suppliers." But, he adds, the regulators – rather than the market – deserve the credit.

The failures have their own complexities. California’s crisis can be traced to a fatal combination of bad design and unfortunate circumstances: surging demand from Silicon Valley, a shortage of domestic electricity supply – due largely to environmental restrictions on new production – soaring natural gas prices and consumer price caps that have come close to bankrupting the state’s big utilities. The result: rolling blackouts, sudden price hikes and angry consumer protests.

Alberta, on the other hand, has only itself to blame. Nothing about electricity there was actually broke, but Premier Ralph Klein – impressed, it is said, by how phenomenally easy it had been to open up natural gas markets – decided in 1995 to fix it anyway. "God gave us a neck," says TransAlta’s Dinning in good-humoured defence of his former boss. "Surely he meant for us to stick it out." And Klein did. Rather than make Alberta electricity producers sell off their valuable private assets (as had happened in California), the Klein government forced these companies to sell their entire output at auction instead. Buyers would become the province’s new wholesalers and sell their power to municipal utilities, retailers and customers.

The auctions were a colossal flop, attracting only a handful of bidders for the big blocks of power. Today, Alberta is almost back where it started, with nearly two-thirds of its 9,600-megawatt capacity controlled for the next 20 years by five very large organizations – led by Enmax and Epcor, Calgary and Edmonton’s municipal utilities.

Making matters worse was the escalating price of natural gas. Only 14 per cent of Alberta’s electricity output is made with it, but in a free market, a rising tide lifts all power plants. If wholesalers can get 20 or more cents a kilowatt hour for needed electricity made by burning natural gas, why accept less for the rest (made mainly by cheap coal stations)? The new gang of big-time wholesalers paid, on average, four cents a kilowatt hour to corner the market. Albertans, to their fury, were asked to cough up from three to five times that amount under contract – or take their chances on the spot market. Hence the hue and cry, and the $3 billion in rebates promised in the weeks leading up to this spring’s provincial election.

Ontario insists it will be different. "We’re not California, we’re not Alberta," says Energy, Science and Technology Minister Jim Wilson. "We’re fortunate that we’re able to go after the Californias and after the Albertas, so we are able to learn from their mistakes."

The province gets A for effort. A series of exhaustive studies led to the 1998 legislation, which commanded the division of Ontario Hydro into five separate entities, each with a different function – generating, transmission and distribution, debt finance, market regulation and electrical safety. Assets and debt were distributed among the first three companies, with $21 billion of what’s called "stranded" debt going into the finance arm. Nearly $8 billion of that will be covered directly by electricity users – starting with a June 1 rate increase of 0.7 cents a kilowatt hour.

The legislation looked great in principle. But it contains what most consumer and competition advocates identify as a near-fatal flaw: keeping the generating assets together in a single corporate unit. Ontario Power Generation has $8.5 billion in assets and accounts for 90 per cent of the province’s electrical capacity. Even Wilson acknowledges the problem. For Ontario’s electricity market to be competitive, he says, "you’ve got to move the elephant over and allow new entrants in."

The solution was a "market design" agreement containing two provisions that were supposed to shift the elephant. One requires OPG to divest itself of enough electrical capacity that it controls only 35 per cent of the province’s supply 10 years from the day the market opens. (To date, it’s done one such deal, leasing the Bruce nuclear plant to British Energy PLC and Saskatoon-based Cameco Corp. for up to 43 years.) The second introduces a price-cap formula on most of OPG’s output – but not on retail prices – that would require consumer rebates if the average charge goes too high. It is designed to prevent the company from exporting too much of its product and from forcing Ontarians to match what power-hungry foreigners might be willing to pay. As OPG’s share of capacity shrinks, the caps will be phased out.

But the system is full of loopholes, should OPG decide to use them. The big fear is that a dominant player can end-run the price caps by manipulating the market. In commodity markets it’s called gaming, and it’s what happens when suppliers with too much clout get greedy and withhold supply in order to drive up prices. It is a problem in Britain, and there are serious concerns that it’s either happening or will soon occur in Alberta. A recent analysis by London Economics International LLC concludes that the Ontario market requires a minimum of five major players to create an honest market.

Here, then, is Ontario’s central dilemma. Lower prices require surplus supply. Ontario is already suffering occasional brownouts because it keeps falling below its conventional 18-per-cent safety margin, according to Adams; he says the Ontario government is sitting on a study that shows the situation is getting worse. To deliver the kind of surplus capacity the government needs if it wants deregulation to be risk-free, a lot more new production has to be in the pipeline. "Or else it will be Ontario’s turn," says Adams, alluding to California’s expensive dependence on B.C. Hydro, "to rely on neighbouring utilities to keep the lights on." Yet few new projects are even planned.

Would-be investors say they won’t commit cash until they know the province is going to act quickly and play fair. So far, they haven’t seen adequate proof of either. In February, Harris vowed to move ahead. "It was a turning point," says OPG’s Osborne. "It reconfirmed their commitment to this process." But in recent weeks, the government has appeared to back off again. "We won’t move forward," Wilson told an annual meeting of utility lobbyists, "until the government is satisfied it can bring in a market that consumers will benefit from." Meanwhile, a series of government policy measures that seemed to favour the public companies, from bond issues to restrictions on municipal utility sell-offs, have alienated potential competitors.

Unfortunately for consumers, the one certainty in this whole complex exercise appears to be that the days of cheap power are over. Energy Probe predicts that no matter what the government does now, the province’s electricity prices are going to be at least 20 per cent higher in two years. Utility executives go even further: they say that what Ontario residents fork over for electricity will at least double in the next five years – and that the overwhelming issue for the Harris government is how it can possibly avoid taking the blame. "There is only one politician in Canada who can screw up something like electricity and still get elected," says Brian Soutiere, senior vice-president of marketing for Direct Energy Marketing Ltd., a Calgary-based gas and electricity retailer. "And that’s Ralph Klein."

So for now, Mike Dupuis has to burn while Mike Harris fiddles. But the turbine maker may still profit from the continental power chaos. Now that electricity is worth more than gold, established producers on the Columbia River system want to sell whatever they can make for mega-bucks in California. Dupuis is negotiating with two large utilities in Washington that want small turbines installed into the narrow bit of fast-moving water used to attract salmon to fish ladders. "This would put a decent-sized contract in our hands," he says, sounding happier. "Wherever you have a few feet of moving water, you can have a little generating station." If Dupuis can hold out for another year or two in the business, Ontario residents may want to give him a call.

The cost of getting juiced

Typical electricity prices for residential users, in cents per kilowatt hour:

Vancouver 6.12
Edmonton 11
Regina 8.2
Winnipeg 5.89
Toronto 8.56
Montreal 6.03
Moncton 9.14
Charlottetown 10.06
Halifax 9.4
St. John’s, Nfld. 8.37

San Francisco 20.29
Chicago 16.19
New York City 35.28 (Can.)

(Source: Hydro Quebec 2000 survey, with Maclean’s updates)

Richard Brennan and John Spears
Toronto Star
April 24, 2001

Energy Minister Jim Wilson says Ontario’s electricity market will be opened to competition in a year – or about 18 months later than planned – and that consumers should be better off.

But some electricity-industry watchers say the further delay hints that the province lacks resolve. And the union representing Toronto Hydro workers vows to campaign against electricity competition.

Wilson has said a competitive market will attract investors who will build new generators and offer consumers better choices.

"The government is confident that conditions necessary to open the electricity market to competition will exist by May, 2002," Wilson told the Legislature yesterday.

"The government is committed to an open market while guaranteeing a safe, affordable and reliable supply."

Electricity prices soared in California and Alberta when markets were thrown open, but Wilson said prices in Ontario will not be capped for consumers.

"I think over the long haul you will see … that prices are lower than they would have otherwise been under the monopoly system," said Wilson.

Opposition critics called electricity competition a "dirty deal" that is being cooked up in virtual secrecy with no public input.

"It is the most major privatization in North American history and it is all being done behind closed doors now," said Liberal MPP Gerry Phillips.

"There’s billions of dollars to be made by the private sector on this and the consumer is in grave danger of being left out to dry," added Phillips, who called for a special legislative committee to "track this every step of the way."

New Democratic Party leader Howard Hampton said electricity competition "has been a disaster in California and it has been a disaster in Alberta and there is absolutely no evidence to indicate it is going to work otherwise in Ontario."

Ontario’s market was to be deregulated last November, but that was delayed.

Wilson said the challenge is to get away from the existing monopoly situation, in which Ontario Power Generation supplies 80 per cent of the province’s power.

Ontario Power Generation must cut its share of the market by 35 per cent over the next 42 months. That will open opportunities for new investors, Wilson said.

Others, however, were skeptical.

Tom Adams, executive director of Energy Probe, said delaying the market opening until next year will drive investors away.

Premier Mike Harris acknowledged yesterday in Hamilton that the market-opening date is only a "target" that could be delayed.

Electricity-industry watchers were split on yesterday’s announcement.

The Toronto Board of Trade hailed the announcement as a "firm date" and a "positive signal."

But David McFadden, who heads a coalition of business and municipal groups interested in electricity, was more muted.

"It’s very helpful that the minister has set a target date," said McFadden, of the Stakeholder Alliance for Energy Competition and Customer Choice.

But investors want more than words, said McFadden.

"I think what the investors are going to look for is all of the other steps moving ahead," he said.

That includes firm environmental guidelines for electric plants that burn coal or gas, and prodding Ontario Power Generation to sell more assets.

The Ontario division of Canadian Manufacturers and Exporters also struck a cautious note.

Wilson’s announcement "is welcome, but must be carefully executed," vice-president Ian Howcroft said in a statement.

The province must make sure the new market doesn’t lead to electricity prices surging higher, as they did in California and Alberta, Howcroft said.

Bruno Silano, president of Canadian Union of Public Employees Local 1, representing Toronto Hydro workers, vowed to continue fighting the new market system.

"The government is going in a direction contrary to where the majority of citizens want to go.

"Poll and poll shows citizens don’t want choice when it comes to electricity, they don’t want competition and they don’t want privatization.

"They want reliable and affordable power."

CUPE plans to rally a coalition of labour, environmental and small-business groups to fight the province’s plans, Silano said.

Toronto Hydro fully supports market opening.

"We know we’ve got a workable model here," said spokesperson Blair Peberdy.

"We’re very optimistic about the market structure."

Toronto Hydro would like to see the market open sooner than May, 2002, Peberdy said.

Tony Jennings, chief executive of the Municipal Electric Association, welcomed the May, 2002, date.

He said it will give the industry time to settle some technical questions about how the new market will operate.

Cassandra Szklarski
Toronto Star
May 2, 2001

Ontario should consider building new power plants and sell output to an energy-hungry United States, Premier Mike Harris said yesterday.

But the idea revealed in the Legislature yesterday raised fears among critics that an expanded energy market would send Canadian rates soaring.

The Tory premier said he and Prime Minister Jean Chrétien discussed such a scheme after Chrétien met with U.S. President George W. Bush during last month’s Summit of the Americas.

”They felt there were great opportunities for more generation, maybe more nuclear plants, more CANDU reactors here in Canada, here in Ontario and . . . perhaps building surplus power, jobs and investments here to sell to the United States,” Harris said during Question Period at the Ontario legislature.

”That’s something I think we should look at.”

Harris insisted Ontario’s power needs would have to be met before any foreign sales are made.

New Democrat Leader Howard Hampton said allowing private Canadian utilities to sell to a lucrative American market, where rates in some places dwarf those in Canada, would drive our prices through the roof.

”Ontario consumers, Ontario industry will either have to pay double and triple the rates for electricity or we’ll watch our electricity being exported,” Howard Hampton responded in the legislature.

”Premier, don’t you get it? This is critical for Ontario’s economy.”

Harris promised Ontario interests will be put first.

”If our nuclear problems continue, we are not going to be exporting power to our neighbours, but importing power from our neighbours,” said Tom Adams, executive director of Energy Probe.

John Spears
Toronto Star
May 18, 2001

Up to 70 per cent of the electricity from the newly privatized Bruce nuclear generating plant is destined for big Ontario industries, says the firm holding the lease on the facility.

Meanwhile, critics of the deal say the private lease could break Ontario’s electricity market wide open, forcing the province to open its power grid to U.S. buyers, and driving prices higher.

Ontario Power Generation, or OPG, closed a deal on the weekend to lease the Bruce nuclear facilities until 2018 to Bruce Power, a partnership headed by British Energy with a nearly 80 per cent stake. Uranium producer Cameco Corp. of Saskatchewan has 15 per cent. Two unions representing plant employees have the remainder.

"Our intention, our calculations and forecasts are based on selling to the Ontario market," Bruce Hawthorne, chief executive of Bruce Power, said in an interview from the site at Douglas Point, on Lake Huron just west of Tiverton.

Bruce Power has agreed to pay $625 million up front for the lease of the facility, consisting of the B unit, which is operating, and the mothballed A unit, which is being brought back into service.

Bruce Power will pay a combination of fixed and variable yearly payments over the life of the lease, depending on markets and production. Payments in 2002 are estimated at $150 million, of which the fixed part is $62 million. Fixed payments will rise to $92 million by the final year.

Bringing the A unit back into production will cost about $350 million, Hawthorne said. It can produce 1,000 megawatts of power; the B unit produces 2,500 megawatts. Total Ontario demand yesterday at midday was 17,402 megawatts; Ontario’s all-time peak load was 24,007 megawatts.

Hawthorne said Bruce Power wants to lock up most of its output in long-term deals so it won’t face price fluctuations on the spot market.

The company had lined up long-term contracts with big industries for about 70 per cent of its output.

Delays in opening Ontario’s market to competition – it was due to open last November but has been put off until as late as May, 2002 – mean the contracts will have to be reconfirmed.

In the meantime, Bruce Power will sell all its production to OPG.

Even when the market opens, Hawthorne said Bruce Power will focus on Ontario. It has not applied for a licence to export power, he said.

But Myron Gordon, professor emeritus at the University of Toronto’s Rotman School of Management, said U.S. customers may be able to force the issue.

Gordon said the North American Free Trade Agreement may give New York and Michigan utilities equal access to Ontario’s power grid with Ontario businesses and utilities.

"As of today they can come up and try to buy from British Energy, and if British Energy says, ‘No, we promised to sell it exclusively here in Ontario,’ then we start the legal process" of forcing entry into the market, he said.

It wouldn’t be a short process, Gordon acknowledged. "It’ll take maybe two or three years, but the sooner you start the sooner you’ll get there."

They’ll get backing from President George W. Bush, he added.

"Mr. Bush wants a continental market in energy, in all forms of energy. I’m sure the U.S. federal government would back up New York and Michigan and any other state that wants access to our power."

Since prices south of the border are about 50 per cent higher than in Ontario, U.S. buyers would be willing to bid up prices in Ontario.

Gordon said he’s been unable to get answers from OPG or the provincial government about the legal ramifications of NAFTA on the power market.

The old Ontario Hydro bought and sold power across the border, but was able to stop the flow if power was needed in Ontario.

With the Bruce privatized, and an open market, can Ontario still say no, if a U.S. buyer comes calling?

An aide to Energy Minister Jim Wilson said electricity market operators both in Canada and the U.S. are mulling the implications of new trade rules as electricity markets are opened.

"There’s no final position on this," he said. "We’re still developing our market rules to determine the priority of different electricity transactions."

OPG’s position is similar.

"OPG believes many factors will impact how the market will operate and has no position on the potential impact of NAFTA," the company said in response to the question.

But it added that markets will be the determining factor.

"Market power and market forces – including costs and transmission constraints – will be the key to north-south flows of power."

The Independent Electricity Market Operator, or IMO, which will run Ontario’s competitive marketplace, said it’s still reviewing the rules that U.S. market operators have in place to limit access to their local markets.

Kevin Dove of the IMO noted that transmission bottlenecks limit the amount of power that can flow across the border, and exporters have to get a licence from the National Energy Board.

"We are looking at NAFTA to ensure we are able to do what we want to be able to do in terms of domestic supply," he said. "The rules haven’t been written up in full. We feel pretty confident we aren’t going to run into any issues here, but we haven’t finalized the rules."

John F. Wilson, an engineer and former member of Ontario Hydro’s board who has worked with Gordon analyzing Ontario’s electricity market, said Ontario may not appreciate what it’s up against in bargaining with the U.S.

"The Ontario government is hopping up and down saying, ‘What we want to do is compete,’" he said. "What the Americans are doing is saying, ‘We want to win.’"

But Tom Adams, executive director of Energy Probe, said the fears of Gordon and Wilson are misplaced. Electricity flowed across the Ontario-U.S. border under the old monopoly system run by Ontario Hydro, and it increased energy security for everyone, he said.

Quebec and Manitoba – which have much power to export – are part of that grid and increasingly will be able to supply Ontario with power produced at low cost, he said. In any case, keeping prices too low discourages conservation.

British Energy said yesterday its pre-tax profit for the year to March 2001 was in line with analysts’ expectations at just £10 million, or $22 million (Canadian), down from £241 million a year ago. Falling British electricity prices and power station shutdowns were blamed for the drop.

With files from Reuters

Louise Elliott/Canadian Press
Globe and Mail
May 22, 2001

Toronto – Ontario consumers may be unwittingly signing away a valuable electricity-price rebate to private utility companies, the head of an energy watchdog group says.

The market power mitigation rebate was created in 1999 to offset a potential rise in power prices once Ontario’s electricity market is opened to competition next spring.

Sales representatives from private electricity-marketing companies have been knocking on doors in Ontario for months, asking homeowners to sign on for a fixed electricity rate when the market opens.

Tom Adams, director of Energy Probe, says consumers may not notice a fine-print clause which, in many of the agreements, hands the potential rebate over to the electricity firm.

While there may be nothing wrong with such a clause, consumers by and large don’t even know the fine print or the rebate exists, Mr. Adams said.

"If the price is right, it’s a balanced transaction, but the problem is nobody has any information and the public agencies aren’t doing their job of explaining it to us."

The rebate is supposed to kick in for consumers when the yearly average cost of electricity for a household rises above a benchmark price of 3.8 cents per kilowatt hour.

The rebate is designed to shield consumers from massive price spikes experienced in deregulated markets such as Alberta and California, where prices have tripled recently.

The rebate may be crucial to helping save the province from the supply crunch that continues to cripple California, Mr. Adams said. "This is actually one fundamental strength that Ontario’s electricity restructuring has that California doesn’t have."

Intended to reduce the market dominance of Ontario Power Generation, which at the time of deregulation will control 65 per cent of the market, the rebate will be paid out by the company for the first four years after deregulation takes effect.

A typical residential customer using 10,000 kilowatt hours a year at an average electricity price of 5.65 cents a kilowatt hour would get a rebate of about $139.

But that information is hard to come by because bodies such as the Ontario Energy Board and the Ministry of Energy aren’t doing their jobs, Mr. Adams said.

"The public agencies that are responsible for providing customer education and explaining what this rebate is about don’t have any literature anywhere on the public record that explains the rebate," he said.

The Web site of Ontario Power Generation contains information about the rebate for the province’s wholesale electricity consumers.

But most retail customers still have no clue a rebate even exists for them, said a spokesman for the Independent Electricity Market Operator, the body that will calculate the rebates.

"We [try to] make it abundantly clear to the wholesale customers in the province," Kevin Dove said.

By its own admission, the Ontario Energy Board has failed to produce any printed information geared to residential customers.

"The problem is there’s a lot of information we won’t have until closer to market opening," Christine Staddon, a spokeswoman for the board, said. "That’s our dilemma."

She said a fact sheet on the rebate for consumers will be made available "imminently."

But many customers have signed away their rebates and are still in the dark, Mr. Adams said.

Customers are making uninformed decisions because the energy board is not doing its job, he said.

Michael Krizanc, a spokesman for Energy Minister Jim Wilson, said the government provided information on the rebate in a mailed notice to electricity customers last year.

But he acknowledged there is still an information gap and said a new public-awareness campaign will begin in the lead-up to next year’s deregulation date in May, the third date set by the government.

Ellen Roseman
Toronto Star
June 6, 2001

The electricity you use this month will cost you 8 per cent more, thanks to an increase imposed by the Ontario government to cover rising debt charges.

The extra cost is $7.35 a month, or about $90 a year, for the average household that consumes 1,000 kilowatt hours of power a month.

With power rates unchanged since 1993, you might expect the government to make an effort to tell customers what’s behind the June 1 increase.

Think again.

Yesterday, I cruised the major government Web sites looking for information and found nothing at the Ontario Ministry of Energy, Science and Technology or the Ontario Energy Board. (How often do they update these sites, anyway?)

Real cost of power to the consumer is now 15 per cent less than in 1993.

The only place I got lucky was at Ontario Power Generation (http://www.opg.com), the provincial wholesaler, which posted a March 31 press release explaining the increase.

OPG president Ron Osborne said inflation has gone up 15 per cent during the eight-year rate freeze, meaning the real cost of power to the consumer is now 15 per cent less than in 1993. Meanwhile, environmental and fuel costs have been rising and there’s not enough cash flow to pay off the old Ontario Hydro debt.

Ontario Power Generation will collect the extra money and hand it all over to Ontario Electricity Financial Corp., which is responsible for paying down the debt.

Municipal utilities are trying to tell customers what’s going on, but some are doing a better job than others.

Toronto Hydro Electric System Ltd. has a message at its Web site saying electricity costs are going up, but doesn’t explain why. There’s not one word about Ontario Hydro’s debt.

Toronto Hydro says the rate increase is temporary and will stay until the electricity market opens to competition in May, 2002. It’s shown separately on customers’ bills as a "wholesale energy surcharge."

Enersource Hydro Mississauga, on the other hand, wants to make sure that customers know who’s to blame.

"Effective June 1, 2001, the Ontario government is increasing your electricity bill," reads the cover of the municipal utility’s bill insert this month.

As of 1999, Ontario’s 4.1 million electricity customers owed almost $10,000 apiece for the provincial electricity debt, said Enersource chair Alex Taylor in a news release.

While not challenging the intent of the increase to pay down debt, Taylor said he was concerned with the "relative absence of communication from the government to inform the public."

As an example of the unclear financial information, he pointed out that the current price increase of 0.735 cents a kilowatt hour precisely matches the debt retirement charge announced last June.

The debt retirement charge was to come into effect on market opening as a separate line item on consumer bills.

"Rather than tell us that this ‘cost of power surcharge’ is an early implementation of that process of unbundling existing charges from the consumer bill, we are left guessing where the government is going with this increase," Taylor said.

"Things seem to come out of the energy ministry in bits and pieces, unnecessarily complicating our job of explaining deregulation to consumers."

Tom Adams, director of Energy Probe, says customers already pay a debt retirement charge that is bundled into the overall price of power.

Electricity retailers offer protection only from commodity price increases, not from other charges such as debt retirement.

In Friday’s column, we’ll look at how electricity retailers get customers to sign away a valuable electricity price rebate.

Karen Bridson
Eye magazine
June 6, 2001

The province’s failure to educate the public on the changing electricity landscape is costing homeowners a valuable rebate, says the head of an energy watchdog group.

By signing up with private utility companies, consumers have been unwittingly signing away their rights to the "market power mitigation rebate" – worth an average of $130, says Tom Adams, executive director of Energy Probe.

"This is a major transfer of wealth from consumers to marketers, and consumers are unwitting participants," he says. "The public agencies have not done their jobs to inform the public. I’m really concerned about this."

The rebate was created to offset the potential rise in power prices and the market dominance of Ontario Power Generation (OPG) when the electricity market opens up in May 2002.

Private companies – including Ontario Hydro Energy, a subsidiary of HydroOne, Direct Energy, run by Centrica, and Toronto Hydro Energy, run by Toronto Hydro – have been approaching the public door-to-door and through the mail, offering a fixed price for electricity over a set period. While the contracts state that any rebate will be handed over to the utility, the companies are not exactly pointing this out to consumers.

"The Ontario Energy Board is a public agency that shares with the ministry the responsibility for public education around the new energy market," says Adams. "I started pleading with them in November [to publicize the rebates], and they’ve ignored me."

Adams says he has no opposition to the contracts, because there is nothing fraudulent about them. "And I can imagine conditions in the market where assignment of that rebate would be a worthwhile bargaining chip – if you get something in return," he adds. What Adams objects to is the lack of public information that would allow people to make informed decisions.

Some marketers have also been using high-pressure sales tactics to encourage consumers to sign up, offering deals for a limited period of time.

Christine Staddon, spokesperson for the Ontario Energy Board, admits that her organization has not put out an advisory about the rebates, but promises that a fact sheet will be posted on the board’s Web site.

"We’ll be doing that soon," she says. "The fact sheet will point out that if [consumers] are approached by retailers, they should read the contract carefully and ask about the rebate."

Meanwhile, the Energy Ministry sent out literature about the rebate to homeowners last year, says Michael Krizanc, a spokesperson for Ontario Energy Minister Jim Wilson.

But Kevin Dove of the Independent Electricity Market Operator, which will calculate the rebates, says not enough consumers know about them. "We are making a point of getting the message out," he says. "From what we’re seeing, there is not enough awareness. We certainly encourage more information about what the new market will look like for consumers."

The rebate will be calculated according to how much electricity each customer uses. According to Staddon, a typical residential consumer using 10,000 kilowatt hours annually at an average price of 5.65 cents per kilowatt hour will get a rebate of approximately $130. Homeowners who don’t sign up with one of the marketers will automatically receive their rebate on their energy bills, but those who sign a contract for a fixed rate on electricity costs will be signing over their rebate to the utility.

Consumers worried about soaring prices in the open market are signing up, in many cases, for prices above current levels in hopes that they won’t be gouged if they rise again, says Krizanc.

The rebate was instituted because of the province’s theory that a competitive marketplace cannot be successful with one dominant player. OPG now owns 90 per cent of the power generation in the province, but the government will require it to reduce its share of the market to 35 per cent over the next 10 years.

In the meantime, OPG will have to rebate to consumers any revenue it takes in beyond 3.8 cents per kilowatt hour, according to Krizanc. "We want them to rebate a percentage of everything they take in until the market dominance is reduced," he says.

Currently, OPG is looking at selling or leasing some of its plants, and as it reduces its market share, the rebate will also shrink. "It’s an incentive to reduce so they can keep more of what they make," says Krizanc.

Don’t let me be misunderstood

Tom Adams wrote a letter to Eye magazine in response to this article, protesting several inaccuracies.

Re "Consumer rebates end up in utilities’ hands," June 7, 2001.

Your article properly warned consumers about the potential implications of signing away their entitlement to electricity rebates when dealing for energy marketers but also contained a number of glaring inaccuracies and misquotes.

Your article quoted me saying that the rebates are "worth an average of $130" – a statement I never made. The Ontario Energy Board, using a faulty calculation which is more fully explained in the recent study "Contracting for natural gas and electricity in Ontario: Energy Probe’s advice to household consumers" posted to http://www.energyprobe.org, has estimated its value at $130. Uncertainties about Ontario’s future electricity market are so significant that Energy Probe has not estimated the rebate average value and we would urge caution in accepting any estimates.

I am also quoted saying that rebate assignment represents "a major transfer of wealth from consumers to marketers" – another statement I never made. There is a major wealth transfer from consumers to municipalities going on with Ontario’s electricity restructuring but the extent, and potentially the direction, of the wealth transfer between consumers and marketers remains to be seen.

The title of the article is also factually wrong, since unregulated marketers are distinct corporate entities from regulated utilities and in some cases even have different owners.

Tom Adams
Executive Director
Energy Probe

Tom Adams
Presentation to CAMPUT 2001
June 19, 2001

Successes So Far

• Reasonably solid legislative foundation
• Slow but solid progress commissioning a good physical wholesale market: on track for November
• Promotion of competition and price protection through the Market Power Mitigation Agreement (MPMA)
• Some (albeit shallow) “decontrol” achieved

Challenge: Rising publicly-backed debt/direct taxpayer losses

• Ontario Electricity Financial Corp.’s (OEFC) Year One Cash Loss = $834 m (new debt) + $235 m (taxpayers)
• OEFC’s Year Two Cash Loss = ? (debt) + $54 m (taxpayers)
• Contradicts "White Paper" promise

Challenge: Politically secured industrial discounts

• Weakens financial and physical hedging markets (AKA competition)
• Exacerbates price volatility (fewer controllable loads)
• Higher publicly-backed debt (OPG pays subsidies out of foregone dividends)
• Contradicts Bill 35

Challenge: Minimal/risky generation investment

• Only significant post-Bill 35 new generation investment (1000s MW on ice):
  Trans Alta’s Sarnia cogen (440 MW new)
• Generation investment emphasizes putting nuclear eggs back in the basket:
  OPG/Taxpayers restart Pickering A (2040 MW for $1.3 B)
  Bruce Power’s Bruce restart 3&4 (1538 MW)

Challenge: Impediments to institutional independence

• Direct government intervention at OEB:
  net load billing for T service, Bill 100, the "Directive", Regulation 00/365 (re. gas), Regulation 01/61
• OEB compensation regime like a government department rather than an independent agency (eg. OSC)
• IMO directors not appointed by members

Challenge: Higher consumer prices for regulated services

• Distribution rates up about 70% not including Payments in Lieu of taxes (PILS)
• Accelerated Debt Reduction Charge (DRC) leads to double recovery until market opens
• Rising publicly-backed debt has caused DRC growth and taxpayer hit – more coming
• Contradicts "White Paper" commitments

Challenge: Leadership gaps on market opening and customer education

• No firm market opening date
• No resolution to the historic NUG issue
• Public is poorly informed/misinformed
  re. DRC, MPMA rebates, unbundling, distribution rate increases, PILS
• OEFC’s debt “reduction” plan secret
• Some (large and small) LDCs behind schedule on market readiness

Sean O’Connor
Canadian Retailer
August 23, 2001

After originally setting the year 2000 as its target, Ontario – Canada’s most power-hungry province – claims it will be ready for an electricity market open to competition, and market prices, by May 2002. What impact will this have on retailers?

Fred Ware sits in his modest office at Zeller’s headquarters in suburban Brampton, Ont., just outside of Toronto. It is one of the hottest days of the year, and one of the smoggiest. Among the pictures and plaques on his wall is a quote from Albert Einstein, framed in black and white, stating, "The best design is the simplest one that works." But right now, he’s summoning a slightly different quote – the Scout motto: "Be prepared."

Ware is discussing an award his company received for reducing greenhouse gas emissions that contribute to the grey haze now hanging over much of Ontario’s Golden Horseshoe. But the context of the conversation is electricity deregulation, a topic as inviting to some as the smoggy sky outside.

"Energy costs are going to go up. There is no way to stop that at this particular time," says the soft-spoken Senior Manager of Engineering for Zellers. "You have to reduce your consumption because the costs are going to go up."

The energy market in North America has seen one of its most cataclysmic periods since the oil crisis of the early 1970s. Early in the year natural gas prices escalated, boosting heating costs across the continent (they have since dropped again). Meanwhile, electricity deregulation in California read like a Hollywood horror story, bringing brownouts, blackouts, and the downfall of once-mighty utilities. Alberta, which entered deregulation at the start of this year, fared somewhat better but still saw prices more than double at their peak.

Now Ontario is lumbering its way towards electricity deregulation. After originally setting the year 2000 as its target, Canada’s most power-hungry province claims it will be ready for an electricity market open to competition – and market prices – by May 2002.

But despite headlines from California and Alberta, deregulation isn’t necessarily all grey and gloom. The effects depend largely on where you live. (Before California and Alberta came deregulation success stories in other U.S. states, in Europe and in Australia. And according to most observers, Ontario should escape the trials and tribulations of California, while Alberta has seen the worst of deregulation’s growing pains.)

Still, retailers have every reason to pay close attention. According to the federal Office of Energy Efficiency, retailers are among the top users of energy in Canada – and most of the energy they use is electricity.

When it comes to deregulation, California did almost everything wrong, with the worst possible timing. It completely ignored Ware’s favourite quote about the best, simplest design and somehow forgot the laws of supply and demand.

According to a CIBC World Market Report on Canadian electricity deregulation, while electricity demand in California has jumped by 50 per cent since 1980, almost no new power generation was added in the past 15 years. That meant a heavy reliance on imports as the state entered deregulation, at a time when jurisdictions selling electricity had their own problems with high demand at home and, in the case of hydro power, record low water levels (for generation).

Adding to its woes, California is largely dependent on gas-fired generation. The huge spike in natural gas prices made a bad situation worse, all leading to skyrocketing electricity bills. To lessen the impact on consumers, the state decided to freeze retail rates, leaving utilities to buy at a high cost, but sell at discount prices. As utilities inevitably began facing bankruptcy, brown outs and black outs became the rule of the day.

Like California, Alberta saw only a minor increase in generating capacity in the 1990s before entering deregulation on January 2001.

It too depends significantly on gas-fired generation, so the province faced the same high import prices created in part by California’s debacle. But the situation isn’t exactly parallel. Unlike California, Alberta refused to cap retail rates. Instead the cash-rich province offered rebates to customers, saving them money while avoiding a crisis among utilities.

CIBC analysts paint a rosier outlook for Alberta as new generation facilities come online. In fact, going into the summer prices dropped substantially (along with a drop in natural gas prices). Ontario differs from Alberta and California in a number of respects. Power generation in Ontario actually exceeds demand, while usage in the province has grown only modestly in recent years.

According to Shane Pospisil, Director of Communications at Ontario’s Ministry of Energy Science and Technology, $3 billion in new, private generation projects have been proposed, while off-line reactors at the Pickering nuclear plant will begin returning to working order by 2002. In addition, only about six per cent of Ontario’s generation is dependent on volatile natural gas, compared to more than 50 per cent in California and 35 per cent in Alberta. And like Alberta, Ontario won’t introduce price caps. To smooth the transition in Ontario, rebates will be provided under a complicated formula whenever market-clearing prices rise above a threshold of 3.8 cents a kilowatt-hour.

Of course, not everyone is so bullish.

Tom Adams, Executive Director at industry watchdog Energy Probe, says significant long-term private investment in generation is far from guaranteed.

Which brings us back to Fred Ware and the Scout motto: "Be prepared."

Conservation is back in a big way, not just for environmental implications but for savings in the face of what some consider inevitably higher prices.

By signing on to a federal conservation program called The Energy Innovators’ Initiative, Zellers has saved more than $1.7 million in energy costs so far this year. In the process, it reduced greenhouse gas emissions by 7,200 tonnes and received the aforementioned government award for its efforts. If electricity costs rise, those savings will look that much better.

"We’re actually implementing strategic ideas right now just to reduce our energy and do as much cost avoidance as we can," says Ware.

The federal program covers up to 25 per cent (to a maximum of $250,000) of the cost of pilot projects in energy conservation – projects that are then duplicated in at least 25 per cent of a retailer’s other locations.

"We’re here to assist people in getting started at becoming more energy efficient," said Ron Mahar, Retail Energy Innovator Officer at Natural Resources Canada’s Office of Energy Efficiency. Though smaller retailers may not fit the program, both Zeller’s Ware and Adams at Energy Probe suggest all retailers should start looking at everything related to energy – from lighting, heating and air conditioning to meters that measure energy usage by the minute instead of by the month – and see where improvements can be made.

A good first step is to get in touch with an energy management consultant. They can help you determine how you use electricity and where you can save.

Another important step is to start looking at purchasing options under deregulation right away. As markets open, customers will have new choices.

Says J.P. Bradette, Director of Sales at OPG Energy Markets, a division within Ontario Power Generation, "you can’t learn enough at this point."

In Ontario, independent retailers have been signing up customers since March 2000. A Globe and Mail report earlier this year showed that in deregulated U.S. states, only 20 per cent of commercial and industrial users of electricity originally signed on with new providers. Most who did, it says, realized savings averaging between 10 and 20 per cent. But not every deal offered is the same – about 10 per cent ended up paying more.

"There are different options for different types of electricity users," says Bradette. "The larger the customer, the greater the need to be informed."

Carolyn Green is a freelance writer and regular contributor to Canadian Retailer.