Energy Probe

November 16, 2002

On Saturday, Nov. 16, Energy Probe‘s Tom Adams joined Guy Giorno, former Chief of Staff and counsel to Mike Harris, to take a closer look at recent events in Ontario’s tumultuous energy market on Global-TV’s Focus Ontario program.

The following is a transcript of this discussion.

VOICEOVER: From Global News, this is Focus Ontario with Graham Richardson.

GRAHAM RICHARDSON: Good evening and welcome to Focus Ontario. Has the Premier sent the province hurtling down into a California death spiral? Or did he fix the problem for consumers he simply couldn’t ignore. Electricity dominated again this week and we begin with the government’s step back in time. How much will the rate cap cost? The Premier says don’t worry, it will take care of itself. He seems to be alone in that assessment. And where’s the power? It’s a bold move, but are companies being chased south? And let’s leave the lights on; who cares about conserving when the government’s picking up the tab anyway.

(Video clips)

PREMIER ERNIE EVES: Next week we will introduce an action plan to lower your hydro bill.

PETER BUDD (POWERBUDD): They have essentially shut down the retail market in Ontario.

PREMIER EVES: Nobody will receive less than $75.

HOWARD HAMPTON: Private energy companies are going to get a half-billion dollar a year subsidy to cover up the pain.

PREMIER EVES:It’s not a gift to power companies at all.

DALTON MCGUINTY: Ernie’s trying to buy himself the next election. This is going to cost us billions of dollars.

GRAHAM RICHARDSON: We begin with a man whom the government labels a power fear-mongerer. And one of the big brains behind Mike Harris, Guy Giorno, defends price caps and the destruction of his former boss’s legacy.

Plus a cheque-book eating lizard pops in on our Play of the Week. Stay with us; Focus is up after the break.

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GRAHAM RICHARDSON: Welcome back to Focus Ontario. (Video clip) Here we are in Mississauga with the Premier on Monday, sitting down at the kitchen table, fixing regular Ontario’s bills along with the tele-prompter there, getting his message out. There’s the Premier. Let’s hear some fallout from these decisions:

(Video clips)

MEENA HARDETT: For us I know for sure we were second-guessing whether we would actually bother putting our Christmas lights up, because we were just planning to put it on a few hours for the night. This will make a big difference.

TOM ADAMS, Energy Probe: Ontario’s electricity restructuring just died in the room in there. The Premier has signed a death warrant on this thing. That means Ontario’s electricity supply is in a lot of danger. We just barely had enough electricity to make it through last summer.

DALTON MCGUINTY: We’re talking about billions and billions of dollars is either going to be added to the Hydro debt or to the provincial debt.

MARILYN CHURLEY: What’s happened to the Tories, they’ve turned into socialists over night, except that this is corporate welfare.

GRAHAM RICHARDSON: Maybe not socialists, but anyway here is some editorial comment I guess. This is from the [Toronto] Star cartoon, "Hydro For Dummies." There’s the other famous Ernie. And also the [Toronto] Sun weighed in with a different front page – "Power to the People," and that’s Ernie Eves’ face in the lightbulb, and I’m sure one person joining us tonight enjoyed the Sun cartoon – Guy Giorno, Fasken Martineau, also adviser to Ernie Eves now. Thanks for being here. And from Energy Probe – Tom Adams, a harsh critic of what happened this week.

And maybe we’ll start with Guy. What has happened to the Tories? We’re talking price caps, we’re talking rebates, it doesn’t sound anything like the party we knew. Is this the word, all of this was Mr Harris?

GUY GIORNO: Actually there has been very little change. The plan that was announced by the government several years go remains essentially the same. It was a plan to ensure that Ontario had a sufficient supply of electricity away into the future to meet our needs, at a price that was affordable. And also a plan to pay down the massive debt that was accumulated by years of mismanagement and inefficiency in the old Ontario Hydro.

GRAHAM RICHARDSON: A debt price for four years isn’t different from an open free market, is absolutely the opposite?

GUY GIORNO: The plan and those two fundamental objectives remain the same. What needed to take place in the short term was corrective action to deal with the price today. It’s their problem of prices that I think the vast majority of people in Ontairo believe was unsustainable.

GRAHAM RICHARDSON: Tom Adams, what’s this about, from your perspective? Are you a fearmonger?

TOM ADAMS: If you want it to be sustainable, that’s not what we’ve got. We’ve got a wholesale market for power which will reflect scarcity, and that we’re going to have a fixed frozen artificial price for consumption, which is just reflecting the Premier’s view of how he’s doing in the polls this week or whatever. And that will result in a situation where we won’t get the conservation we need to get through the short spots on our electricity supply, and so we’re facing a very significant risk of blackouts in the future.

GRAHAM RICHARDSON: So if bills don’t go up people don’t conserve – period?

TOM ADAMS: And that’s the point. The second point is that to pay for all of this the Hydro debt that was bad before, is just getting started. We’re going to see the Hydro debt go wild.

GRAHAM RICHARDSON: You can’t say the Conservatives didn’t . . . conservation.

TOM ADAMS: Of frozen prices.

GUY GIORNO: Well, I think we have to have some faith in consumers and the people of Ontario. For most of the last hundred years the price of power has, from the consumer’s point of view, been relatively constant, and we never, never as a result of that factor had blackouts or brownouts due to consumer behaviour. So I don’t see why we have any less faith in the people of Ontario today than we did in the last hundred years.

GRAHAM RICHARDSON: In July and September we were this close to blackouts. We had warnings, we had no supply.

GUY GIORNO: As to whether the price is the right price, I invite us to go out to the streets and ask the people of Ontario whether they think a price much larger than 4.3 cents a kilowatt hour is the right price, and I think that Ernie Eves made the right decision by lowering the price and freezing it there at a rate that the average person can afford.

GRAHAM RICHARDSON: I will grant you that he had to do something, that’s fair. We sat on this program for weeks and said he’s got to do something, you’ve got to fix it. But what I don’t understand is – first of all let me ask you both, and we’ll come back to Tom, and Tom you can jump in too because I know you will – how are you going to pay for this? A fixed price for several years. The only person saying maybe they’ll cancel each other out, cancel it out and don’t worry about any more taxpayers –

TOM ADAMS: The rebates pay for themselves.

GUY GIORNO: Well, I believe that as well, and I’ll explain to you and the viewers at home how it happens. The price of power under this model will continue to fluctuate up and down as before. All that happens is the consumers are insulated. They are going to pay a constant price all along. The government’s quite simply going to set up a fund. When the price of power is lower than what consumers pay, money will go into the fund; when the price of power is higher than what people are paying, money will come out of the fund. It will pay for itself.

GRAHAM RICHARDSON: It was higher 16 weeks in a row, it almost doubles in summer.

TOM ADAMS: It’s the tooth fairy fund.

GRAHAM RICHARDSON: It’s the tooth fairy fund, okay.

TOM ADAMS: What we’re going to do here is when the price of power goes up, the taxpayers are ultimately going to have to pick up the tab for this. We’ve moved to a situation where the electricity bill is a fiction. We’re going to send out an inaccurate price signal, we’re going to discourage conservation, it’s going to harm us and all of our environmental priorities, like meeting Kyoto. Then the real bill is going to come down the pipe and it’s going to come back in a couple of ways. We may see direct expenditure from the province; we may see deferred impact of rates through higher borrowing. We might even see some liquidation of assets to use the proceeds of those liquidations for the purpose of paying down electricity debt.

GRAHAM RICHARDSON: Guy, we are seeing warnings from Bay Street about rate increases, that costs money, right?

GUY GIORNO: The one reality though with electricity is that there are so many different opinions and they reflect so many people, so many businesses, and so many different interests.

GRAHAM RICHARDSON: But the only people I hear saying this is good are you people, everybody else is saying this is just the worst thing to do.

GUY GIORNO: Ernie Eves makes no apologies for taking the side of consumers. It’s the tradition?

GRAHAM RICHARDSON: Isn’t it more complicated than that though. I appreciate the politics of it; is this about the election?

TOM ADAMS: Short term win.

GUY GIORNO: No, it’s actually about doing what’s right for consumers while maintaining true to the overall plan which is to ensure we have a stable supply of electricity into the future at a price that people can afford.

GRAHAM RICHARDSON: And you say it’s about the election?

GUY GIORNO: Now we’re going to continue to pay down the old Hydro debt.

TOM ADAMS: It’s about the election.

GRAHAM RICHARDSON: It’s magic; it’s magic.

TOM ADAMS: It’s about the election, except that Ernie Eves thinks that he’s running for premier of California. What I really want to know is when the province initiated the electricity restructuring back in 1997, it set out a whole bunch of principles, like the supply/demand were going to balance the price; we were going to attract private sector investment; we were going to have independent regulatory institutions. We’ve trashed all of those principles. Whose idea was it to throw all the principles over Niagara Falls?

GRAHAM RICHARDSON: How many people, that’s a good point.

GUY GIORNO: Those principles still remain intact. There’s a fully functioning wholesale market. We have incentives to raise the return for local distribution companies to become more efficient. We’re actually making them more accountable to the municipal ratepayers and municipal councils. We have respected private sector contracts and we’ve actually created-

GRAHAM RICHARDSON: No, you haven’t.

GUY GIORNO: Private sector contracts are safe.

GRAHAM RICHARDSON: Private sector contracts are null and void.

GUY GIORNO: They’re not null and void, they’re being respected.

GRAHAM RICHARDSON: Well, but at 4.3 cents, the marketers are out of business.

TOM ADAMS: Let me in on that point.

GUY GIORNO: Sorry Tom – if your point is that people who’ve gone door to door selling electricity to individual consumers in Ontario have business trouble, I have no hesitation in saying that Ernie Eves was right to take the side of consumers over people who sell hydro door-to-door.

TOM ADAMS: Okay, but door to door salesmen –

GUY GIORNO: And I bet you that most people in Ontario would agree with that.

GRAHAM RICHARDSON: Okay but Guy, let me just ask on this point. You can’t say that you’ve respected those contracts, because those contracts were signed for more than 4.3 cents, so the government’s got to pay – someone’s got to pay the contractor and someone’s got to pay the customer. That’s not very good business, is it?

GUY GIORNO: Well, sure there was a choice of saying that individuals, individual consumers who signed those fixed-price contracts would be excluded from the refund; that was the wrong way to go, they shouldn’t be penalized just for having signed those contracts. So his decision, which was the right decision, was to hold those individuals in, and treat every consumer in Ontario fairly.

GRAHAM RICHARDSON: Last point – I’m sorry, twenty seconds – Tom Adams, why is this bad?

TOM ADAMS: Look, Ontario’s electricity is a terrible mess. We’ve lost all sense of principle. Power decisions are too complicated to operate without a plan. This government is just winging it.

GRAHAM RICHARDSON: Tom Adams from Energy Probe. Fasken Martineau’s Guy Giorno and adviser to Ernie Eves – kind of on a hot seat tonight – I appreciate your being here. Thanks so much.

GUY GIORNO: Thank you.

GRAHAM RICHARDSON: Focus Ontario returns after the break. Stay with us.

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GRAHAM RICHARDSON: Welcome back to Focus Ontario. Our cartoons continue, this is in the National Post. "I’m hear to replace that burnt-out bulb" – the one that is over the Premier’s head. "Ouch!"

And some written comments. First from Andrew Coyne in the Evening Post: "Voters have no reason to trust a word the Eves government says. The Ontario Conservative government has reached the end of its useful life, it should be removed – no hurled – from office, and the sooner the better." Andrew Coyne.

And Linda Leatherdale – a little kinder: "The Grinch who stole Christmas, a.k.a. Premier Ernie Eves, may have saved his political butt by capping skyrocketing electricity bills, and promising our power won’t be shut off, but sadly experts from both sides of the deregulation issue are still warning the worst is yet to come."

And on our journalists’ panel, joining us now is Robert Benzie, regular contributor from the National Post; and from the Sun we have Christina Blizzard; and from the Globe we have Murray Campbell. Thanks to you all for being here on a very busy week. Let’s just open it up. Anybody surprised by what happened in the government?

ROBERT BENZIE: I was stunned on Monday when they completely capped prices. I couldn’t believe they did it.

GRAHAM RICHARDSON: Chris wants to say something.

CHRISTINA BLIZZARD: I was completely stunned. I had no idea that they would do something like this. Obviously they had to do something, but if you were going to cap prices why wouldn’t he put a time limit on, until say the Pickering ‘A’ plant came back up, something like that until you’ve got more supply. More of a Band-Aid just to bridge them across this supply shortage.

GRAHAM RICHARDSON: And Murray you wrote that Mississauga looked like panic. Now why, why did you say that?

MURRAY CAMPBELL: Well, because I think they looked at the numbers. They were listening to their backbenchers, they were listening to Brad Clark, you know cabinet ministers saying we’ve got to do something – we’ve got to do something. But like Chris, I’m a little surprised at the extent to which they moved up on the recent bit of tinkering, the sinister Band-Aid to get them through to maybe Christmas, maybe the next election.

GRAHAM RICHARDSON: And they didn’t have time, Robert. I wonder what Mike Harris is thinking. I was going to ask Guy Giorno that, but this is a complete repudiation of what he did. This was a mantlepiece of legislation for him, to deregulate, to privatize them, plugging in of the thing and it’s gone. They blew it up this week, I don’t care what anybody says.

ROBERT BENZIE: This is just another flip-flop by Premier Eves, it’s a belly-flop I think by Premier Eves. I mean this is a catastrophically bad policy. It’s bad public policy, it’s irresponsible. Although I have to give Mr Eves credit. He has done something – Murray and I talked about this earlier today – he has done something totally improbable. He has managed to unite neo-conservatives, socialists, environmentalists and Bay Street, all on the same side, saying this thing is moronic and saying you’re crazy.

GRAHAM RICHARDSON: And Guy Giorno points out, and the other politicians point out, the constituencies are quiet and maybe we’re hearing less in the newsroom about this. So the question I think has to be, have they bought their way out of this trouble, even if it’s medium term? Has it worked?

CHRISTINA BLIZZARD: I think yes. I think that he has. I think basically all people really cared about was can I afford my next hydro bill. I think there was incredible angst out there. From people they were hearing outrage, from small businesses, from consumers, from householders, from all kinds of people who were really genuinely worried. I think they’ve sort of shut down – you know, the story of the day about someone whose business is going to go belly-up because they can’t afford their electricity, they’ve shut that down. I think that as soon as people heard that he capped prices, that was all they cared about. The rest of it is dealing with the private sector.

GRAHAM RICHARDSON: Okay, go ahead, Murray.

MURRAY CAMPBELL: But I think something has changed. I think the voter can be bribed with their own money, that’s the history of politics –

GRAHAM RICHARDSON: Sure.

MURRAY CAMPBELL: . . . in this country. But I think Mike Harris in fact did change something in this country, in this province. He reduced the sense of entitlement that we feel. And I think voters are far more sophisticated than they were a decade ago. They now understand what the Tories meant when they said there is only one taxpayer, there is no free lunch; you get a gift here, you pay for it there.

GRAHAM RICHARDSON: And the government’s own staff could come and fight them on this issue.

MURRAY CAMPBELL: I think voters understand that there are no free rides.

ROBERT BENZIE: Graham, this is the party of highway tolls, this is the party of user fees. This is the party that said, you know what, you just learned that you pay as you go. You have to be individually responsible. I don’t think that that’s necessarily a very bad thing. So why should I, living in a small house in downtown Toronto, be subsidizing some mansion in Mississauga so they can have cheap power. I mean it’s ridiculous; it’s absurd.

GRAHAM RICHARDSON: They were big homes. One bill two doors down had gone from ninety dollars to nine hundred dollars, and they had a hot tub. So what! Lots of people have hot tubs. That’s extraordinary. Okay, so why is this policy, why is this fixed, what’s the worst part about it? Is it the fact that it relies on absolute idiocy?

ROBERT BENZIE: It’s malice.

GRAHAM RICHARDSON: That’ the worst part of it.

ROBERT BENZIE: It’s malice.

GRAHAM RICHARDSON: Okay, why is it malice?

ROBERT BENZIE: Because it turns economics on its head. I mean people should pay with something – if water costs a certain amount of money, that’s what people should pay for. They shouldn’t pay at an artificially low price just so that a government can get re-elected. That’s immoral.

GRAHAM RICHARDSON: That sounds like Toronto Sun policy to me too, Christina, isn’t it?

CHRISTINA BLIZZARD: No.

GRAHAM RICHARDSON: That’s what your newspaper was championing.

CHRISTINA BLIZZARD: Absolutely and that’s the argument that I’ve been making in our editorials that they’re making, absolutely. I think that there was a temporary difficulty. I mean they opened the market at the wrong time, that was the problem. You have to wonder why no one from OPG picked up the phone to Mike Harris and said, can you put this off for a year until we’ve got more supply back on line; Pickering’s down, give us a break here.

GRAHAM RICHARDSON: I don’t accept either that people in government didn’t know Pickering was a big problem. I mean you can’t do a project like that without lots of people knowing where it’s at. It’s not just OPG, is it?

CHRISTINA BLIZZARD: It was a simple question of supply and demand. Didn’t anyone look at the supply and figure out what the price was going to be. I mean we’ve heard about the perfect storm, that this was supposed to be the hottest summer on record, all those kinds of things. Well, yes it was hot, but you know summers in this province do tend to be hot, factor that in. I find it really absolutely unacceptable and irresponsible no one looked at that.

GRAHAM RICHARDSON: What about the other measures, Murray? If you want to make a point on the other stuff, that’s fine too, but what about the other measures? Should we take any solace in the tax breaks for green power? Won’t that attract lots of new supply?

MURRAY CAMPBELL: No, well it took John Baird who arrived in a car that’s powered by, you know, recycled bacon fat. I’m not entirely sure the connection, it was electricity.

GRAHAM RICHARDSON: It was a little loose.

MURRAY CAMPBELL: But I mean there’s nothing wrong with the principle of at-cost power. But that principle is what, you know, underwrote some of Ontario’s prosperity for the last 75, 80,and 90 years. But I would agree, we have to figure out what ‘at cost’ is, and I don’t think anyone around would say 4.3 cents, it’s tax dollars.

GRAHAM RICHARDSON: Incredibly, even I hear Liberals talking about we have to ease ourselves up to more expensive power. They’re saying 4.3 cents is unrealistic; they’re not in favour of caps.

MURRAY CAMPBELL: But Howard Hampton won’t guarantee 4.3 cents. They say we have to have stable prices, I believe.

ROBERT BENZIE: Yes, the NDP, the party of the working man, the lunch-bucket party, saying no, this isn’t right. This is the thing that’s so absurd, it’s the free market party, the allegedly capitalist party, the Conservative Party, they’re the one that’s doing this interventionist policy. It could be very, very destructive down the road. How about that $38 billion? (It could be) $138 billion down the road.

CHRISTINA BLIZZARD: But show me a politician who is going to run on a platform that they’re going to raise electricity rates, and I’ll show you someone who is not going to win the next election. That’s not going to happen. And the other thing is what generation are you going to get on line; you can’t generate gas-fired for less than six cents a kilowatt hour.

GRAHAM RICHARDSON: That’s right.

CHRISTINA BLIZZARD: Five industries just withdrew from those two plants in Toronto for that very reason. You’re not going to encourage any more ecologically sound generation at 4.3 cents a kilowatt hour.

ROBERT BENZIE: We’re not going to be putting solar panels on the roof.

GRAHAM RICHARDSON: It didn’t work with Green Peace.

ROBERT BENZIE: Jimmy Carter or something on the roof.

GRAHAM RICHARDSON: Very quickly Murray, last word. Is it going to work politically, forget everything else. Politically did they win?

MURRAY CAMPBELL: There is a good chance yes, if the wheels don’t fall off this winter. Tom Adams says the wheels will fall off. If they can scrape together enough capacity, enough supply, they might be able to squeak through.

GRAHAM RICHARDSON: Murray Campbell, Christina Blizzard – on our panel – thanks so much. Robert and I are back after the break. Focus Ontario returns; stay with us.

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GRAHAM RICHARDSON: Welcome back to Focus Ontario. On our Play of the Week – what else, the left-wing lizard:

(Video clips from Mississauga and Niagara Falls)

"I want more money, I want more money, power."

There’s Hydrozilla, the NDP’s new mascot, eating wallets and chequebooks. Deregulation isn’t dead, he’s just crawled out of the sewer or the swamp, Robert. There he is at Niagara Falls.

ROBERT BENZIE: Refused entry at the Falls for John Baird’s photo op there.

A protester dubbed "Hydrozilla" parades outside a Mississauga residence where Ontario Premier Ernie Eves announced the province’s hydro rates will be capped and rebates will be issued. Credit: Frank Gunn, Toronto Star

GRAHAM RICHARDSON: Yes, he got bounced apparently. And here perhaps was the biggest coup. (Video clip from Oakville) This is John Baird arriving in Oakville in the Mexican-made car –

ROBERT BENZIE: Fuelled by bacon fat.

GRAHAM RICHARDSON: . . . and then there was this. You see this was extraordinary as far as I was concerned, because he showed up halfway through the press conference, he surprised them, and then he had to continue. Like you can hear them there, we’re asking questions. He’s trying to keep a straight face and Hydrozilla is stealing the photo op, and there’s –

ROBERT BENZIE: The Premier’s staff very happy with the turn of events!

GRAHAM RICHARDSON: . . . friends from the Premier’s Office, colleagues of Mr. Baird, not very happy. And this was the photo op gone bad. You can see Mr. Baird looking back at Hydrozilla eating wallets. This was a photo op gone bad.

ROBERT BENZIE: Yes, if you watched this item on the news with the sound turned off, you’d swear that the lizard was part of the Tory roll-out plans.

GRAHAM RICHARDSON: He had no choice but to continue; they couldn’t bounce the lizard. Election? Sooner or later, because of what’s happened this week?

ROBERT BENZIE: Well, the big debate in the Press Gallery at the Park about this, as you know. I mean you and I both seem to think that it’s going to be sooner rather than later. I think this is a quick fix and that Murray Campbell’s right, it may in fact help Mr Eves in the short run, though I wouldn’t be at all surprised to see an election before June. Other people are saying maybe next fall.

GRAHAM RICHARDSON: A huge quick fix and an extraordinary one.

Anyway, thanks Robert. That is all the time we have for this week. And if you’d like to write us, please do, at 81 Barber Greene Road, Toronto, Ontario, M3C 2A2. You can e-mail us at focusontario@globaltv.ca. And you can also call Neal Kelly, our producer, at (416) 446-5570.

And check the National Post this Monday. It returns – Queen’s Park Notebook.

ROBERT BENZIE: Queen’s Park Notebook – after a short vacation.

GRAHAM RICHARDSON: After our short vacation. Lots of political coverage, including Hydrozilla probably, and other things. But a fun week and an extraordinary week. Anyway, that is all the time we have for this week. Thanks to regular contributor, Robert Benzie of the National Post; and Christina Blizzard of the Toronto Sun; and Murray Campbell of the Globe and Mail. Earlier tonight Guy Giorno, lawyer, and current adviser to Premier Ernie Eves; and Tom Adams of Energy Probe.

And thank you for watching. Focus Ontario returns next Saturday. Global News is next at eleven with Robin Gill. I’m Graham Richardson; good night and have a great weekend!

Rob Ferguson, Business Reporter
Toronto Star
November 16, 2002

British Energy confirms it’s trying to unload 82% stake

Cash-strapped British Energy PLC confirmed yesterday it’s in talks to sell its 82 per cent stake in Bruce Power, the nuclear generating station on Lake Huron that is Ontario’s largest electricity provider.

The move raised concerns on at least two fronts – that the potential buyers have no experience running nuclear power plants and that blackouts could result next summer if Bruce Power’s $400 million plan to restart two reactors is delayed by the sale.

"We’re really worried," said Tom Adams, executive director of Energy Probe, an industry watchdog group.

A source close to the talks said TransCanada PipeLines Ltd. and Toronto investment firm Borealis Capital Corp. are involved in negotiations along with Cameco Corp., a Saskatchewan uranium producer that has said it’s interested in increasing its 15 per cent stake in Bruce Power.

The talks began two months ago but hit a snag this week when the Ontario government announced it would cap retail electricity prices at 4.3 cents per kilowatt hour until 2006, the source said.

"It certainly made the purchasers nervous."

Premier Ernie Eves introduced the rate cap and rebates to mitigate skyrocketing hydro bills homeowners have faced since the electricity market was opened to competition in May.

But industry analysts say the cap has lowered the value of electricity plants and makes it less likely new power producers will come to Ontario because profits will be limited.

Cameco spokesperson Jamie McIntyre acknowledged the rate cap is a concern but added: "I don’t think it has diminished Cameco’s original intent."

Bruce Power earned $101.6 million for British Energy in its first year of operation, becoming the company’s most profitable unit.

TransCanada PipeLines wouldn’t confirm it’s in the talks, but spokesperson Glenn Herchak said: "We are still looking at opportunities for growth in both our pipeline and power business in North America, and that does include Ontario."

Calgary-based TransCanada has stakes in 17 North American hydro plants. None are nuclear.

It’s not known if federal regulators would let companies with no experience in operating nuclear reactors – among the most complex technologies on the planet – purchase Bruce Power.

"That’s a real safety issue," Adams said.

McIntyre called Adams’ concerns "speculation."

Talk of blackouts next summer is "fear mongering" because projections for 18 months show Ontario will have a "sufficient supply of energy" regardless of what happens at Bruce Power, said Dan Miles, spokesperson for provincial Energy Minister John Baird. Those projections include power purchases from the United States.

But it’s in the Ontario government’s interest to get the idle Bruce reactors online quickly to keep hydro prices down "so it won’t have to spend as much on rebates," said Bruce Sharp, senior consultant at Aegent Energy Advisors in Toronto.

Bruce Power said the refurbishing of two reactors slated to resume hydro production next spring is on schedule. Pending approval from regulators, the first of the two reactors should be operating in April with the other following before summer, Bruce Power spokesperson Steve Cannon said.

Adams said delays remain possible because it’s not unusual for problems to surface in the final approval and testing process.

"It just seems to be something generic with nukes. . . . I’m not taking anything at face value from these guys."

A deadline for the sale by British Energy is fast approaching.

The British government has given the company an emergency loan of about $1.6 billion until Nov. 29 and is exploring ways to keep the firm solvent.

Its profits have sunk because of a 40 per cent plunge in U.K. electricity prices after the industry opened to competition in 1998.

Some observers aren’t sure British Energy will survive, even if it does get $1 billion – a price estimated by London’s Financial Times newspaper – for its stake in Bruce Power, which originally cost $650 million.

"It’s a short reprieve from death row," said Clive Roberts, an analyst with Charles Stanley in London. "They are not going to get very much from Bruce. . . . There are few people who would bid for a nuclear business."

Repaying the loan is unlikely to solve long-term woes at British Energy, the former government nuclear power firm that was privatized in Britain’s electricity deregulation process, analysts said. Electricity prices in the U.K. are expected to stay weak for the next three years.

John Spears
Toronto Star
November 29, 2002

Negotiations to buy out Bruce Power’s troubled majority partner British Energy are "quite far advanced," Bruce Power’s chief executive Duncan Hawthorne said in an interview yesterday.

Bruce Power has been in discussions with a group led by Cameco Corp. to buy out British Energy’s 82.4 per cent stake.

"Before Christmas, I think we’ll have made a pretty clear announcement of where we are," Hawthorne said.

Bruce Power got some breathing room yesterday when British Energy got more emergency help from the British government. A previous emergency package was to expire today.

As a condition of sustaining British Energy, however, the British government says the company must complete the sale of its Canadian and U.S. interests.

The new emergency aid will give British Energy until February to restructure.

Hawthorne said the reprieve would provide enough time to reach an agreement with Cameco and its partners, thought to include TransCanada PipeLines Ltd. and Borealis Capital Corp., which is affiliated with the OMERS pension fund. A Cameco spokesperson wouldn’t confirm the involvement of the other companies.

Cameco is currently a 15 per cent partner in Bruce Power. Two employee groups hold the remaining interest.

"Cameco has arrangements within our partnership that give them right of first offer," Hawthorne said. "We are dealing with our partner in trying to stabilize Bruce."

Jamie McIntyre of Cameco said talks on Bruce Power are "progressing positively" but would not predict when a deal might be reached.

British Energy’s financial troubles raised regulatory problems for Bruce Power because the Canadian Nuclear Safety Commission requires nuclear plant operators to provide guarantees that financing is available to cover the costs of an orderly plant shutdown.

When British Energy announced earlier this year that it couldn’t pay its bills, the safety commission raised questions about the worth of British Energy’s guarantees.

But the commission said it was satisfied with the original emergency aid package offered by the British government.

Hawthorne said yesterday that the nuclear safety commission need not be involved in reviewing a deal with the Cameco group, if one is worked out.

"The reality is that Bruce Power is the licensee," he said.

"The capability to operate the site as judged by the (nuclear safety commission) is invested in the operational capability that exists on the Bruce site. In any discussions we’re having, nothing would disrupt the site operational capability.

"There’s no regulatory trigger in any of the discussions we’re having because there is no change to the licensee or the capability of the licensee."

The watchdog group Energy Probe wrote to the safety commission on Nov. 19 expressing concern about control of Bruce Power moving from British Energy, an experienced nuclear plant operator, to a group whose members have no experience operating nuclear plants.

Tom Adams, executive director of Energy Probe, said yesterday that the concern remains.

"The safety regulator needs to apprise itself of the capacity of the controlling interests to discharge their nuclear safety responsibilities," Adams said.

Under British Energy’s latest emergency restructuring plan, the British government will provide a $1.6 billion loan until next March and underwrite the cost of decommissioning nuclear plants.

British Energy must also restructure its $3 billion debt, converting some of it to equity, which will dilute the stake of its existing shareholders.

Chairman Robin Jeffrey has been replaced by Adrian Montague. The company’s shares have dropped from 250 pence a year ago to 6.5 pence yesterday.

The Bruce station is owned by Ontario Power Generation. OPG, owned by the provincial government, issued a statement yesterday saying that it hopes that a "sensible solution" will be reached in Canada.

"We believe our financial interests in our lease are more than adequately protected," the agency said.

Barbara Carss
Property Management Report
November 30, 2002

Market players were flummoxed following Premier Ernie Eves’ November 11th intervention in the competitive electricity market. Most participants were expecting a rebate, but few, if any, foresaw a dramatic 4.3 cent per kilowatt-hour (kWh) price cap.

"It’s certainly not a good thing that this government has done," declares Dale Struthers, Special Projects Consultant with O&Y Enterprise Commercial Management, and a member of the Independent Electricity Market Operator’s (IMO) Board of Directors. "It killed the retail market; it means there is going to be a truly high subsidy at a huge cost that is going to be borne by government organizations; and it does nothing for our supply situation."

Eves’ move is largely interpreted as a reaction to the public clamour over hydro costs as consumers received invoices for their summer consumption. Yet, the seasonal price acceleration is arguably no surprise at all. The market reflects the interplay of supply and demand and Ontarians used more electricity than ever before in the summer of 2002. Demand peaked in excess of 25,000 megawatts on several days in July, August and September and the IMO issued several advisories asking customers to curb their electricity use.

Reckoning arrived in autumn. "The difficulty for most customers is that they’ve never had this kind of price signal before," Art Leitch, President and CEO of Hamilton Utilities Corporation, reflected in late October. "Maybe next summer they’ll be prepared to deal with it. For now, we get the unenviable task of being the messenger that sends the bills."

However, the new developments eliminate any pass-through price incentive to conserve next summer and will have consumers expectantly checking their Mailboxes for promised refunds. The Ontario government will now reimburse residential and small business customers for the variance between the market price and 4.3 cents per kWh retroactive to May 1.

Ironically, the average market price since May 1 was a better deal than many of the retail contracts that more than one million customers signed voluntarily. The experts caution that the figure posted on the IMO’s web site, (at http://www.theimo.com), is somewhat misleading because it is based on a flat consumption profile for every hour of the day rather than accounting for significantly fluctuating usage over the course of 24 hours, but even the higher adjusted hourly average rate was hovering around 5.6 cents as of early November. Standard supply customers could also look forward to a rebate from Ontario Power Generation (OPG), while many retail contracts, particularly in the residential sector, required consumers to turn their rebates over to the retailer.

"I think it was way too early to assess how the market was performing," says Dan Pastoric, an energy market consultant and former member of Ontario’s market design committee. "But the reality is, the public wasn’t willing to take the short term pain."

Now all customers are guaranteed rates frozen at 4.3 cents per kWh beginning December 1, 2002 and distribution rates will also be capped at current levels. A standardized province-wide bill will be introduced, as will policies and incentives to encourage investment in new electricity generating capacity.

"Our plan provides immediate help without sacrificing our long-term goals," Eves stated in his November llth address. "The immediate measures of our action plan to lower your hydro bill would be in place until at least 2006. They would continue until sufficient supply, at reasonable prices, is available to meet Ontario’s long-term needs."

Good luck, say the sceptics.

Supply concerns

Supply, or lack thereof, has been pinpointed as the major source of the current upheavals. Industry observers attribute much of the market fallout to the summer weather and overly optimistic assumptions prior to market opening. Leading up to May 1, 2002, the average price was projected at about 4.3 cents per kWh and consumers were assured that Ontario’s generating capacity would help shield them from the volatility experienced in California or Alberta.

Seven months later – after the monthly weighted average price hit 8.3 cents in September – there is growing concern about the potential for future brownouts and no sign that the off-line nuclear reactors at the Pickering and Bruce generating stations, which are expected to produce approximately 4,000 megawatts, will be recommissioned any time soon. "I think we never had a big supply and that was, perhaps, wishful thinking," speculates Mike McGee, President of the energy management consulting firm, Energy Profiles Ltd., and a member of the IMO’s Technical Panel.

Excess demand during extended summer heat waves forced reliance on costlier sources of power from OPG’s coal-burning generating plants and from outside the province. In addition, market regulators had committed to pay a standby premium, known as "uplift" charges; in order to have access to an auxiliary imported supply when necessary.

"We were importing all the power we possibly could throughout the summer. The import prices went sky-high and we were obliged to pay them," McGee explains. He further cautions that investors are less likely to build new generating capacity within Ontario when it appears much more profitable to export it from outside the province.

While the new price cap effectively eliminates the retail market, the wholesale market continues to respond to the vagaries of supply and demand. The cap is premised on government subsidies bridging the gap between 4.3 cents and the true market rates, and most fore-casters predict that prices will continue to climb until the supply is augmented.

Currently, TransAlta is building a major new co-generation facility in Sarnia, Ontario, which will add another 450 megawatts of domestic capacity. Several other proposed developments -such as Sithe Energy’s plans for two natural gas generating stations with a combined capacity of 800 megawatts in Mississauga and Brampton – are on hold.

The spectre of additional nuclear generating capacity flooding the market with cheap power makes other potential investors wary, but it’s difficult to estimate when that supply might come on line. "Pickering is in trouble," asserts Tom Adams, Executive Director of the public interest and advocacy group, Energy Probe. "The project is 175% over budget and three years behind schedule and counting."

Market observers are now concerned that government intervention will scare off generators, perhaps in much the same way rent controls discouraged construction of new private sector rental housing. In an attempt to counterbalance that, the Minister of Energy, John Baird, moved quickly on November 12 to propose tax holidays for new hydro-electric, natural gas and renewable sources of generation. He also announced plans to move forward with an expansion at the massive Sir Adam Beck Generating Station at Niagara Falls and a 500-megawatt generating station on the Toronto Portlands.

Scarborough East MPP Steve Gilchrist, who previously served briefly as the Minister of Municipal Affairs and Housing, has been appointed Commissioner of Alternative Energy and charged with the task of encouraging the public to conserve and adopt cleaner, more efficient forms of energy. Whereas, observers of human nature wonder if capped hydro rates will help his campaign.

"There doesn’t appear to be anything that gives customers incentives to reduce their consumption. Certainly, at 4.3 cents, that is not any kind of inducement," says Don Thorne, President and CEO of Milton Hydro. "I couldn’t be more disappointed."

Investments abandoned

Ontario’s experimentation with the electricity market has been somewhat of a trial by ordeal for the utilities, known as local distribution companies (LDCs). The former non-profit municipal hydroelectric commissions were legislatively mandated to incorporate as for-profit companies and find ways to generate revenue from transmission and distribution-related services and infrastructure.

LDCs were the designated administrative hub of the new market, entrusted with calculating, processing, delivering and collecting the bills for all customers. They were also the purveyors of the standard electricity supply based on spot market prices – a potentially precarious arrangement that required them to pay the IMO within 10 days and then wait for their customers to reimburse them.

After hundreds of millions of dollars of investment in market readiness, the Province is now urging LDCs to revert to a not-for-profit business model. Highly sophisticated and costly billing systems and electronic transaction hubs for sharing information with retailers have been abandoned after just six months.

Market participants on other fronts similarly lament the time, effort and money they’ve invested in a such short-lived exercise. "It would appear to negate all the work we’ve put in over the last two years arranging power contracts for our clients," observes Mike Lithgow, Energy Manager for Greenwin Property Management.

"Nevertheless, it will be easier to forgive and forget if the Ontario government can actually pull off what it has promised – reasonable prices, reliable supply, diminishing debt and mechanisms to encourage and reward reduced Usage. Perhaps we shouldn’t be overly wrapped up with what the market structure is, as long as fundamental principles are still followed," Pastoric suggests. "The question to ask is: will this continue our modus operandi of wasting energy? That could be the crux of the problem at the end of the day."

Tom Adams
Property Management Report
November 30, 2002

Taxpayer-backed electricity liabilities, which the government promised would begin shrinking and would soon disappear, are rising. The basic facts of this issue and the underlying problems related to taxpayer electricity debt are not widely enough understood.

Ontario Electricity Financial Corporation (OEFC), the legal continuation of Ontario Hydro, released its 2001-2002 financial results on Aug. 29. The financial results were released two months behind the schedule required by law, but this delay was much less that the delay in reporting during its first two years of operations. OEFC commenced with the break-up of Ontario Hydro in April 1999.

In its latest report, OEFC declares a loss of $69 million compared with a restated net income of $18 million last year. Prior to restatement, OEFC had claimed a net income of $244 million last year. OEFC’s reported "unfunded liability" rose to $20.085 billion this year from $20.016 billion in 2001 – an increase from $19.433 billion in April 1999.

OEFC’s statement of "unfunded liability" should be treated as an estimate. The "unfunded liability" represents the net figure of OEFC’s total liabilities: mostly Ontario Hydro bond obligations, and its estimated costs for dealing with nuclear waste and getting out of high-priced power purchase contracts, some of which extend until 2042 – offset by notes receivable from the Province, Ontario Power Generation, Hydro One, and a small amount from the Independent Market Operator. Although, both OPG and Hydro One have seen their financial positions decline, the impact of these declines on the notes held by OEFC is difficult to judge.

OEFC’s financial losses were sustained despite the Ontario government’s decision last year to break one of its promises to ratepayers by accelerating the implementation of a special electricity tax earmarked for OEFC debt repayment to start collection prior to Market Opening. The Debt Reduction Charge (DRC) was first implemented on June 1, 2001, but renamed as the Wholesale Market Surcharge.

OEFC reports $524 million in accounts receivable from OPG and Hydro One as assets offsetting some of OEFC’s liabilities. These accounts receivable correspond to the retained earnings of OPG and Hydro One accumulated since their creation in April 1999.

OPG has invested more than its total retained earning in the restart of the Pickering A nuclear station. Additional funds for the Pickering A project appear to have come from the liquidation of Mississauga hydro-electric assets, lease payments from Bruce Power, and deferring debt payments to OEFC.

Hydro One has invested more than its retained earnings in the acquisition of municipal distribution utilities. Additional funds for Hydro One’s acquisitions appear to have come from the issuance of new debt, which has diluted the taxpayer’s interest in Hydro One.

This year, OEFC’s accounts receivable were adjusted downward by $122 million relative to last year. Further downward adjustment of OEFC’s accounts receivable cannot be ruled out. Consumers were promised that the DRC would be temporary, in place long enough to recover Ontario Hydro’s unfunded liabilities. Since the unfunded liabilities are growing, the outlook for the DRC is that it will become a larger, longer lasting or permanent tax.

OEFC has claimed since its first annual report to have a plan that shows the unfunded liability being eliminated. The plan is secret. The continuing slide of OEFC’s financial performance represents a major threat to Ontario’s power market. The longer OEFC is allowed to ramp up debt, the higher rates will ultimately have to go for consumers.

Ontario’s electricity restructuring will not succeed unless it enhances the public interest. Among the necessary steps to enhancing the public interest are depoliticization of the power system, restoring the credibility of retail marketing, modernizing electricity metering in Ontario, achieving higher standards of independence and effectiveness in regulation, and cutting the Ontario taxpayer’s electricity liabilities.

Tom Adams is the Executive Director of the public interest and advocacy group, Energy Probe, and a former member of the Independent Electricity Market Operator’s (IMO) Board of Directors. The preceding article is an excerpt from a speech to the Canadian Competitive Energy Summit in September 2002.

Tania Henvey
Electricity Today
December 1, 2002

Earlier this year, Ontario opened its electricity market to competition. Consumers could buy their power from municipal utilities or from a retailer licensed by the Ontario Energy Board, a government body that regulates transmission and distribution rates.

The government believed that by creating competition within the marketplace, instead of holding onto their monopoly, opportunities for economic development would occur. This was reflected on October 30, 1998 when the Energy Competition Act (Bill 35) was passed, "to create jobs and protect consumers by promoting low-cost energy through competition and to protect the environment."

Fast forward to May 29, 2002, almost a month after the market had been opened to competition and almost four years after the passing of Bill 35. The Environment and Energy Minister at the time, Chris Stockwell introduced Bill 58 (the sale of Hydro One), trying to ensure that electricity consumers, the environment and hydro transmission corridors would be protected once the company is sold. But, if eliminating "at-cost" electricity and introducing an open market will introduce jobs and cost savings, then why pass a bill to "protect us"?

In May, the average cost of electricity was 3.01 cents per kilowatt hour, according to the Independent Electricity Market Operator in Ontario (IMO). By July, the price had risen to 6.2 cents. August met with charges of 6.97 cents and by September, that rate had climbed to 8.31 cents.

In November, the Ontario government announced that these climbing rates would be capped at 4.3 cents, whether or not a fixed-price agreement had been signed. This rate, which was to begin on December 1, will continue to be capped until 2006. Ontario Premier, Ernie Eves said that he would still honour all fixed-price contracts, most of which are based on a rate of 5.9 cents, even though consumers are paying less. This leaves the government with the bill of the difference between the two rates, which industry analysts believe could reach $1.1 billion a year.

"It is unacceptable that families are being hit with hydro bills they can’t afford, and businesses are facing cost increases significantly larger than they can handle," said Eves after announcing the new rate. "The problem requires immediate action and we are taking it. From now on, the only time your electricity bill will go up is when you use more power."

Those who signed fixed-price contracts with retailers will be fixed to a price of 4.3 cents, regardless of what the original agreement was. In addition, these consumers will receive a rebate, which was previously to be refunded to the retailer. This will not apply to Toronto Hydro customers who were already paying 4.3 cents, because this rate does not warrant a reimbursement.

"Toronto Hydro’s customers are not generally feeling the heat," said Blair Peberdy, vice-president of communications and public affairs at Toronto Hydro. "They are either on fixed-price retail contracts or the 4.3 cent fixed reference price SSS option with a true up."

For residential customers who are unable to pay the bills, such as those on fixed incomes, there is also a program where payments may be deferred until the end of March 2003.

As rates climbed, residential customers were suffering more from the increasing rates than their industrial counterparts.

"The largest percentage increase in any component of electricity bills since the beginning of the market reforms in 1999 has been the approximately 100 per cent increase in the distribution component of bills, a bill component that has little or no impact on industrial power users," said Tom Adams, executive director of Energy Probe. "Large power users have more favourable usage patterns and usually better metering and energy management programs, which has contributed to lower industrial rate impacts than have hit residential consumers."

Homeowners were dealing with the hottest summer in 50 years, and electrical usage increased. August consumption reached an all-time high of 25,414 MW.

"Actual hourly demand exceeded the projected peak 23 times this past summer and six times went over the 25,000 MW hurdle," according to the IMO Web site. This meant that the IMO had to issue a number of power alerts, reduce system voltage and buy emergency power from other sources. At times, they paid nearly $2,000 per MWh, which is 40 times the price paid to in-province generators since the market opened.

This led the IMO to look at "negative reserve weeks" which are times during the year when power will need to be bought from another location. It is believed that from the end of October into early next year, extra power will be needed. In addition, April 2003 is when some plants are scheduled for downtime. And since electricity cannot be produced and held, it must coincide with consumer demand.

"The market system for electricity is inappropriate, because of the nature of electricity," said Edik Zwarenstein, co-ordinator for the Ontario Electricity Coalition (OEC). "Its supply has to be matched to the use at every instant, or the whole system collapses."

So why were rates so high?

"The principal reason why prices have been so high is that domestic supply, particularly when we need it at peak demand periods in the summer and in the winter, is quite tight." said Scan Conway. Ontario Liberal Co-critic of Energy/MPP for Renfrew. "The (government) plan to make some interim relief on the supply side is falling to pieces."

Many critics are now saying that Ontario needs to rethink its electricity market. John Baird, the Minister of Energy, insists the price freeze won’t discourage private firms from investing in Ontario.

"If (new power generator) investors don’t have that sort of price facility or protection, they won’t make long-term investments," said John Wiersma, president and chief executive officer of the Veridian Corporation in Ajax, Ontario. He also noted there won’t be much competition because of the spot-market price.

Higher electricity prices "will not only hurt individual customers but will cause widespread, cost-driven inflation that will damage the provincial economy and drive business and jobs out of the province," according to the OEC Web site.

"Net users of electricity are obviously being hurt, while some suppliers, mainly generators, are benefitting," said Zwarenstein.

Now with the announcement of the capped rates, turmoil has already begun. The Dominion Bond Rating Service has placed eight companies that provide Ontario’s electricity, on a credit watch. This includes Toronto Hydro. Enersource Corporation and Veridian Corporation.

"It looks to me like short-term gain for long-term pain," explains Conway. "There’s no question the government had to do something to relieve consumer pain, but this looks like just a policy made up on the run."

Competition is "supposed" to drive down the price of power but since it wasn’t working, something needed to be done for the consumers of Ontario. When Eves announced a consumer rebate of at least $75 per household, or a total reimbursement bill of about $700 million, many believed it wasn’t the right solution to the problem.

"It looks like it has been just thrown together at the last minute with no real solution to the core problem which has been for years now a problem with supply and generation." said Conway. "The core of the Ontario electricity issue is a serious, and worsening, supply situation."

Critics believe the total bill will cost taxpayers billions of dollars.

"My real concern is how much it is going to cost all of us over the long term," McGuinty said after Eves’ announcement. "We are talking about billions and billions of dollars that are either going to be added to the hydro debt or the provincial debt."

Conway echoed McGuinty’s thoughts.

"Financial details are still a mystery and the people of Ontario, the taxpayers of Ontario, and the electrical ratepayers of Ontario have a right to know: how is this going to be paid for? And when is it supposed to be paid? Mr. Eves gave the provincial credit card quite a workout."

Other sources for energy might be the solution for the future since, accord- ing to GE Power Systems Energy Consulting, over the next 20 years electricity generation is to become, "the largest gas-consuming sector." The Ontario government demonstrated this by announcing there will be even more incentives for those who choose to get their juice from other sources, hoping it will encourage the production of eco-friendly energy such as wind and solar power. The producers with these types of energy will receive tax holidays, among other things.

Only a couple of months prior to this announcement, OPG stated earnings of $215 million in the three months ended September 30. Even with all of its money, the people of Ontario are still on the hook for the $38 billion debt from the former Ontario Hydro, which works out to $3,000 per person.

Industry analysts believe the reason why deregulation failed to work in this province is because the government continues to own Ontario Power Generation (OPG) and Hydro One Inc. Baird has announced he wishes to push through a quick sale of Hydro One, and OPG is still required to reduce its market share to 35 per cent by May 2012.

"To see the overall rate impact of Ontario’s electricity restructuring, compare your bills since (the) market opening (on) May 1, 2002 with (the) rates you paid prior to the restructuring in 1999 or 1998." said Adams.

Over 67 per cent of Ontarians didn’t like the idea of deregulation or the sale of Ontario Hydro, according to the OEC. Consumers had watched as the Alberta government poured $2 billion into rebates because of high prices. In the US, California dealt with rate increases of up to 500 per cent and numerous blackouts. Deregulation in Ontario hasn’t gone the way the Harris government had said it would. Now. no matter how many rebates are returned to those who pay their bills, it still won’t spell relief, or stop the shock electricity is providing in the province. A short-term solution could cost taxpayers even more in the long run when we receive our biggest electricity bill yet.

Richard Brennan
Toronto Star
December 6, 2002

Ontario’s energy minister was accused yesterday of being cavalier about the province’s supply of electricity.

During debate in the Legislature, NDP Leader Howard Hampton was questioning the government about keeping secret the names of power companies that suspend electricity production and increasing fears of blackouts or brownouts.

"Minister, don’t you think the people of Ontario deserve to know whether or not the lights and the heat will come on when they flick on the switch?" Hampton said. Energy Minister John Baird responded: "People of Ontario just have to flick the switch and they’ll know whether the lights come on."

Hampton said Baird’s "cavalier" comment "indicates a minister of energy who frankly is not doing his job of protecting the people of Ontario and their need for heat, lights and electricity when we have temperatures of 20 below."

Liberal MPP Dwight Duncan said this is the kind of "arrogant response that people have come to expect from the Tories."

The Independent Market Operator, which runs the power grid, has been importing power to keep Ontario’s lights on after about 3,000 megawatts of power were knocked out of service by mechanical problems.

Tom Adams, executive director of Energy Probe, cautioned that releasing too much information can harm markets, the Star‘s John Spears reports.

If out of province suppliers are informed immediately when a big generator breaks down, he said, the suppliers are likely to dramatically increase their offer prices into the Ontario market.

Thomas Watson
Canadian Business.com
December 9, 2002

Energy industry watcher Tom Adams has a dream. Someday, he hopes, the provinces of Canada will rise up and live out the true meaning of energy market deregulation. In his ideal world, individual and corporate consumers alike would pay bills based on the actual price of the power they use at the time they use it. Residential users would say goodbye to that robotic-looking, glass-faced device that some folks (those who know watts from volts) call the Ferraris disk meter, which was invented in 1890 and has lived well past its best-before date. Why? For starters, the Ferraris must be read manually, which means a lot of manpower is wasted on meter reading. Furthermore, the old standby offers nothing more than the total amount of energy consumed between readings. That may serve a market with fixed prices. But in a deregulated environment, where prices change by the hour, low-cost users without fixed-supply contracts blindly subsidize power pigs with whom they share costs. So, out with the Ferraris and in with high-tech interval meters that can transmit data electronically, not to mention record and date-stamp consumption by the hour or in minute intervals. As a result, says Adams, cool features would follow. In Italy, for example, interval meters control residential demand (which is capped for households) by load-shifting between appliances, such as the microwave and dish washer, when needed. Like industrial users who invest in energy management technologies, Web-enabled interval meters could also empower residential customers to watch market prices in real time, giving them an incentive to switch energy usage to low-cost periods.

According to Adams, executive director of Toronto’s Energy Probe, a public policy watchdog that has been fighting for energy industry deregulation for years, sophisticated interval meters and other emerging energy management technologies are perfect examples of market forces in action. Indeed, years ago, when Canadian politicians in Alberta and Ontario first started jumping on the deregulation bandwagon, Negative Nellies screamed about extreme price increases and possible blackouts without offering any real suggestions beyond maintaining the status quo – which is what led Ontario Hydro to build up $38 billion in debt. But more enterprising citizens, such as the believers who invested in E2MS Inc., a Toronto-based energy management software maker, saw an opportunity to make money and create jobs by helping large power users reduce energy bills and manage costs in a deregulated market.

Unfortunately, in Ontario at least, turncoat conservative politicians have transformed the dream of a free energy market into a nightmare. Former Ontario premier Mike Harris repeatedly delayed plans to give the private sector a shot at powering the province. The market was finally opened May 1, but new conservative leader Ernie Eves – who was Harris’s right-hand man when the Common Sense Revolution was sold to the public – pulled the plug on floating prices (with belated support from the hey-we-buy-votes-too Liberal opposition). That announcement came after a turbulent six-month run that saw prices rise as high as a buck per kilowatt-hour during peak periods due to supply problems created, in part, by government policy.

Now, the price Ontario consumers pay for electricity will be capped at 4.3¢ until 2006. Believe it or not, that covers all users, including the largest industrial customers, many of which spent millions getting ready for deregulation.

According to more than one board member of Ontario’s Independent Electricity Market Operator (IMO), the organization set up to run Ontario’s deregulated power system, Eves’ surprise move could very well create a California-style energy crisis: it’s no real secret that supply problems put Ontario on the edge of the blackout cliff last summer. And the government has just made it more difficult to attract investments in power generation. The new policy could also cost billions because taxpayers must cover any gap between what consumers pay and the actual market price of electricity (which was about 8¢ as this sentence was being written).

Whatever the outcome, Ontario’s price freeze appears to be the final nail in the coffin for energy management software start-ups (not to mention electricity retailers that offered consumers fixed-rate contracts) that bought into the Conservatives’ Common Sense platform before it became the Nonsense Revolution. Indeed, after helping large power users across North America collectively trim more than $60 million from their electricity bills, the once-ambitious E2MS has reportedly been forced to close its doors by Ontario government policy.

"It’s hard to have a serious conversation on this subject," says Adams, who helped design the initial rules for a competition-oriented electricity market between 1998 and

2001. He calls the about-face a recipe for disaster and can’t figure out why the government decided to foot the bill for industry when it could have bought votes by coming to the aid of consumer households alone. (A spokesperson for the premier wouldn’t even confirm the government meant to include industry in the price cap, although Energy Minister John Baird’s people say it’s a done deal that’s "subject to change.")

If industrial energy users are included, Adams has no idea how the government will make its new policy work, pointing out that companies no longer have any incentive to play in the wholesale energy market or buy software designed to reduce costs and shift usage to non-peak periods. In fact, thanks to the government, there is now a pretty good incentive for all users (including consumers) to shift usage back to periods of high demand.

"The government is dreaming in Technicolor," Adams says. "Let’s just pour gasoline over the top of the system and light a match. Supply is already in trouble. Demand will go up. Prices will go up. And although customers won’t see the rising price, the government will have to fund it." As for those giddy companies that publicly applauded the rate cap, such as Hamilton-based steelmaker Stelco Inc., Adams simply says, "Enjoy your frozen energy prices while you’re camped in the dark."

Like Energy Probe’s disillusioned executive director, most people who supp orted energy deregulation in Canada’s largest province feel betrayed by the new conservative premier, who has been unceremoniously dubbed Blackout Ernie. Rob Kirkby, president of Energy Advantage, a Toronto-based outsourcing outfit that purchases and manages more than $1 billion worth of energy annually for clients across North America, has mixed feeling about what he calls the government-sponsored chaos in Ontario, where his firm generates most of its revenue. "In the short term, the new policy is probably good for business," he admits. "In the long term, however, it’s probably not so good. This move, in and of itself, is obviously going to reduce interest in energy management."

Inco Ltd., the Sudbury-based global metals and mining outfit, has spent a lot of time and money getting its energy house in order. To get ready for market deregulation in Ontario, the $2-billion company called in Accenture to help implement an energy management solution offered by Silicon Energy Corp., a California-based software start-up targeting large companies and utilities in deregulated jurisdictions. The objective was to allow Inco to move rapidly into the wholesale electricity market in Ontario, something that may no longer make much sense since the government’s fixed rate is probably going to be cheaper than market prices.

But, hey, before you crank the heat and skip your company’s next energy committee meeting, remember fluctuating prices are not the only reason to look at how and when you use energy. David Abood, a management consultant and partner with Accenture, points out that power is typically one of the top five corporate spend items (large industrial users can direct more than a third of their operating budgets to pay for energy). And while the Eves government may have dramatically reduced price as a driver of demand for energy management technologies in Ontario, Bill Morris, who heads Accenture’s energy practice in Canada, thinks the need to control emissions could very well fill the driver gap as Kyoto-type requirements come online. The dream of lower maintenance fees and fear of post-blackout costs could also encourage large users in Ontario to pursue system-friendly usage patterns. Either way, as Kirkby says, "one has to question the staying power of the [Ontario price cap] because there is a supply and demand problem, and Economics 101 says this isn’t the way to solve it."

Furthermore, as Silicon Energy’s vice-president of product strategy Eric Miller points out, energy management solutions do a lot more than simply allow companies to play in wholesale markets and shift loads to non-peak periods. They also, for example, allow users to reduce costs by collecting detailed utility data (water, natural gas and electricity), identify inefficient processes, verify bills and seek damages for electrical equipment problems caused by bad power. "It’s not uncommon," he says, "for a large business to find multihundred-thousand-dollar errors on their bills."

Even if spending on high-end procurement technology doesn’t turn your crank, significant savings can be gained from applying best practices. "The ability to significantly reduce energy consumption is always there, independent of deregulation," says Miller, adding that it is relatively easy to cut building heating costs by 15% without major investments.

In addition to deploying energy management technology solutions, Inco, which generates about 20% of its own energy, is considered a breeding ground of best practices for fighting consumption. Last year, Inco’s audited energy index represented a 16% improvement relative to 1990, beating its target of a 1% annual improvement. In 2001 alone, its energy index decreased 7%. As for greenhouse gas emissions, well, they’re already 8% lower than in 1990, which is the baseline year for the Kyoto Protocol.

Inco began reducing peak loads in the 1970s. Over the next two decades, it expanded conservation efforts by retrofitting equipment and installing low-energy lights and more efficient motors. After watching the cost of natural gas increase threefold in 2000, however, Inco took energy consumption to the next level in order to further cut costs and prepare for deregulation.

Under the leadership of Sean Brady, a project engineer whose father had a marketing background, the company took its conservation efforts to the people last year under the banner PowerPlay, an internal awareness campaign (including advertising, branding and the use of focus groups) that encouraged employees to come up with conservation ideas by educating them on the costs associated with energy usage.

According to Brady, operating rules of a particular process are established over a long period of time and rarely challenged because most people learn how to do their jobs from incumbents. "We needed to involve people at the plant level," he says, "because the workers know the plants best, know where waste exists and where opportunities lie. We asked them to reconsider and question operating processes."

In its pilot phase, PowerPlay generated 650 ideas – with 60 being implemented for combined savings of about $10 million based on prices for electricity and gas at the end of 2000. The program, which has now generated more than one idea per employee, encouraged suggestions big and small. A welding shop turned off the heat at night. An oxygen plant changed its temperature settings. Smelter operations killed one of two 400-horsepower fans used to clean air after determining there would be no adverse effect on safety. Overall, PowerPlay ideas have enabled Inco’s Ontario operation to surpass its $12-million energy costs reduction goal by $1.5 million in 2001. This year, similar results are expected, and the company is now expanding the program as part of its overall effort to fight procurement costs, of which energy is a major component.

In Ontario, Inco will have to wait and see what happens before it alters plans to participate in the wholesale market. Either way, company officials insist the information that will be available from Silicon Energy’s technology will identify more workable ideas created by PowerPlay. Unfortunately, it can’t tell Inco what party to vote for in the next provincial election.

Paul McKay
Ottawa Citizen
December 10, 2002

Santa Claus came early this year, bringing the gift of emergency power imports that barely kept Ontario’s Christmas lights, shopping malls and heavy industries from flickering into blackouts last week.

Ontario citizens might pray that Santa or another cold snap shows up again during next summer’s dog days. Chaos in Ontario’s power supply system is just around the corner, industry experts warn.

"I think there is a high probability of rolling, controlled blackouts this winter, or next summer, or both," says Tom Adams, a power industry analyst with the Toronto watchdog group Energy Probe. "We are still stuck with the power plant portfolio and transmission system that caused the collapse of the old Ontario Hydro."

Mr. Adams calls the Eves government "a panic-stricken owner. Every decision they make is political, and they are profoundly, dangerously ignorant of the real problems facing the power supply system."

Last Tuesday, bone-chilling weather and disabled Ontario power plants combined to leave a shortfall of 3,000 megawatts of power. That’s twice the base demand of Ottawa, or six Pickering-sized nuclear reactors.

However, Ontario Energy Minister John Baird contends Ontario’s power supply is secure.

"We didn’t have enough power," Mr. Baird said yesterday. "The electricity we were producing wasn’t enough to meet the needs of the province. When we have 300 power plants, some go off line from time to time. Some go off for planned maintenance. That’s inevitable. Last week, (coal) units at Nanticoke and Lambton were putting on pollution abatement equipment."

Mr. Baird predicts the 3,000 Megawatt shortfall will be erased when six privately leased nuclear units at the Bruce complex on Lake Huron begin to operate next summer.

Last week’s emergency power imports came with a stiff price, reaching a peak cost of 23 cents per kilowatt hour. That is far above the 4.3 cents-per-kilowatt-hour retail price freeze recently promised by Premier Ernie Eves, which became law in Ontario’s legislature yesterday.

Since the government guarantees payments to suppliers of imported power, those extra charges will be paid by Ontario taxpayers.

Last week’s narrow escape from blackouts has been a long time coming, but may occur next summer because:

The Pickering A reactors will require years and as much as $3 billion to finish fixing;

The province-owned Ontario Power Generation (OPG) has virtually no replacement projects under construction, and no money to build them;

The Eves price-freeze edict has caused potential financiers and builders of private power projects to abandon Ontario, and put many municipal utilities on credit risk;

A decade of power prices below the cost of inflation, and reversals in building code standards and energy efficiency programs, has fostered soaring power demands.

"When you tell everybody the power price is capped at 4.3 cents, you are telling everybody they don’t have to worry about conservation," says David Poch, a Perth-based specialist in regulatory and energy law. "The fastest, cheapest way to bring the system back in balance, and prevent blackouts, is with giving the right price signal and making utilities deliver cost-effective efficiency programs. The Eves government is doing neither."

Arthur Dickinson, president of an association representing Ontario’s biggest industrial power consumers, says the province has always been "vulnerable" to the nuclear plants.

"If two units at Bruce A and one at Pickering come back from shutdowns by next June, we should be all right," Mr. Dickson said. "But heaven knows what will happen there."

The output and production price of four 750 Megawatt reactors at the Bruce B complex on Lake Huron remains uncertain because they are leased to a British private company now facing bankruptcy in England. It has announced plans to refurbish two adjacent crippled Bruce A units by next summer. New owners for those six leased reactors are being sought, but the recent 4.3-cent price-cap edict has jolted potential purchasers.

Mr. Adams says betting on the Bruce reactors to avert blackouts is a long shot, and perhaps a dangerous one.

"The prospective new (private) owners of the Bruce reactors have no experience or knowledge about how to run nuclear plants. They are rank amateurs. So we have asked federal regulators, as a condition of re-start, that any new owner is proven competent, and that those reactors first be stripped down and examined for safety’s sake."

Energy Minister Baird counters that public safety is not at risk, and that the six Bruce reactors will perform well next summer despite the current ownership upheaval and regulatory barriers.

"The federal regulators will make their determination on any transfer of the (Bruce) lease, in the best interests of safety," he said.

Robert McLeese, an energy project financier and past president of the Independent Power Producers Society, says the Eves government is playing "a crap shoot" by pinning its hopes on power plants that have repeatedly failed to perform.

"Nobody at Queen’s Park is taking responsibility to make sure there’s enough power for Ontario. There’s now nobody left standing who can get power projects financed here, except the government. It’s partly because of Enron and the meltdown in the North American energy sector, but the Eves government has made it worse. It has cut potential investors off at the knees."

Mr. Dickinson agrees the Eves government has failed to heed warnings about increasing reliance on imported power and has driven potential power projects from Ontario.

His association represents 64 of Ontario’s largest industries, such as steel smelters, pulp mills, mines, chemical refineries and auto makers. They account for almost one-fifth of Ontario power demand and collectively pay more than $1 billion annually for electricity.

Many member industries are acutely vulnerable to power interruptions as brief as a second or less because they can degrade product quality or cause expensive shutdowns. Auto assembly plants, for example, may lose hours or even entire production shifts to reset computers and robotics after a split-second power break.

"Because we are in an extreme supply squeeze, and there is no margin for maintenance or repair outages, we could be in crisis mode if we get hit with really hot weather next summer," Mr. McLeese said.

That’s just when the first of four 850-megawatt Darlington reactors is scheduled for additional extensive overhauls, leaving Ontario even more exposed to blackouts and reliant on expensive imported power.

Four 500-megawatt Pickering reactors are currently shut down for extensive overhauls, and four 750-megawatt reactors at the Bruce A complex are mothballed due to chronic breakdowns.

That loss of 5,000 megawatts – 20 per cent of provincial peak demand – has knocked a huge hole in Ontario’s power supply system,and put intense strain on OPG’s other nuclear, coal and hydro plants to perform flat out. Now that the province is facing heavy peak demand in both winter and summer, there are only narrow time windows for critical annual maintenance and repair shutdowns. Last week, OPG was ordered to defer all maintenance shutdowns at its plants.

"We are concerned," says Mr. Dickinson, whose members were caught off guard by the close call last week. "We need to know what power plants are going down, the repair timelines, and which ones will perform. Our industries depend on that, but we can’t get any answers."

Mr. Baird recently promised to proceed with a 500-megawatt expansion of the venerable Beck hydro plant at Niagara Falls, which should provide pollution-free power at a cost below the 4.3-cent price cap. However, it will take at least four years to construct an additional water intake tunnel at Niagara to supply more generators. And, pleading empty pockets, the Eves government has sought private-sector partners for the $1 billion in estimated capital cost.

However, those in the business say the Eves price freeze has "vapourized" the potential for private capital investments in Ontario’s power sector, while the related credit-risk downgrading of OPG and municipal electric utilities has left them with no money to finance new power plants.

"The banks have just run away from this industry. All our lenders have gone," says Ian Bains, vice-president of Canadian Renewable Energy Corp., an Ontario-based green power company that has wind and water power projects under development in Eastern and Northern Ontario. Mr. Bains’ company is just completing a modest $6 million hydro project near Kirkland Lake, and has plans for a windfarm near Kingston.

Mr. Bains says no new power projects can be built and financed for 4.3 cents per kilowatt hour, and that his own banks called their loans within 48 hours of Mr. Eves’ freeze edict.

Theresa Boyle
Toronto Star
December 11, 2002

Sarnia businessman Ray Curran considers his city to be a "mini-Alberta" and, like that province, it stands to be hurt by the ratification of the Kyoto Protocol, he contends.

"Sarnia is the centre of the oil and chemical industry of Ontario. We’ve got the Shells, we’ve got the Imperial Oils. And we feel that Kyoto is zeroing in on that segment," laments Curran, an outspoken critic of the accord and head of labour relations for the Sarnia Construction Association.

"We will see a stagnation of growth, which will eventually mean fewer jobs in the area," he frets, contemplating what his city will look like in 2012 when the accord is fully implemented.

"How will we compete in the future when we have the added costs of emission reductions and our competitors south of the border do not?" he asks, arguing that there will be fewer incentives for new businesses to set up shop in Ontario.

Curran’s questions echo Alberta Premier Ralph Klein’s: What’s the cost of implementation? How is it going to affect us?

Tom Adams of Energy Probe says bluntly that the answers depend on whether Canada takes the smart or stupid approach to implementation.

"If we go at it smart, the impact could well be improvement in the economy. If we go at it stupidly, we could make ourselves noticeably poorer," he warns.

The "smart approach" would be to promote efforts that counter urban sprawl. Adams likes the "smart growth" theory that advocates building cities up rather than out, and could include increasing the number of toll roads to discourage people from using their cars. There would also be economies of density to be had, he notes, like lower infrastructure costs for such services as water, sewage, gas and electricity.

Ontario Environment Minister Chris Stockwell shrugs when asked about the impact of Kyoto. "I don’t think the federal government has a lot of intention of implementing Kyoto," he says

". . . If you cap the costs then you’re not going to actually implement the protocol."