Energy Probe

Murray Campbell
Globe and Mail
January 11, 2003

It’s becoming clear how much money the Ontario government will have to spend to bribe voters by ending the province’s brief flirtation with an open electricity market and capping power rates.

The province’s 86 local electrical utilities reported this week that they lost $110-million in December because they had to buy electricity on the volatile wholesale market while selling it at the government’s mandated retail rate of 4.3 cents a kilowatt-hour.

The local utilities will be reimbursed for this cost next week by the Independent Electricity Market Operator, the organization that administers Ontario’s great energy experiment. The IMO, with no great resources of its own, will then go for repayment to the Ontario Electricity Financial Corp., which may have to pile it onto the debt that was built up by the old Ontario Hydro and is being serviced by the same taxpayers happy to receive low-cost power.

In the next few months, the utilities will report further about how much they are owed for the period from May 1 to Dec. 1.

They had been passing along higher wholesale prices, but last November a panic-stricken government ordered them to make the rollback to 4.3 cents effective from May.

The utilities’ total costs are difficult to predict, primarily because the government hasn’t yet decided who will be eligible for the rate freeze. But there’s little doubt they will add up to hundreds of millions of dollars.

The figure ought to temper the widespread sense of relief homeowners and small-business operators felt when Premier Ernie Eves pledged to freeze electricity rates until 2006. They had watched as prices, frozen for nearly a decade, suddenly soared. The $75 cheques that went out before Christmas, a down payment on what the industry calls "truing up," defused the anger and made the Premier look like a good guy.

Mr. Eves promised that his plan would be self-financing because Ontario Power Generation had earlier set up a $1-billion consumer-protection fund – in effect, a tax on electricity use. Beyond that, Mr. Eves said, taxpayers wouldn’t be on the hook for his rebate.

More and more, however, it looks like he was dead wrong.

"It’s absolutely incontrovertible that people are being bribed with their own money," said Tom Adams of the watchdog group Energy Probe.

Predictions about the electricity market are necessarily sketchy at this point. We can guess, however, because the average weighted price for electricity per kwh since May 1 has been 5.54 cents, more than 1.2 cents above the capped price.

The IMO says electricity supplies will be stretched thin again this summer if nuclear generation units at Pickering and Bruce are not returned to duty at high efficiency – and that’s by no means certain. Add in some hot weather and high-priced imported power, and wholesale prices will once again soar.

Bruce Sharp, a senior consultant at Aegent Energy Advisors Inc., projects an average weighted price for the first year of the market (to next May 1) of 5.48 cents.

Mr. Sharp believes it will cost the government about $300-million more than it has set aside with the OPG.

There are indications the government realizes the rebate is too rich for its blood because it has tightened up eligibility requirements, particularly as they might apply to large-volume users. At this point, the cap applies for certain only to about 40 per cent of the total market, and Mr. Adams believes that rebate could be covered by the OPG fund. But he thinks the government is scrambling to narrow "the scope of these handouts."

The great irony in all this is that the government wanted to overhaul the electricity market because it felt something had to be done about the $38-billion debt that Ontario Hydro had built up. The fact that it could be adding to this debt is too precious for words.

Jeffrey Hodgson
Reuters
January 20, 2003

TORONTO — Ontario Premier Ernie Eves scrapped plans on Monday to sell a minority interest in Hydro One, the government-owned power grid, citing the need to protect energy consumers in Canada’s most populous province.

The decision hammered another nail in the coffin of the province’s experiment with electricity deregulation. A court decision last year scuttled plans to sell the entire transmission operation in what would have been Canada’s biggest initial public offering.

Eves said in a statement that his Conservative government had made an extensive search for a 49 percent minority partner, but that it was not prepared to relinquish control over key decisions affecting consumers. "We want to bring private-sector discipline to Hydro One, but not at the expense of protecting consumers," Eves said in the statement.

"Last November I announced a plan to lower your hydro (electricity) bill and we are sticking to that plan."

Ontario’s government announced in November it would freeze electricity prices and hand cash back to angry consumers whose costs had soared during five months of California-style deregulation,

Critics at the time warned the rate freeze, reminiscent of California’s attempt to cope with skyrocketing prices during its own deregulation, would likely kill the proposed sale of part of the publicly owned Hydro One electricity grid.

Brainchild of former premier

Deregulation, the brainchild of Eves’s predecessor, Mike Harris, was hugely unpopular in Ontario. Many consumers were angered when prices jumped more than 25 percent after the province opened the market up to competition on May 1.

In August, the Ontario government picked advisers to hunt down buyers for a minority stake in Hydro One, after a court quashed an earlier plan for a C$5.5 billion ($3.6 billion) initial public offering. The court had ruled the government did not have the authority to sell the system whole.

The premier’s press secretary, Derek Tupling, said Eves had made it clear that consumer protection, rather than ideology, was the top priority in the government’s handling of the issue.

"What the premier had said all along is we weren’t just going to sell it, just for the sake of selling it," Tupling told Reuters.

"There were some issues around control and decision-making processes that obviously the government wasn’t prepared to relinquish just for the sake of selling it. That is where the consumer-protection part of the announcement is."

The statement said the provincial budget continues to be balanced for a fourth consecutive year and the announcement has been factored into the government’s fiscal planning.

Industry watchdog Energy Probe said there should be little surprise at the announcement, as Eves had hinted at the move for several months. The group’s executive director, Tom Adams, said the value of the utility has plunged since the rate freeze decision in November.

"My interpretation of these events is that the premier has simply pulled the plug on the fire sale, having previously set the asset on fire," Adams told Reuters.

"The value to buyers kept going down and the numbers started to look unattractive to the government. They probably started to get embarrassed about what kind of a value-erosion was going to be demonstrated."

Election, budget issue

Adams said the potential buyers of a Hydro One stake included SNC-Lavalin Group Inc., Britain’s National Grid Transco, and two big pension funds: the Ontario Municipal Employees Retirement System and the Ontario Teachers’ Pension Plan Board.

An SNC-Lavalin spokeswoman said the firm had no comment on the Ontario government’s decision.

Opponents of the government’s energy policies cheered the decision but said they were wary the government could change its mind after an election, which many expect will happen this spring. Ontario NDP Leader Howard Hampton described the move as an "election dodge."

Ratings agencies also expressed concern at how the canceled sale would affect Ontario’s budget outlook. The government had said the sale of the minority stake could add about C$2 billion to its coffers.

"Without the sale of Hydro One, or without some revenues from a partial sale or whatever, it just creates a tremendous amount of pressure for this fiscal year and a significant challenge for them," said David Rubinoff, a senior analyst with Moody’s Investors Service in Toronto.

With additional reporting by Charles Grandmont in Montreal.

Bernard Simon
New York Times
January 20, 2003

All but putting an end to a deregulated electricity market in Canada’s industrial heartland, the government of Ontario said today that it would retain full ownership of Hydro One, the Toronto company that operates one of North America’s biggest transmission networks.

Less than a year ago, the government said that it intended to sell Hydro One through a public offering that would have been the largest in Canadian history, raising an estimated 5 billion Canadian dollars or $3.26 billion.

Environmental and consumer groups have lobbied against the sale and other efforts to open the electricity market to competition and private ownership. In addition to canceling the stock offering, the government ended competition in the retail electricity market last fall by capping prices for four years and reimbursing consumers for an electricity rate increase last summer.

After canceling the offering, the government indicated that it was seeking a "strategic partner" to own up to 49 percent of Hydro One. But the provincial premier, Ernie Eves, said today that the government had been unable to find a buyer willing to allow it to maintain control "over key decisions affecting consumers."

"We want to bring private-sector discipline to Hydro One," Mr. Eves said, "but not at the expense of protecting consumers." A government spokesman would not elaborate.

Thomas Adams, executive director of Energy Probe, a research group in Toronto, said that the decision reflected "short-term political thinking."

Mr. Adams said that prospective buyers wanted assurances that the company would be free of political interference, but that the government was not prepared to make such commitments.

"Every time the province freezes electricity prices," Mr. Adams said, "or says something rude about the regulator, the value goes down."

The government had hired BMO Nesbitt Burns and CIBC World Markets to advise it on the sale of a minority stake. According to news media reports, the British energy group National Grid Transco had recently walked away from the negotiations, leaving a group of Canadian pension funds as the most likely buyers. The company was expected to sell for 2 billion to 2.5 billion Canadian dollars, or $1.3 billion to $1.6 billion.

Hydro One operates an 18,000-mile transmission network, carrying more than 90 percent of Ontario’s electricity. It was formed in 1999 when the provincial government, pledging a more competitive market, broke up Ontario Hydro, a large not-for-profit utility that for decades had a monopoly on the electrical power supply.

Before the cancellation of its public offering, Hydro One had ambitious plans to expand into the United States. The Federal Energy Regulatory Commission in Washington last year approved the utility’s plan to build a high-voltage underwater cable across Lake Erie, linking the Canadian and American power transmission grids.

But for the last nine months, Hydro One has endured executive upheaval. All but one of its 12 directors quit in June. The remaining director, Eleanor Clitheroe, the company’s chief executive, was fired by the new board shortly afterward.

Paul Waldie and Sinclair Stewart
Globe and Mail
January 21, 2003

A decision by Ontario Premier Ernie Eves to scrap a partial sale of Hydro One Inc. has raised more uncertainty about the future of the utility and the province’s energy policy, industry observers said yesterday.

"It is possible that some of these people [bidding on the stake] will still come back for other investments of the same type in Ontario," said one investment banker advising on a bid.

"But I can tell you that, generally speaking, the investment community, the intermediaries and at least some of the principals are going to say, ‘Why spend the time?’"

Peter Budd, chairman of the Ontario Energy Association, which represents utilities and energy producers, said Hydro One would have benefited from some private sector input.

"It’s clear transmission in Ontario could have probably benefited from a movement toward privatization and market discipline and so on," Mr. Budd said.

Yesterday’s announcement "probably leaves Hydro One just sort of in a hold mode. It’s not going to have a huge infusion of new ideas; frankly, it’s going to be pretty low key," he added.

Ontario’s energy policy has been in turmoil since last spring when Mr. Eves backed off a move by former premier Mike Harris to sell Hydro One through a public offering worth around $5-billion. At that time, Mr. Eves said the government would consider selling up to 49 per cent of the utility. Yesterday, he said there would be no sale.

Hydro One is one of the largest electricity transmission companies in North America.

Industry sources say the government had received several bids for the stake, including one worth more than $2.5-billion.

However, some bidders, including a pension fund consortium made up of the Ontario Teachers Pension Plan Board and Borealis Capital Corp., an infrastructure and equity investor backed by the Ontario Municipal Employees Retirement Board (OMERS), privately raised concerns about the level of input they would have in Hydro One.

Sources said the pension funds were asking the Ontario government for guarantees about corporate governance and rates of return, and assurances that they would be able to exercise some influence over operational decisions.

The consortium was expected to approach SNC-Lavalin Group Inc., a Montreal engineering company, as a possible partner in the Hydro One bid. SNC-Lavalin confirmed last fall that it was interested in acquiring the minority stake and had been in talks with the province. SNC declined comment yesterday.

David Lindsay, chief executive officer of Ontario Superbuild Corp., the government agency co-ordinating the sale, said the province was unwilling to cede too much control to a private sector partner. "A couple of bidders had some different suggestions on how they would see [Hydro One] going forward. They wanted control over various operational aspects and the government . . . decided no, that’s not where they wanted to go."

Adam Zimmerman, a Hydro One director, said Mr. Eves’ decision to call off the sale was the right move.

"The sale could not happen satisfactorily to the shareholder, in my opinion, and I think that Ontarians are best served by having the company stay the way it is now and let us work our way out of it," Mr. Zimmerman said. "Who is going to pay a premium price for a minority position?"

Tom Adams, who runs Energy Probe, a Toronto-based group that studies energy policy, said the announcement leaves Hydro One facing huge challenges.

"Having lit fire to this asset, Eves is calling off the fire sale," Mr. Adams said. "It’s probably the right thing to do given that the utility has been hit with such drastic erosion because of the chaos coming out of the Premier’s office, but it does beg the question, ‘What next?’

"I think the outlook is for continued Crown ownership of Hydro One. That’s likely to leave the existing frightening problems on both the financial performance and some of the operational issues unresolved."

Mr. Adams noted that Hydro One is already behind on two key interconnection projects with Quebec and the United States. Those projects are badly needed to ensure the province can meet its power demands, he said. Hydro One is also facing financial pressure because of a government announcement last November to freeze retail electricity prices. Dominion Bond Rating Service has put the utility on a negative trend because of the freeze announcement.

Several Hydro One executives have also quit in recent months, and chief executive officer Eleanor Clitheroe was fired last summer and is suing the company. The board also quit last summer in a dispute with the government.

Vik Kirsch
Guelph Mercury
January 24, 2003

WELLINGTON — Guelph Hydro is about to install load limiters that supply delinquent customers with only enough power to operate a furnace through the cold winter months.

Centre Wellington Hydro is considering following suit with the devices, which connect to hydro meters at the home or office.

Energy Probe executive director Thomas Adams blames the provincial government for fuelling delinquency.

Provincial Energy Minister John Baird last December decreed utilities couldn’t cut off power to delinquent customers until the end of March.

"A lot of customers understood that to mean they don’t have to pay bills anymore," Adams said Thursday.

But Baird’s chief of staff, Will Stewart, said utilities received a letter Tuesday from the minister telling them they could use load limiters.

They are devices the two local utilities had used on occasion until the recent moratorium.

Guelph Hydro chief executive Jim MacKenzie said the load limiters could be used on as many as 200 delinquent customers, though staff continue to try to convince them to settle accounts or agree to payment schedules. He added he couldn’t readily say how much the utility is owed.

"It’s a last resort," said MacKenzie, whose utility serves 40,500 customers. "We do have a number of load limiters."

He stressed customers "have a responsibility to pay the bill."

Board chair Paul Truex said the size and scope of the delinquency problem is unclear.

He suspects it’s minor, noting it wasn’t an issue when the board met in December to review operations.

He’s awaiting next Tuesday’s board meeting to find out how many people are delinquent and what the utility is owed, though the municipally owned company may not make that public, he noted.

Resorting to the devices is nothing new. "We’ve used those load limiters for some time in Guelph. I think most utilities have," said Truex. Last year, he added, they were used "probably a handful of times."

But MacKenzie conceded delinquency is now on the rise. "I can tell you it’s a problem."

Centre Wellington Hydro is evaluating whether to use load limiters.

"We’re looking at that right now. They’re kind of a last resort," said president Doug Sherwood, whose utility has 5,600 customers.

"We saw a rise in delinquency. We’re in the process of looking at the numbers, but it did go up, definitely. We have noticed a substantial increase."

Harold Kelly [right], a linesman with Centre Wellington Hydro, displays devices that limit the amount of power supplied to delinquent customers.

Energy Probe’s Adams said the problem of delinquency can be significant in cities like Guelph, with high post-secondary student populations, since students tend to move frequently. ‘It’s very easy for the utility bill to be left behind."

Still, Adams of Energy Probe argued load limiters exacerbate hardships for families.

"It can really interfere with households."

A better alternative, he said, is to require problem customers to make deposits.

While he sympathized with families having difficulty paying their bills, Adams said there’s a good reason utilities pursue money owed. Those costs are passed on to other customers.

"It’s in the general interests of everyone that all the customers pay their bills on time."

Terence Corcoran
National Post
January 28, 2003

As these words are written at around 4:30 p.m. EST yesterday, the wholesale price of electricity in Ontario is about 10 cents per kilowatt hour. That’s the price paid by wholesale power buyers, including local utilities that run municipal electricity distribution companies. When Toronto Hydro, for example, bought power to supply Canada’s largest city through another cold spell yesterday, it paid an average 10.5 cents through the day. Under the miracle of Premier Ernie Eves’ rigged market, residents of Toronto and the rest of the province pay only 4.3 cents.

It’s the kind of upside-down economic structure you’d expect if Jack Layton were running the province: Buy high, sell low. Crazy, but it gets out the vote. It also creates economic chaos. By about 9 p.m. last night, Ontario residents and businesses would have consumed an average of about 23,000 megawatts of power each hour over the previous 14 hours. That power, at 10.5 cents a kw/h, will have cost local utilities and other buyers about $35-million. At least half the power would have been bought by utilities supplying residential consumers at 4.3 cents, or about $14-million. That leaves a giant $10-million hole in the market, for one day only.

At that rate, it doesn’t take long to dig a really deep hole, which is where the Ontario electricity market is heading. Nobody knows yet what the total losses will be, but after all the subsidies and transfers are complete, Ontario taxpayers could be on the hook for hundreds of millions.

By getting the power market backwards, the Eves government has also created a massive disincentive to rational behavior. The Ontario conservation slogan: Screw it. Consumers have no reason to change their electricity consumption patterns. On the contrary, with the price fixed low and temperatures falling, the average household can crank up the heating system, turn on the lights, switch the electric fireplace to high and rev up the home theatre. At 4.3 cents, everybody is cozily oblivious to the fact that the Ontario electricity market is out of whack and running short.

The major concern now is that the province is flirting with the idea of making a bad situation worse. Having frozen the retail price, Ontario Energy Minister John Baird may now be looking at also closing down the wholesale market, the province’s last lifeline to market reality.

The prospect of a freeze in wholesale prices looms in a consultation paper the province circulated last December looking for input from market participants. It asked questions. One question was: "Are the government’s efforts to retain and strengthen the wholesale market the proper approach? What additional efforts should the government undertake to retain and strengthen the wholesale market?"

As Energy Probe‘s Tom Adams put it in his submission, "These Orwellian statements reverse reality. The government has wiped out electricity retailers, who supported the wholesale market through hedging . . . The government has destroyed the independence and authority of the Ontario Energy Board . . . Viewed from a competition perspective, almost every action of the Ontario government since early 2000 has weakened the wholesale market."

Others were less biting, but the theme was the same. The Independent Market Operator, which runs the wholesale market, warned the government against extending the retail freeze to wholesale. Not only would such a freeze wreck price responsiveness, it created risks to the entire system. "Broadening the range of customers to whom fixed pricing is available could put at risk both the reliability of the system and the considerable investment [$1-billion] that has already been made into Ontario’s electricity market reform." It would also "jeopardize the province’s ability to attract new supply and enhance competition."

The IMO says it has already accounted for $445-million in refunds to Ontario consumers via $75 cheques to compensate for the wholesale-retail gap over the past year. More unspecified payments are due. One estimate puts the additional payouts at $200-million; that would bring the total to $645-million. The long-run solution, says the IMO, is to begin planning now to bring retail customers into the market through new metering systems and market pricing.

The IMO gently raises the problem of Ontario Power Generation, the near-monopoly generating giant that controls most of the electricity supply. "The dominant market position of OPG should be addressed," it says.

Some of Ontario’s major corporate power users have a bigger idea. The Association of Major Power Consumers of Ontario (AMPCO) said the .. government-owned corporation should be broken up and privatized. If the Eves government won’t do that, at least it could chop OPG up into five or six subsidiaries that would compete among each other on the market.

The main message from the major briefs was simple: You’ve made a mess of the province’s electricity market, don’t ruin it completely by closing down the wholesale market. It’s the last link to reality.

John Spears and Caroline Mallan
Toronto Star
February 15, 2003

January’s cold weather helped drive electricity consumption in Ontario to a record high – and will cost the province $135 million in subsidies to consumers and small businesses.

Ontario businesses and residences gobbled 14.5 million megawatt hours of electricity in January. One megawatt hour is 1,000 kilowatt hours; a kilowatt hour is enough power to illuminate 10 light bulbs of 100 watts each for an hour.

While consumption soared, the province is on the hook for making sure that householders and small businesses pay no more than 4.3 cents a kilowatt hour for their electricity, retroactive to last May.

But on the electricity market, the price of power in January averaged 6.2 cents a kilowatt hour. That means the province must make up the difference of 1.9 cents a kilowatt hour for consumers and small businesses, about 47 per cent of Ontario’s electricity market. That came to $135 million, according to the Independent Electricity Market Operator (IMO).

Critics were quick to pounce on the new figures showing record consumption and soaring subsidies. "Taxpayers are now paying our electricity bill," said Tom Adams, executive director of Energy Probe. "This is a terrible practice. The rate freeze is encouraging people to use power carelessly."

January’s bill for $135 million in subsidies follows December’s bill for $110 million. And the province has already shelled out $335 million, in the form of $75 refund cheques, to compensate consumers for the May to November period.

But that won’t be enough to cover all the costs of reducing the price of power to 4.3 cents a kilowatt hour retroactive to May 1 when the province opened its electricity market.

Only one-third of the province’s local utilities have reported their final tallies for the retroactive price freeze; those invoices have swelled the cost of the price freeze by a further $60 million. So the total bill to date comes to $640 million, with more to come.

The province has argued that the cost of the refunds will be offset by lower prices over the long term, plus refunds collected from Ontario Power Generation Inc., which is owned by the province and produces 70 per cent of Ontario’s power.

Because of OPG’s market heft, it must refund revenue on part of its production whenever the price rises above 3.8 cents a kilowatt hour.

That fund now stands at nearly $1.1 billion. But less than half of it, or about $513 million, is available to consumers and small businesses. The remainder is earmarked for big businesses, which must pay the full market price for power.

Since the cost of subsidizing consumers already stands at $640 million and rising, there isn’t enough in the fund currently to cover the consumer subsidy. Deficits are financed by the Ontario Electricity Finance Corp. (OEFC), the provincial body set up to administer the debt left over by the former Ontario Hydro.

Consumers are billed for 4.3 cents a kilowatt hour, but the IMO, which runs the power market, must pay generators the full market price. The IMO submits a bill to the OEFC for the difference between 4.3 cents and the market price.

Energy Probe’s Adams said the provincial auditor should take a new look at the mounting liabilities on OEFC’s books.

But Premier Ernie Eves defended the rate freeze once again yesterday, saying he remains confident the price will balance out over the course of the four-year freeze.

Toronto’s January temperature averaged minus 8.3 degrees Celsius; January’s historical average is minus 6.3.

"Suffice it to say we could have been luckier," Eves told reporters during a transportation funding announcement in Bolton. "Over time, these things average themselves out and I’m confident that over a period of time, which is the way you should be looking at it, it will average itself out."

The Premier said he is also certain some nuclear generation will be back on line in the near future, but he did add that attracting new generating business is a challenge.

"We want the units at Pickering to be back up as soon as we can. I understand that one unit at least is fairly close to being on line at Pickering," he said. The project to restart the mothballed plant has consistently missed deadlines. It’s also more than $1 billion over budget.

"Beyond that, it’s fair to say that the biggest challenge will be to encourage new generation of power as we go forward," Eves said.

Michael Bryant, Liberal MPP and energy critic, said in an interview that private sector proposals to build generators have stalled since the province announced its price freeze in November.

"Because the industry has totally lost confidence in this government, I cannot imagine that we will ever get interest from independent power producers as long as Ernie Eves is at the helm," Bryant (St. Paul’s) said in an interview.

"The future could not be grimmer," he added. "The province of Ontario has become radioactive for potential electricity investment because of all the bungling and waffling by the current government."

"The problem is deregulation and privatization," said New Democratic Party leader Howard Hampton. "It’s time for the government to admit this is not working."

Tom Adams
National Post Business Magazine
March 4, 2003

Re "Lifecycle: Electricity Deregulation," January 2003, National Post Business Magazine

Your graph, showing Ontario’s wholesale electricity prices since 1993, makes a common mistake in claiming that the cost of power following the NDP’s rate freeze was 4.3 cents per kilowatt-hour. Your graph appears to be referring to ordinary small customers. Under the NDP/Tory rate freeze from January 1994 until April 2002, ordinary small customers paid about 5.3 cents for the same basket of services reflected in the new frozen commodity price of power of 4.3 cents.

The old Hydro borrowed heavily to pay its bills while collecting 5.3 cents from households. As they decry the extent of our historic Hydro debts, our politicians have again frozen rates, but at a lower rate than in the ’90s. Meanwhile, our leaders have opened up the throttle for new taxpayer-backed Hydro projects. Our kids will pick up the tab.

Tom Adams
Executive Director, Energy Probe

Electricity Daily
March 24, 2003

An incorrectly installed reactor instrument disabled a crucial nuclear shutdown system at a Candu reactor at the Bruce B nuclear station for several weeks late last year, as British Energy left the Bruce Power partnership (ED, Jan. 7), and there appears to have been a cover-up with regard to the incident.

Tom Adams of public interest group Energy Probe, and some commissioners of the Ottawa-based Canadian Nuclear Safety Commission (CNSC), question whether the new plant operating partners can maintain nuclear safety as BE leaves.

The six public commissioners of the CNSC say that the CNSC staff withheld information about the incident from them for a month. They learned of the problem on Feb. 12, after holding hearings that approved the restart of two units of Bruce A. CNSC Commissioner Letha MacLachlan said the safety oversight "shakes my confidence in the assertions" by Bruce Power of the quality of their safety management. The six commissioners indicated they no longer accepted assurances that the six reactors would be operated safely.

The Bruce complex is the largest nuclear facility in the world, and consists of the Bruce A and Bruce B stations, with eight Candu reactors totaling some 6,000 MW. The four reactors of Bruce A, and Pickering A, were shut down by Ontario Hydro due to the financial crisis which led to its breakup in 1999.

Hydro’s scion Ontario Power Generation Inc. leased the Bruce complex in 2001 to the British Energy-led Bruce Power partnership, which has profitably operated the Bruce B station. But British Energy then had to sell its stake due to its own financial crisis in the U.K.

The sale of British Energy’s stake in Bruce Power, brokered last year, closed on Feb. 14. The hurried $598 million deal was widely considered a "fire sale" bargain for the new partners – a pension fund, uranium company Cameco, and TransCanada PipeLines – who have no history or experience in nuclear safety or nuclear operations.

Preparations for the restart of the two Bruce A reactors by this summer are now proceeding. Restart is considered essential to lower the costs and maintain the reliability of the power-short Ontario electricity system.

Whether the alleged cover-up of safety information at Bruce B will delay restart is not known.

John Spears
Toronto Star
April 1, 2003

Despite soaring electricity prices, Ontario Power Generation Inc.’s net profit in 2002 dropped by more than two-thirds and operating income was down 42 per cent, the company’s year-end financial results show.

Chief executive Ron Osborne received a zero bonus last year, down from $752,853 a year earlier, year-end filings released yesterday show.

A company spokesperson said Osborne asked not to receive a bonus because OPG has not met targets for restarting the Pickering A nuclear station and because of its safety record. OPG, which generates 70 per cent of the province’s power, is owned by the Ontario government.

Osborne’s salary for 2002 was $850,000, and he received $100,767 in benefits and other compensation.

OPG’s former chief nuclear officer, Eugene Preston, who was in over-all charge of the problem-plagued Pickering project until he retired suddenly in October, was paid $2.5 million, including a $1.4 million retirement benefit.

The company’s statements show it had operating income last year of $245 million before restructuring charges, compared with $424 million the previous year.

Revenue declined to $5.75 billion from $6.24 billion because of OPG’s decision in mid-2001 to lease the Bruce nuclear generating station to a private consortium. The 2002 results include no revenue from Bruce, while the 2001 results include a partial year’s revenue from Bruce.

Bruce contributed about 7 per cent of OPG’s total production in 2001 prior to being leased.

While OPG’s production fell, the price it realized on its power sales rose by 10 per cent to 4.4 cents a kilowatt hour from 4 cents the previous year. The higher prices resulted from the government’s decision to open the Ontario power market to competition last May.

Net profit for OPG declined by 69 per cent to $47 million on the year, down from $152 million in 2001. A statement from OPG blamed the lower profits on the Bruce lease and higher coal prices.

The net profit could have been a loss had it not been boosted by "other income" of $171 million, largely stemming from asset sales.

That included $99 million for the sale of four hydro generating stations on the Mississagi River and $54 million in unspecified gains on the sale of long-term assets.

OPG is under pressure to return the Pickering A nuclear station to service. The province suffered power shortages last summer and had to import electricity to avoid blackouts.

The financial statements reiterate that the first unit of Pickering A is due to return to service by June 30.

But it notes "there remain risks that could impact the cost and schedule of the return to service of the first unit. This includes the risk of additional construction and other discovery work that may be identified through the testing and commissioning process, additional challenges that may result from the first-time commissioning of the laid-up units and various regulatory risks."

The second of the four Pickering A units is supposed to return to service within a year of the first unit. But the report doesn’t guarantee when it will be back. It notes the "cost and schedule to return this unit to service are under review."

OPG vice-president Chuck Pautler said Osborne had cited Pickering A as a place where performance must improve. He had also flagged safety, following an accident in which two swimmers drowned below an OPG dam when the gates were suddenly opened to generate power.

Consequently, he said, Osborne asked not to take a bonus.

All other senior officers received bonuses, but most were much lower than in 2001.

The results left some critics shocked.

Tom Adams, executive director of Energy Probe, said he was "taken aback" by the dwindling profits during a period of high prices.

And he noted OPG’s debt appears to be climbing at the same time according to the statements, which showed long-term debt up to $3.352 billion from $3.015 billion in 2001.

Liberal energy critic Sean Conway also said the poor profits are hard to understand during a period of high energy prices. OPG is required to rebate a portion of its revenue to customers because of its market power, but Conway said that doesn’t explain the decline.

"The Pickering project is hemorrhaging. It’s costing vastly more money that it was supposed to," Conway said.