Energy Probe

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.

CBC News
April 16, 2003

TORONTO – Ontario will set up dozens of portable industrial generators across the province to avoid power shortages this summer, Energy Minister John Baird said Tuesday.

The generators are part of a strategy to add hundreds of megawatts of power to the provincial grid during the summer months.

Last year, a heat wave sent hydro use soaring, prompting the government to warn that brownouts or rolling blackouts could occur.

Other measures announced by Baird include:

Working with non-utility generators to maximize their capacity. Encouraging the development of small-scale generation. Establishing province-wide standards for connections to utilities for generators.

The province also expects to add 2,500 megawatts of electricity to the grid by this summer when reactors at the Pickering and Bruce power stations go back into service.

But critics say the generator plan proves the Tory government is worried that the new nuclear electricity supplies won’t be ready this summer.

Energy Probe‘s Tom Adams adds that pollution from diesel-powered generators will have a major impact on Ontario’s air quality.

Baird said his measures will allow the province to reduce its reliance on imported power.

Photo credit: Mike Wise, CBC-TV.

April Lindgren
Ottawa Citizen
April 17, 2003

NIAGARA FALLS, Ont.: More nuclear power plants are one way to avoid electricity shortages that could douse the lights in Ontario this summer and into the future, Premier Ernie Eves said yesterday at a press conference where he confirmed the province plans to deal with immediate, short-term supply problems through the use of temporary, industrial-sized gas and diesel generators.

"We still have to look at every possible source of increased power generation in the province as we go forward, and that includes everything from wind power and biodiesel fuels to large nuclear projects," Mr. Eves said.

The premier’s remarks signal a potential revival for a sector with a rocky history in Ontario. The plants at Pickering, Darlington and Bruce, which have supplied as much as 55 per cent of Ontario’s electricity needs, have been plagued by construction delays and billion-dollar cost overruns. Since their completion over three decades ending in the early 1990s, they have had reliability and safety problems. More recently, the retrofit of four units at the Pickering A station has fallen years behind schedule and is now slated to cost more than $3 billion, triple the original $800-million estimate.

Ontario Power Generation’s problems with nuclear plants have long been cited by the Tories as one reason for introducing private-sector competition into the province’s electricity generating sector. A key aspect of that plan has been to rid OPG of some of its electricity-generating capacity – a goal that to date has resulted in the long-term lease of the Bruce plant to a private-sector consortium.

Yesterday, Mr. Eves raised the possibility that OPG may get back into the nuclear business through some sort of partnership with the private sector. He also downplayed the technical glitches of the past.

"The technologies of today are a lot different than they were. When Pickering was built, each one of those units was built in a different fashion and it was sort of on the cutting edge at the time of what was being done. Obviously if you were doing that today you probably wouldn’t repeat the experiment." In the short term, the premier said the government plans for emergency back-up generators is "prudent."

"It’s not a last-minute scramble at all," said Mr. Eves, who insisted the cost of the government’s plan for generating as much as 400 additional megawatts of power would be "negligible."

"It’s cautious and prudent planning in case we have a summer like last year, or perhaps even hotter."

Although three mothballed nuclear power units – two at the Bruce nuclear plant on Lake Huron and one at the Pickering plant east of Toronto – are expected to come on-line by the end of June, any last-minute delays in the startups will pose major electricity supply problems. The government has been counting on the restart of the units to pump about 2,500 megawatts of power into Ontario’s faltering electricity grid as the summer heat gets under way.

Mr. Eves’ proposals for solving Ontario’s long-term and short-term power problems received scathing reviews.

NDP leader Howard Hampton accused him of "just making up electricity policy on a day-by-day basis."

He said producing power from temporary generators will be hugely expensive and polluting.

"In the summer of 2001, California had to look at them and the California Air Resources Board showed that a one-megawatt diesel generator running for just 250 hours a year would increase the cancer risk (for the surrounding city block) by 50 per cent," said Mr. Hampton, who insisted an aggressive electricity-conservation program that financially rewards consumers for reducing power use would be a better alternative.

Tom Adams, executive director of the energy watchdog group Energy Probe, said it is absurd for the premier to say the plan’s price tag would be negligible.

While Mr. Hampton suggested the costs could be as high as 22 cents per kilowatt hour, Mr. Adams estimated it will be 10 to 12 cents per kilowatt hour.

Currently, Ontario consumers are paying a fixed price of 4.3 cents per kilowatt hour for electricity.

Mr. Adams was also dismissive of the premier’s proposal for more nuclear plants, noting that the cost and delays associated with Pickering A units has done much to undermine the financial viability of OPG.

"The premier doesn’t understand that nukes are the problem not the solution," Mr. Adams said.

April Lindgren
The Ottawa Citizen
April 22, 2003

TORONTO – After insisting for years the provincial government should abandon the business of generating electricity, Ontario’s governing Conservatives are looking to make major investments in power plants to counter looming electricity shortages.

Provincially owned Ontario Power Generation recently announced a 50-50 partnership with TransCanada PipeLines Ltd. to assess the viability of building a new gas-fuelled generating plant at a downtown Toronto site already owned by OPG.

The Tory government, in a press release late last year, also said it will "direct OPG to proceed with the Beck tunnel project, an expansion of the Sir Adam Beck generating station at Niagara Falls."

The projects come at a time when OPG is also under orders, as part of Ontario’s electricity restructuring plan, to reduce its share of power generation to 35 per cent of the total by 2012.

The OPG currently generates more than 70 per cent of all the power produced in the province.

"It may be somewhat inconsistent (with the requirement that OPG reduce its share of the generating market), but when you are in a period of time when you have a shortage of generation, you’ve got to do what you’ve got to do," Toronto energy-sector lawyer Peter Budd said.

The two initiatives come in the aftermath of Premier Ernie Eves’s decision last November to freeze electricity prices that soared during Ontario’s brief experiment with an open market for electricity generation. Mr. Eves also pledged to issue more than $350 million in initial rebates to consumers.

In the meantime, the Independent Market Operator responsible for tracking supply and demand has warned Ontario could face blackouts or brownouts over the next 18 months if the province is hit by extremely cold or warm temperatures.

Until recently, the Tories have steadfastly argued OPG should get out of the power plant building business because its earlier bungled efforts resulted in a $38-billion debt.

Critics of the new strategy say taxpayers could be on the hook for more uneconomical investments.

"It’s not like OPG has demonstrated any particular skills in investing in power projects," says Tom Adams, executive director of the watchdog group Energy Probe.

"This is just a panic move" in the face of potential power shortages, says Mr. Adams, who points to the $1-billion cost overrun and major delays in the refurbishment of the Pickering A nuclear plant as just one example of OPG bungling.

Mr. Adams says there are risks associated with both the latest OPG projects. The profitability of the proposed new gas plant in Toronto is highly dependent on the price of natural gas relative to electricity prices, he notes.

And the proposal to build another tunnel to channel more water through turbines at the Beck generating station in Niagara Falls is risky because it depends on water flows that in turn depend on the weather as well as cross-border agreements between Canada and the United States.

Skeptics also predict taxpayers – or the Crown corporations they own – can expect to end up carrying more debt as a result of OPG’s forays into the generating market, adventures that won’t come cheap.

Meanwhile, OPG is already generating much less profit than anticipated. Earnings were only $61 million at the end of OPG’s third quarter in September, far short of the $480 million the Tories anticipated in their budget plan.

In 2001-2002, OPG earnings were a disappointing $179 million, significantly less than the $520 million projected in the annual provincial budget.