Energy Probe

Ron Bartholomew and Tom Campbell
Ron Bartholomew and Tom Campbell
September 17, 2003

Ontario has an electricity crisis – shortages, reliability problems, and potential loss of affordable rates. Government initiatives to restructure Ontario Hydro, deregulate the electricity market, and sell off the assets of Ontario Power Generation and Hydro One have proven to be unworkable and unpopular.

After a decade of mismanaging the electricity sector, Ontario now finds itself scrambling to buy expensive electricity from neighbouring utilities, facing uncertain and rising fuel costs, and having no clear assignment of responsibility for a strategic plan to resolve these issues.

How did we get into this mess? How serious is the mess we are in? How can we get out of this mess? We’ll attempt to provide some answers over the next three days.

The Ontario electorate chose public power in 1906, and for the first 85 years of Ontario Hydro’s existence, it served the province’s needs, developing into a world-class utility.

As economic hydraulic sites became scarce, Hydro switched to imported U.S. coal, and, when coal availability, cost and pollution became issues, pioneered the development of a Canadian nuclear industry.

Our rates were not as low as Quebec’s and Manitoba’s (blessed with abundant hydraulic power), but a fraction of those of neighbouring U.S. states.

Hydro had a manageable debt and a very good bond rating. Some concerns about nuclear plant performance were being addressed and the 1990-92 recession saw a temporary electricity surplus. However, the outlook was generally positive.

The decade of the 1990s and the years of this new century have seen a series of unfortunate policy decisions that have turned Ontario’s electricity sector into a "basket case."

Today, seven of 20 nuclear reactors are shut down, necessitating burning more expensive and dirty coal to keep the lights on. Total electricity debt has risen by billions of dollars with little to show except a few windmills and a botched rehabilitation project at Pickering.

The surplus of generating capacity has turned into a shortfall. Ratepayers angry about high and fluctuating electricity prices caused the government to "re-regulate" the market.

Nobody is taking responsibility for long-range strategic planning. For our future electricity generation we are becoming dangerously dependent on natural gas (without knowing its future source or cost). For the first time ever, taxpayers may subsidize ratepayers.

This adds up to an unqualified failure.

No single policy triggered the decline in Hydro’s fortunes.

However, one critical factor was a decline in nuclear plant performance in the 1990s, caused mainly by the loss of hundreds of qualified nuclear operating, maintenance, and technical support staff, who took the early retirement packages during a downsizing initiative gone awry. This action nearly brought the nuclear program to a complete shutdown.

When it became clear that the nuclear program had been crippled, Hydro senior management appeared to misread the situation.

Nuclear management was blamed; competent station managers fired; U.S. experts brought in (who, to nobody’s surprise, discovered manpower resources were critically low); eight reactors shut down to focus scarce resources on the remaining 12; nuclear operating budgets significantly increased; and massive hiring and training of new staff and contractors began.

Meanwhile, revenues were constrained by an unrealistic government-directed rate freeze, fuel costs continued to rise, liabilities were rising in a period of little capital construction, and, by 1997, accumulated deficits reached a peak of $4.5 billion.

The prospect of bailing out of this daunting situation (by selling assets to someone else to manage and trusting the forces of the market to plan the future) must have looked good. And, unhappily for Ontario at that time, most of the government’s advisers were effectively saying, "That’s the way to go."

During the late ’90s, deregulation became trendy. In Britain, the 1989 Electricity Act called for deregulation of the electricity market. Starting from a position of unrealistically high rates, and with the good fortune to exploit North Sea gas about the same time, there were early reports of success with their open market.

In the U.S., the deregulation "movement" started in 1992, ostensibly aimed at wresting control from individual state regulatory bodies (whose rate decisions had upset both utility investors and ratepayers).

Deregulation was also strongly promoted, for reasons of self-interest, by many utility executives, investors, energy brokers, financial institutions and politicians. Spurred by high – but misplaced – hopes for the California experiment, a wave of electricity deregulation initiatives began in many states.

In Canada, two provinces took the deregulation plunge: Alberta in 1996 followed by Ontario in 1998 (with its market opening four years later).

The Ontario decision was apparently based on:

John Spears
Toronto Star
September 26, 2003

Ontario’s power supply is improving, but the province still needs more electricity generating capacity, says the agency that oversees Ontario’s electricity system.

Even if mothballed nuclear plants return to service as expected over the coming months, the province will be short of the power needed to provide for the normal safety margins this fall, says the Independent Electricity Market Operator (IMO).

When Ontario is short of power, it must import supplies from its neighbours.

The IMO’s analysis is contained in its 18-month forecast, which is updated every three months. The latest forecast notes that one unit of the Pickering A nuclear station has returned to service after being mothballed in 1997. Two units of the Bruce A nuclear station are due to return to service over the next two months.

Combined, the three units will add 2,000 megawatts of generating capacity to the Ontario system, or enough to fill about 10 per cent of the province’s demand on a mild spring or fall day.

But the IMO notes that bringing back laid-up nuclear units is tricky; the Pickering A unit is almost three years behind schedule, while the first Bruce A unit had originally been due back in service May 1.

Even with all three units returning, the IMO says supplies will be very tight this fall. Power system planners build in a supply cushion, which they call a reserve margin, to cope with surges in demand.

The reserve margin will be lower than required from early October through to the end of December, the IMO figures show. That means the province will have to rely on imports to keep the lights on and maintain a safety margin.

If the re-tooled nuclear plants are delayed in returning to service, shortages will also occur next summer, the forecast shows. The forecast notes that extreme weather – very hot summer temperatures or a cold, stormy winter – puts even more strain on the electricity system.

The forecast shouldn’t provide much comfort, said Tom Adams, executive director of Energy Probe. "The outlook is still dicey," he said in an interview.

While extreme weather generally occurs in short bursts, extremes are almost guaranteed to occur at some point over an 18-month period, he said.

The province rented "temporary" gas and diesel generators to help out in periods of high demand starting this summer. The province had planned to install about 400 megawatts, but the tender call produced only 250.

Adams had predicted the temporary generators would become long-term fixtures.

"I don’t see anything here that would encourage me to change my views," he said.

Guy Crittenden
HazMat Magazine
September 30, 2003

When the media interview "environmentalists" such as Elizabeth May (Sierra Club of Canada), Paul Muldoon (Canadian Environmental Law Association) or David Suzuki (David Suzuki Foundation), they invariably obtain quotes or sound bites that suggest the solution to almost any problem is regulation, more intrusive government, and larger budgets and staff for environment ministries. These pundits usually play up the most sensational aspects of environmental scares such as global warming, and their ideas often fit with what could loosely be characterized as a left-wing political ideology (often shared with the environment beat reporters themselves). Business and capitalism are vilified, public ownership is the only virtuous model, and complex issues tend to be dumbed down for public consumption, then politically spun. (For instance, we were told that the drinking-water contamination tragedy in Walkerton that left several people dead and hundreds ill resulted from budget cuts at Ontario’s environment ministry and that the incident illustrates the danger of privatizing water utilities, whereas the tragedy arguably shows the danger of public ownership in the absence of competition.)

So, it’s reassuring to learn that another brand of environmental activists not only approve of free markets and private property, but see these as part of the solution to many environmental problems.

Tom Adams, Elizabeth Brubaker and Lawrence Solomon are three leading intellectuals in an umbrella organization – Energy Probe Research Foundation (EPRF) – that is influencing the views of a new generation of policymakers about a host of interrelated issues that include environmental protection, energy, urban planning and foreign aid. These folks can’t be dismissed as politically left or right of centre; they’re comfortable with free markets, property rights, competition and smaller government, about which they talk in a fresh way. I

f you don’t know about them you need to get up to speed as their ideas will eventually impact many aspects of business and the environment.

Energy

Tom Adams is executive director of the Energy Probe division that deals exclusively with energy-related issues. He joined the organization in the 1980s shortly after leaving grad school at York University where he studied public policy as it relates to siting nuclear facilities. At Energy Probe he first worked on issues related to Ontario Hydro’s supply/demand hearings in which the giant utility sought to justify a huge publicly-underwritten nuclear expansion. Adams learned that the planned expansion was unwarranted, and something else.

"I saw the cozy arrangements that can develop between regulators and public utilities, and how these work against the public good," he says. In the 1990s the organization increasingly advocated accountability. After Margaret Thatcher privatized energy utilities in the United Kingdom, nuclear plants demonstrated that they couldn’t compete in a real market. Ontario is now struggling with middle-aged nuclear plants that have become more and more expensive to operate, if they can be operated at all. Adams’ insights stem from his observation of the giant utility, and also fit with the ideas of Julian Simon, the professor who won a famous bet against Paul Ehrlich about the limits of growth. Simon argued that human ingenuity is the overwhelming variable in sustainability.

"The energy monopolies are non-ingenious organizational structures," says Adams. "Energy Probe favors policies that allow decision-making and choice at the level closest to the individual, where decisions tend to be complex and nuanced."

Adams distinguishes his group’s ideology from that of other activists who subscribe to the Paul Ehrlich model who seek to limit population and economic growth. He also cites Jane Jacobs, the famous urban planning critic (who has sat on Energy Probe’s board for twenty years), who advocates "using your own eyes" in place of received academic wisdom. Doing this while studying destructive practices in Canada’s forests led Adams and his co-workers to discover that government policy and public ownership was fundamental to the problem.

 "It’s the ‘tragedy of the commons’," says Adams, referring to a famous essay which demonstrated that people are encouraged to pillage resources in which they have no ownership stake. "We found the most sustainable forestry model in Northern Europe where private owners have an economic stake in protecting the renewable resource."

Adams thinks that Ontario and most of Canada is experiencing a kind of "tragedy of the commons" with respect to energy, with the price of dwindling natural gas reserves climbing ever upward, and Ontario’s rate freeze blocking the evolution of a true energy market. (The province has teetered on the edge of brownouts for two summers in a row, and imports large amounts of high-priced electricity from south of the border). He sees the solution in cogeneration (which captures heat as well as power from fuel), distributed generation, new technologies for stationary fuel cells, and certain "biofuel" applications. He’s skeptical of government programs to subsidize energy efficiency and create a hydrogen economy.

"There’s a role for renewables like wind, solar and geothermal," he says, "and for alternative energy systems, but the consumer must be brought meaningfully into the equation. In the absence of markets, the potential for misallocation of resources remains enormous."

Adams believes that electricity is about to become permanently more expensive in Canada, and that energy-intensive industries like smelting, steel making, and certain kinds of food and chemical production will pack their bags and move to other countries where energy is cheap.

Water

Elizabeth Brubaker has excellent activist credentials, having worked in the United States in the 1970s on social housing and peace campaigns such as the Committee for a Sane Nuclear Policy. Yet her philosophy has evolved into one that is very different from that, say, of Maude Barlow and her Council of Canadians.

"I agree that property rights don’t cover everything, like cumulative effects," says Brubaker, "but people don’t realize the extent to which regulations can be a ‘right to pollute.’"

Her books spell out how regulation can actually interfere with people’s right to a clean environment, the quiet enjoyment of their property and freedom from nuisance and trespass.

Brubaker’s most recent work promotes privatization and competition in Canada’s water utilities; these exhibit the same kind of "non-ingenious" monopoly thinking as the energy utilities. Like Adams, she points to the benefits of the U.K.’s privatization experience where investment has reduced pollution dramatically and public beaches are clean enough for swimming for the first time in living memory. She notes that Canada’s provincial and federal governments are reluctant to take action against cash-strapped municipal water utilities that may be significant polluters, and that involving the individual in a real market is central to requisite changes.

"Customers must be metered and water consumption and wastewater treatment must be properly priced," she says. "If people aren’t able to pay the full true cost, subsidies should flow to the consumer, not to the [wasteful use of] resources."

Brubaker believes that property rights should be enshrined in the constitution. In the meantime, she points to another division of the EPRF – the Environmental Bureau of Investigation – as a resource that individuals can use to protect the environment and hold government and corporations accountable. Through the Bureau, individuals can initiate site cleanups and prosecutions of polluters where government has not been effective. (Several prosecutions under the federal Fisheries Act have been successful, and the law allows for individuals or groups initiating the actions to share in cash awards.)

Urban matters

Lawrence Solomon described pollution as an infringement of people’s property rights back in 1978 in his book The Conserver Solution, published when Energy Probe was still part of Pollution Probe. (The groups parted company over administrative differences, including fundraising, and, no doubt, differences of philosophy. Under the leadership of Dr. Donald Chant, Pollution Probe spent the next 20 years pursuing a futile central-planner’s dream to build a large toxic waste treatment plant that no community wanted.) The Conserver Solution identified the use of the courts as a way to make polluters pay (or to internalize costs). Such arguments were continued in Solomon’s later book, Energy Shock.

Solomon believes that ordinary citizens around the world passionately defend their lands, waters, forests, and fisheries – if they have the tools to do so. These days Solomon heads up the Urban Renaissance Institute division of EPRF and writes a regular column for the editorial pages of the Financial Post. His articles have effectively skewered government folly on a range of issues, including ludicrous schemes to subsidize ethanol production. One article series that was as original as it was devastating, exposed the way agricultural subsidies sustain uneconomic farms in rural areas that should be allowed to return to the wild.

Removal of subsidies and the opening up of protected markets to competition is a major theme in Solomon’s work and his ideas permeate across all the EPRF divisions. Solomon is currently working on a monograph that he says will demonstrate how urban sprawl is the direct result of government policy and hidden subsidies.

"Without the subsidies," Solomon says, "cities would evolve with greater density and efficiency."

Asked about other areas the EPRF is addressing, Solomon points to the ongoing work of Patricia Adams, executive director of the organization’s Probe International division, the work is an extrapolation from the ideas Adams presented in her 1991 book Odious Debts which exposed problems in foreign aid and recommended remedies for various loose government lending practices. Asked whether he feels discouraged by society’s slow pace in adopting the EPRF’s ground-breaking ideas, Solomon replies that he feels quite the opposite.

"I’ve been around long enough to see many of our ideas take root and have an effect," he says. "I’d say we’re a pretty optimistic group."

Guy Crittenden is editor-in-chief of HazMat Management Magazine.

Jennifer O’Brien
London Free Press
September 30, 2003

Ontario is on the verge of a provincewide power blackout daily, an energy expert says. With Dalton McGuinty’s Liberals vowing to maintain a Conservative freeze on power rates, that situation doesn’t look any brighter, said Tom Adams of Energy Probe.

"It’s very gloomy," said Adams. "None of the parties offers a viable program to stabilize Ontario’s hydro.

"And we can barely keep the lights on now."

Adams, like other critics, believes the artificially low government-imposed cap on power rates does nothing to encourage new energy alternatives.

"Neither the Tories nor the Liberals are prepared to admit the problems we’ve got in the electricity system," said Adams.

"Only the NDP has raised some important questions, particularly with how we get out of the rate freeze," he said.

Ontario Hydro, a government-owned monopoly power producer for more than 100 years, was broken up by the Tories in the mid-1990s and the energy market deregulated to encourage private interests to both build new power plants needed to supply the juice Ontario needs and to sell it.

But when power prices began to soar in 2002, Premier Ernie Eves froze the price of power – giving consumers a break but adding hundreds of millions of dollars a year in extra costs for the province.

And with many private interests saying there’s now no incentive to build costly new plants in Ontario, the government’s strategy has come under harsh criticism – especially in the aftermath of the massive power blackout in August that hit Ontario and large portions of the U.S.

All three main parties say they would reduce reliance on traditional sources of power by encouraging development of green energy sources, such as solar and wind power, and use of energy-conserving consumer appliances and bulbs.

All three also vow to shut Ontario’s coal-fired power generating stations, a move driven by demand for cleaner air, especially during the smoggy summer months.

But a key issue has become who owns – and will own – the province’s power system.

Ontario taxpayers own the vast majority of the province’s generating capacity, now operated by a Hydro spinoff company called Ontario Power Generation. And the power grid, or transmission lines that move electricity around, are publicly owned by another Hydro spinoff, Hydro One.

But with taxpayers saddled by a huge debt from Hydro of nearly $40 billion, and with chronic problems getting Ontario’s nuclear plants generating all the power needed, the province faces a costly and vulnerable energy future.

Critics grew even more alarmed last year when the Tories planned to sell Hydro One for an estimated $2 billion. That forced a last-minute change of government plans.

The New Democrats have made the most of the power issue, promising an NDP government would keep the system in public hands but remove the freeze on rates.

"The cap was foolish. I wish someone had the guts to remove it," said Tom Wonnacott, a UWO professor with an interests in environmental problems and solutions.

But to rely only on a public system is just as dangerous, he said.

"We have to pay honest prices. Public power is not cheaper, it just conceals the cost, like the old Ontario Hydro," said Wonnacott.

"The obvious solution is to increase price at peak times," he said, approving of the Liberal plan. "It is independent of the public-private issue."

But with the NDP running far behind in the polls, Adams isn’t waiting for an NDP solution to the power problems.

The Liberals, meanwhile, frontrunners in the polls, vow to maintain the rate cap at 4.3 cents per kilowatt-hour until 2006 – the same time line the Tories have promised.

After that, McGuinty says a Liberal government would charge a basic monthly rate for power, based on what an average family uses, and more for those who consume more.

Doing away with coal-fired generating plants – another part of the power problem – also raises the spectre of job losses, including at the Lambton Generating Station near Sarnia, which employs about 400 people in the area.

"I don’t want to see the job loss. We need to look at our need for power," said Sarnia Mayor Mike Bradley. "Are there other things that would keep the plant operating?

"The Liberals need to look at natural gas" as a fuel to run generating stations, he said.

The Ontario Clean Air Alliance (OCAA) supports such a move as well, saying it would only take two or three years, which would fit in the Liberal and NDP plan to have the plants converted by 2007.

The Tories say doing so will take until 2015.

Gloria Galloway and Richard Mackie
Globe and Mail
September 30, 2003

Sault Ste. Marie, Ont. and Toronto: Ontario Liberal Leader Dalton McGuinty says the province will have to borrow the money to build new electricity-generating plants, an ambitious proposal that could cost billions of dollars.

Mr. McGuinty said the investment would be needed to avoid a repetition of the massive power blackout of Aug. 14, and the lengthy delay in restoring the electricity system.

"If the blackout drove home anything, it’s how vulnerable we are in terms of our inability to generate a sufficient supply of electricity inside Ontario," he told reporters in North Bay Monday. "So let’s build more generation."

No new public sources of electricity generation have been constructed in Ontario during the past 13 years, Mr. McGuinty said. "We’re going to have to borrow money for that."

Although the blackout occurred shortly before the election was called on Sept. 2, and although Mr. McGuinty’s Liberals have a substantial lead in popularity polls, he had travelled the province for four weeks before Monday without spelling out how he would prevent a recurrence of the power failure.

Mr. McGuinty also changed past Liberal policy on electricity Monday by rejecting private participation, stressing that a Liberal government would be committed to public ownership.

"All public hydro assets will remain in public hands," including all generating stations and the electricity grid, he said.

Previously, he had looked to the private sector to build new generating capacity.

But potential investments have dried up over the past 18 months, after the Tory government closed its recently opened market for retail electricity and reimposed a rate cap of 4.3 cents per kilowatt-hour.

The Liberals say they would expand the existing hydro installation at Niagara Falls, build new gas-fired generating plants, and construct small hydro-electric stations around the province on rivers where the government has rights.

In addition, Mr. McGuinty said, "we are going to establish a renewable portfolio standard that would see 5-per-cent clean and green electricity being generated by the year 2007, 10-per-cent by the year 2010."

By that, he said he means solar power, wind power and harnessing methane gas from garbage dumps.

Industry sources say it would be costly – from $10-billion to $15-billion – to replace the 8,000 megawatts currently supplied by Ontario’s five coal-fired plants, which Mr. McGuinty intends to shut down within four years.

As well, there are concerns about the availability and affordability of natural gas.

Ian MacLellan, marketing vice-president at Energyshop.com in Richmond Hill, Ont., said natural-gas prices are expected to rise until at least 2008, which is the earliest possible date that the Mackenzie Valley pipeline, a northern megaproject, could be completed.

Mr. MacLellan said that at current prices, gas-fired generation would cost as much as seven cents a kilowatt-hour to supply, including both the capital construction costs and the continuing costs of buying the natural gas.

The costs of constructing the plants are high. For example, a gas-generation unit opened this year by TransAlta in Sarnia to provide 658 megawatts cost $400-million.

The Liberals say they would do it all by getting Ontario Power Generation or the Ontario Electricity Financing Corporation to borrow the money. Electricity costs would not go up, Mr. McGuinty insisted.

He said he would cap prices until technology is available to encourage conservation by giving consumers cheaper rates for using electricity during off-peak periods. The Electricity Distributors Association has told him that would take until at least 2006, he said.

The Progressive Conservatives also say they would keep the price freeze in place until 2006 and would create green-power bonds to stimulate investment in environmentally sensitive sources of electricity.

The New Democrats, who have made power generation a key plank in their campaign, would cancel any privatization and roll back any planned deregulation, as well as promoting renewable energy.

Tom Adams of the electricity watchdog Energy Probe said that, "in their heart of hearts," neither the Liberals nor the Conservatives have a plan for ensuring the energy supply.

He called Mr. McGuinty’s plan to keep all remaining energy generation in public hands "very troubling" because it leaves the control of energy in the public sector, which he says does not make smart decisions.

"One wonders whether Mr. McGuinty has been paying any attention to the lessons we should have learned from the government’s plans to rebuild the Pickering A" nuclear generating station, Mr. Adams said.

In 1998, the government said it would refurbish the four reactors at the plant – which was closed the year before for safety and financial reasons – by June, 2002, at a cost of $800-million. None of those reactors is yet in operation, although one is set to come on line soon, and the costs have exceeded $1.4-billion.

Ernie Eves Campaign Headquarters
http://www.newswire.ca
September 30, 2003

The fact is . . .

"Mr. McGuinty has said little about Ontario’s electricity problems since the campaign began." – The National Post, September 30

So how come . . .

"Departing from past Liberal policy on electricity . . ."
– The Globe and Mail, September 30

. . . Dalton announces billions in new Hydro spending.
Even though . . .

"The last time Ontario got into the power plant construction business in a big way, taxpayers ended up on the hook for more than $38 billion in debt that has still not been paid off."
– The National Post, September 30

But just like the bad old days, Dalton says:

"We’re going to have to borrow money for it." – Dalton McGuinty, North Bay scrum, September 29

How much? Hey – who cares?

"Hydro is off-book. It’s not found within the Ontario provincial budget." – Dalton McGuinty on CFRB Toronto, September 29

Even though . . .

"We’ve always argued for transparency when it comes to Hydro." – Dalton McGuinty, blackout scrum, August 20

. . . and Energy Probe‘s Tom Adams calls it all:

"Very troubling." – The Globe and Mail, September 30

A billion here, a billion there . . . Pretty soon you’re talking
Dalton McGuinty.

Murray Campbell
The Globe and Mail
October 11, 2003

Will he or won’t he? Run a deficit, that is.

Dalton McGuinty has yet to take over the machinery of the Ontario government, but already there’s a controversy about what he will do if, as expected, the province’s accounts are a mess. The Liberals have been planning for a $2-billion deficit on a $70-billion budget but we are getting nudge-nudges that it’s much worse than that.

The premier-designate has been briefed on the state of Ontario’s finances but he’s committed to silence until he is sworn in Oct. 23. Meanwhile, he’s not speculating about speculation that he might run a deficit, which is a departure from his "no deficit ever" stand during the election campaign (regardless of what the Liberal spin machine says).

None of this should matter. There’s nothing wrong with temporary bouts of debt; indeed, the economy is based on consumers borrowing to buy cars, houses and 42-inch televisions. It’s just that the right, aided by a generation of profligate politicians, has engineered a new orthodoxy that budget deficits are always bad.

Mr. McGuinty buys into this, otherwise he wouldn’t have signed the Canadian Taxpayers Federation pledge not to run deficits or to raise taxes. Of course, on the morning of Oct. 24, he and his new cabinet will awake to discover that all those problems they used to bait the Progressive Conservatives about are suddenly their problems.

Still, this shouldn’t be too bad even if the worst predictions about the fiscal situation are borne out. The Liberals have left themselves a fair amount of wiggle room in implementing their $5.8-billion campaign pledges by saying that the implementation of their promises could be phased in more slowly. They will get away with it for a little while because the public simply wants a sense that things are headed in the right direction. In many cases, a change from Tory to Liberal rhetoric will do the trick.

One issue, however, resists shucking and jiving. And that’s electricity. There are so many problems mounting from so many different directions that any government delay would be disastrous.

For decades, governments of all stripes have struggled with the task of providing cheap, reliable electricity, but the Conservatives’ bungled attempt at privatization and deregulation made things much, much worse. As it stands, residential and small-business consumers are luxuriating in a fool’s paradise where retail electricity rates bear little relation to the cost of generating and distributing power. This price cap, which Premier Ernie Eves imposed 11 months ago, is adding tens of millions of dollars of debt to Ontario’s books every month and driving away private investors who see the electricity industry as a source of profit.

In addition, the nuclear power plants that are the backbone of the generation system are aging and will soon need to be replaced. In particular, the Pickering A station is so costly and unreliable that it deserves to be closed forever. Over all, about 40 per cent of the generating capacity will need to be replaced in the next 15 years. "We are drifting toward a nightmare scenario," said Tom Adams of Energy Probe, an advocate of deregulation and privatization.

Liberal policy in this area is a hybrid. It keeps the price cap until it dies a natural death in 2006 and then it will re-regulate at some unspecified price. It hopes the private sector would build new plants but pledges it will do the job itself if no firm steps forward. It proposes conservation and energy-efficiency and renewable-energy programs but nothing is specific yet.

The new government’s challenge will be to replace the 7,500 megawatts of electricity produced by the coal plants it pledges to shut down by 2007. The move is predicated on reliable nuclear generation and ample supplies of natural gas for new plants. Both are uncertain.

Mr. McGuinty and his new team will have to get to work on its electricity policy fast. There is no room for delaying or phasing in.

John Spears
Toronto Star
October 16, 2003

Evidence suggests that the province’s biggest industries, plus Toronto’s big commercial customers, accounted for more than 70 per cent of the conservation efforts following the blackout that staggered northeastern North America last August.

Householders may have chipped in less than 25 per cent of the conservation effort.

Households account for more than 40 per cent of the province’s power use.

In response, the agency that oversees Ontario’s electricity system has been asked to find out what groups of customers did the best job of conserving electricity during the eight-day emergency following the Aug. 14 blackout.

Derek Cowbourne, vice-president of market service for the Independent Electricity Market Operator, or IMO, confirmed yesterday that he’s been asked to study conservation patterns during the power emergency.

The request came from members of the IMO’s market advisory council, whose members are drawn from a range of industry and consumer groups.

Cowbourne said in an interview he’ll have to ask local utilities for their data before he can draw a complete picture of who used what during the emergency. He hasn’t yet sent out a request.

But current evidence indicates that big businesses carried most of the conservation load.

The rough and ready numbers look something like this:

The IMO said power use during the emergency was down about 4,000 megawatts, peaking around 19,000 megawatts each day instead of 23,000 megawatts.

The Association of Major Power Consumers of Ontario, or AMPCO, said its members, under pressure from the provincial government, cut their consumption in half during the emergency, many by simply shutting down.

AMPCO members account for about 15 per cent of total power use in the province; they saved 1,600 megawatts by cutting back.

Its members include the big auto assembly plants, oil refineries, pulp mills and miners.

Tom Adams of Energy Probe noted that Toronto Hydro credited its large commercial customers with cutting back power use by 30 to 40 per cent.

Toronto Hydro said that measurements taken in one residential neighbourhood showed that householders cut back only about 20 per cent.

The cutbacks by the big Toronto users – who overlap very little with AMPCO’s members – would trim about 5 per cent or 1,180 megawatts from total consumption, Adams estimated.

The power saved by AMPCO and Toronto Hydro’s big customers counts for 2,780 megawatts, or nearly 70 per cent of the total power reduction in the province. It’s a near certainty that businesses outside Toronto who are not AMPCO members also contributed to the conservation effort, shrinking the share of conservation by householders still further.

Don Thorne, chief executive of Milton Hydro, said his utility’s data indicate that householders cut back their power use very little during the eight-day emergency.

"It is very clear that there wasn’t a lot going on there," he said in an interview.

"People still ran their air conditioners and so on. You start thinking: Why is that? The media did an excellent job of telling people what they could do (to conserve)."

Big industrial outfits seem to have been most conscientious about cutting back, Thorne said, noting that they were directly pressured to do so by the province.

Municipalities also pitched in, Thorne said, but probably could have reduced their consumption more if better plans had been in place showing them the most effective ways of cutting power use while maintaining essential services.

Figuring out who cut consumption and who didn’t isn’t a matter of finger-pointing, Adams said.

Both policy makers and the people designing the electricity system need to understand who responds to conservation appeals and who doesn’t.

Adams said it could be dangerous to make future emergency plans on the assumption that householders will pitch in with conservation efforts if evidence shows they don’t. And if expensive new safeguards have to be built in to prevent future collapses, or make it easier to restore power when they occur, then it’s fair to ask who should pay for them.

The Canadian Press
October 19, 2003

Toronto: Weighed down by a fistful of campaign promises and a bill to taxpayers that has already reached $630 million, Ontario’s incoming Liberal government will soon have its hands full trying to manage the complex hydro portfolio that bedevilled its predecessors.

From reliability of supply and the cost of the retail price cap to the future of the market itself, there is no shortage of electricity issues facing premier-designate Dalton McGuinty.

While McGuinty has indicated that education and health are his immediate priorities, the volatile energy field is one that could explode at any time – and the chances of that happening increase with each day the temperature falls.

"The Tories left these delayed-timer fuses going and the Liberals are going to get sorely tested within their first few months in office," said energy analyst Tom Adams.

"The bottom line is that the power system is a lot more broke than the Liberals anticipated. (They) are going to have to reconsider every element of their (energy) platform."

Despite its relatively low profile during the recent election campaign, McGuinty made several promises about electricity. Key among them is shutting down the province’s smog-spewing coal-fired generators by 2007.

That in itself is a huge task. Coal accounts for as much as one-third of the province’s generating capacity and power supplies are routinely stretched to the limit during extreme weather.

There are also questions about the future of the reactors at the publicly owned Pickering nuclear plant.

A Tory-appointed panel is due to report soon on the billion-dollar cost overruns and years of delays in which just one of the four mothballed reactors has returned to service. The industry is bracing for a scathing assessment that could mean the other three units remain permanently out of service.

However, the Ontario Clean Air Alliance argues that replacing coal by 2007 with hydro-electric, wind or natural-gas generation is perfectly viable.

"(Even) if you went to an all-gas option, that would phase out all the coal plants (and) raise rates by a total of three to five per cent," said the alliance’s Jack Gibbons, who planned to release his own report on Monday.

"That could be phased in at a rate increase over seven years of 0.4 to 0.7 per cent per year.”

McGuinty has also promised to keep the retail electricity price cap for households and other smaller users imposed a year ago by outgoing premier Ernie Eves in place until 2006, after which he plans to reregulate prices at higher, more realistic levels.

"I don’t see that as a viable strategy," said Adams, noting the freeze discourages conservation and new industry investment.

In the interim, the cost to taxpayers keeps rising and the future of the sector remains uncertain.

Under the Conservatives’ deregulation model, OPG was supposed to sell off a large chunk of its generating assets to private investors – a process known as decontrol – to encourage competition.

But the price cap effectively scuttled that process, along with OPG’s business plans.

Decontrol could also become an issue for Hydro One, the province’s publicly owned electricity grid whose impending sale was scuttled by Eves amid a public outcry.

While McGuinty has promised to keep Hydro One in public hands, the giant utility has also gobbled up numerous distribution utilities and many in the industry feel those should go back to their former municipal owners.

With all the uncertainty, the industry will be paying especially close attention to whom McGuinty appoints as energy minister and whether he makes major changes at the bureaucratic level.

April Lindgren
CanWest News Service
October 31, 2003

Toronto: Faced with a $5.6-billion deficit left by the previous Tory government, Dalton McGuinty yesterday abandoned his election promise to maintain an electricity price freeze, hiked tobacco taxes and reiterated his pledge to cancel several Tory tax cuts.

"We’re going to do what needs to be done," the new Ontario Premier said a day after the release of an independent report that shows Ontario headed for a massive deficit this year rather than the balanced books promised in the Conservatives’ spring budget.

"We’ll bring responsible management to the government’s finances. We will act quickly and decisively," the Premier told the Economic Club of Toronto.

In a move applauded by the private sector and energy analysts, Mr. McGuinty said Dwight Duncan, the Energy Minister, has 30 days to recommend a higher, fixed price for electricity to replace the 4.3 cents-per-kilowatt-hour rate instituted last year by the Tories.

Although the Liberals voted in the legislature to support the freeze and in the recent election campaign matched the Tory pledge to keep it in place until 2006, Mr. McGuinty insisted yesterday the subsidy is unaffordable.

"Since the Tory price cap was put in place a year ago, it has cost all of us more than $700-million – that’s almost $2-million every day," he said. "Now, it is one thing to take this sort of approach when the province is in surplus and it is quite another to do that when we find ourselves bleeding red ink and compromising our ability to adequately support our schools and our system of health care.

"I want a price regime that better reflects the cost of electricity. . . . This may not be popular – it may not be in our immediate, self-serving political interest," Mr. McGuinty said. "But we firmly believe it is in the public interest."

Neither the Premier nor Mr. Duncan would comment on what the new price will be. Mr. McGuinty said future electricity prices will be determined by an independent body rather than politicians.

"The people of Ontario are intelligent, rational people who understand that we have to have a realistic price regime and they will support us," the Minister said.

Mr. McGuinty, who told reporters "the world changed" with the news that Ontario’s finances are a mess, made it clear during his speech that addressing what he called the "Tory deficit" is his priority for the moment. Costly election pledges to reduce class sizes for young children, hire 8,000 nurses and freeze university tuition for two years were not mentioned.

Instead, Mr. McGuinty, who during the recent election campaign warned voters of a multi-billion-dollar deficit, announced "immediate restraints on discretionary spending" and the continuation of a hiring freeze on public servants put in place by the Tories.

He also said the government will offset part of the 2003-04 deficit by fulfilling its campaign promises to hike tobacco taxes to the national average and cancel certain Tory tax cuts.

Senior Liberals said they do not yet know whether a $2-per-carton increase in the tobacco levy will be introduced in the economic statement expected later this fall or in a budget next spring.

If it is implemented before Christmas, the tax hike could generate $50-million in revenue in what remains of this fiscal year. Over the course of a full year, it would add $140-million to revenues.

The Liberals have promised to raise the tobacco tax by $10 per carton over time to generate an additional $700-million in annual revenue.

Mr. McGuinty also vowed to fulfill other money-saving election promises when the new legislature gets to work, likely on Nov. 20. In particular, he said he will move quickly to:

Roll back corporate tax cuts that have already been partially implemented by the Tories. Cancel personal income-tax cuts scheduled to go into effect on Jan. 1. Cancel the seniors’ property tax credit legislation passed by the Tories just before the provincial election. Cancel the tax credit for parents who send their children to private school, another measure that has been partially implemented. Eliminate partisan advertising by government ministries.

These and other measures, according to Liberal sources, are expected to save the government about $850-million in the months remaining in this fiscal year, far short of what is required to balance the 2003-2004 budget. Next year, the initiatives are forecast to bolster the provincial treasury by $2.8-billion.

Mr. McGuinty said he will not raise taxes to solve the province’s financial dilemma: "We’re going to hold the line on taxes," he told the business crowd. "Ontario families and businesses didn’t create this mess – the Conservative government did."

Speaking to reporters later, the Premier insisted this year’s deficit will be a one-year wonder.

"With respect to next year’s budget, I am absolutely determined to balance that budget," he said.

Tory MPP John Baird, the former Tory energy minister, accused the Liberals of not living up to their word.

"It took Mike Harris four years to earn the reputation as a man who kept his promises, it’s taken these guys four days to earn a reputation for breaking their promises," he said, referring to Mr. McGuinty’s decision to hike power prices. "Is there any promise they won’t break?"

Others gave the Liberals better reviews.

John Williamson, Ontario director of the Canadian Taxpayers’ Federation, lauded the Grits for "coming out of the gate with a real bang.

"I think the word of the day is responsibility — these guys are trying to fix the public finances as quickly as possible and they are doing it in a way that pushes off spending, controls costs and deals with the deficit. This is a Premier who has made priority number one deficit reduction and that’s good news."

Don Drummond, chief economist for the TD Bank Financial Group, said he doubts Mr. McGuinty can balance next year’s budget. "That’s not a likelihood based on the actions we’ve heard about so far. There will have to be some expenditure cuts."

He praised the Liberal leader, however, for moving to raise electricity prices.

"If you are willing to take on that and take the political risk … a lot of other things in my mind become possible. I’m much more confident that they will take the tough actions that are necessary because they have shown their bona fides on the electricity pricing."

Tom Adams, executive director of the watchdog group Energy Probe and a vociferous critic of the Tories’ electricity price freeze, also welcomed the announcement.

"It’s definitely good news but it’s not a solution if they don’t go back to the full, real price," said Mr. Adams, adding that investors will return to Ontario’s electricity sector only if the Liberals succeed in removing the politics from energy-pricing decisions.