Energy Probe

Allan Woods
National Post
November 1, 2003

Ontario Liberal leader Dalton McGuinty’s decision to hike electricity rates to tackle a $5.6-billion deficit will send a chill through homeowners, who could face monthly bills 15% higher than what they currently pay, industry watchers say.

Still, those experts, pundits and lobby groups say simply putting a higher cap on the cost of hydro will not address significant problems with Ontario’s electricity system.

"Ontario is very close to suffering another blackout and one of the first and most important steps in securing the reliability of the electricity system is ensuring consumers pay the real cost," said Tom Adams, executive director of Energy Probe, a pro-conservation think-tank.

On Thursday, Mr. McGuinty said Dwight Duncan [pictured], the Minister of Energy, has 30 days to decide on cost-saving measures before recommending a higher, fixed price for electricity to replace the current rate of 4.3¢ per kilowatt hour set last year by the Progressive Conservative government.

The Premier said he wants a price that better reflects the real costs of electricity.

Mr. Adams estimated the average increase in monthly bills at 15% or more when the Liberal debt-cutting plan is announced.

"It’s substantial," he said. "We should be looking at significantly higher electricity prices."

About 10% of that estimate is based on fee hikes linked to Ontario’s energy infrastructure, including any additional costs stemming from an investigation into the August power failure that left Ontario and a large swath of the northeastern United States in the dark.

The additional fee hikes will come from the other side of the electricity bill, which is based on the amount of power people consume. But Mr. Adams said it is difficult to forecast how big an increase the government might institute because its energy policies included in the recent Oct. 2 election platform are not specific.

"Given the lack of clarity in terms of their policy thinking, it’s impossible to guesstimate what it might be," Mr. Adams said, adding there are dozens of formulations the government could use to increase the price. "The one-word answer is ‘up.’"

David Burgess, professor of economics at the University of Western Ontario, believes the Liberals will likely work out a formula by which the rate hike will cover the $700-million deficit caused by the current price-cap.

"It will be the same thing [as the current 4.3¢-per-kilowatt-hour rate] but at a higher level, so the deficit will be less," Prof. Burgess said. "I don’t have a lot of sympathy for repegging the rate."

He acknowledged, however, that it would be the most politically astute thing for the newly sworn-in government to do.

Moving to a market rate, under which the consumer would pay full price for the power, would raise bills by about 25%, by some estimates. The raw hydro price would be in the neighbourhood of 6 ¢ per kilowatt hour.

Prof. Burgess said no one having to pay that kind of price is likely to welcome it.

Deborah Doncaster, executive director of the Ontario Sustainable Energy Association, was also pleased at the possibility of a move closer to the market rate. She wants to see an even higher rate so renewable resources such as wind or solar power, which cost more than hydroelectricity or coal energy sources, can compete at comparable cost.

John Spears
Toronto Star
November 9, 2003

Energy Probe

November 20, 2003

Energy Probe‘s Tom Adams was interviewed extensively on Wednesday, November 19, following the release of the interim report "Causes of the August 14^th Blackout in the United States and Canada," published by the US-Canada Power System Outage Task Force.

The scope of this report is limited to the proximate causes of the blackout. Energy Probe’s general observation is that the blackout is the result of several routine failures that happened to occur at the same time. The blackout demonstrated the vulnerability of our power system – a vulnerability due primarily to the design of the system. Energy Probe believes a more decentralized power system, more modular in its design and less reliant on the flow of large amounts of electricity across great distances, could provide substantial reliability advantages (as well as significant environmental and economic advantages).

A more decentralized model could also provide greater resilience in response to malicious attacks. While ruling out terrorism as a cause of the blackout, the report notes that the power system "has been, and continues to be, the target of malicious individuals and groups intent on disrupting the electric power system."

Energy Probe believes that the 2003 blackout demonstrates the need for utility regulators to pay attention to reliability. First Energy, the US utility at the center of the blackout investigation, is regulated by the Ohio Public Utility Commission. Energy Probe notes that the Ohio Public Utility Commission is not mentioned in the "Causes of the August 14^th Blackout in the United States and Canada" report, although, the report does highlight a significant number of First Energy’s deficiencies.

The report also identified a major deficiency in the competence of the Canadian Nuclear Safety Commission (CNSC): CNSC staff were unable to immediately activate the CNSC’s Emergency Operation Centre because of loss of power to the CNSC’s head office building. Instead, CNSC staff established communications with licensees and the U.S. NRC from other locations. This finding highlights the need for the CNSC to have a working emergency management plan.

Energy Probe was interviewed for its response to the report by CBC Newsworld, Radio Canada, ROB TV, and TVO’s Studio 2 program, as well as The Globe and Mail, London Free Press, and Canwest.

A public forum in Toronto on December 8 will give the public an opportunity to contribute to the second phase of the US-Canada Power System Outage Task Force report. The second phase will attempt to draw broad conclusions and to present policy recommendations. Energy Probe intends to participate in this process.

Click here for the report on the "Causes of the August 14^th Blackout in the United States and Canada"

John Spears
Toronto Star
November 21, 2003

Canada’s nuclear regulator was left in the dark along with Ontario and the northeastern United States when the Aug. 14 blackout struck, according to a detailed report on the power failure.

A joint U.S.-Canadian task force headed by Canada’s natural resources minister Herb Dhaliwal and U.S. energy secretary Spencer Abraham found the lights went out on the Canadian Nuclear Safety Commission, though luckily no harm was done.

"CNSC staff was unable to immediately activate the CNSC’s Emergency Operations Centre because of a loss of power to the CNSC’s head office building," the task force said.

The CNSC oversees the operation of Canada’s nuclear generating stations and may be called to give station operators clearance to take action during an emergency.

No harm was done despite the glitch, the report notes, as required approvals were obtained quickly.

But CNSC staff had to find other locations from which to contact nuclear stations and American regulators so they could co-ordinate efforts.

The note in the task force report raised the eyebrow of Tom Adams, executive director of Energy Probe.

"The report seems to suggest the CNSC could have been impaired in its ability to respond," Adams said.

For the most part, the report deals kindly with the performance of Ontario’s nuclear plants.

"There were no risks to the health and safety of workers or the public as a result of the concurrent shutdown of several reactors," the task force says.

"Automatic safety systems for the turbine generators and reactors worked as designed."

Michel Cléroux, a spokesperson for the commission, acknowledged the blackout knocked out communications and staff had to rely on cellphones in the wake of the power outage.

A small emergency generator, large enough to run critical communications systems, was set up by the next day, but at that point power had been restored to the CNSC building, he said.

The commission rents office space in a privately owned building.

A permanent back-up generator big enough to run all communications systems and provide air conditioning for several floors will be installed at the building in coming months, Cléroux said.

In the meantime, steps have been taken to set up an emergency room in a building across the street that has back-up power.

Adams said he was struck by how routine the incidents were that triggered the blackout – wires touching trees were the immediate cause of the line failures that snowballed into the blackout.

The weather was hot but not abnormal for August.

The mundane nature of the incidents and the severe consequences suggest power systems should be made sturdier, Adams said.

The task force is inviting public comment on its interim report, and will holding public hearings in Toronto Dec. 8.

Gary Rinne
Thunder Bay’s Source
November 26, 2003

As a colleague in the newsroom points out, the optics for Dalton McGuinty are not good.

During the election campaign, the Liberals promised to keep the price cap in place until 2006. The Liberal party had also voted in favour of the rate cap when it was introduced by the Eves government. Now, Ontario’s new Premier has approved a rate increase which will impose varying degrees of hardship on consumers, institutions, business and farmers.

Opposition critics are calling McGuinty a liar. The accusation would have more substance if it could be proven that the Premier knew before the election the size of the province’s deficit – nearly six billion dollars – would force him to backtrack. It is difficult to imagine that he didn’t at least feel queazy about making the commitment to maintaining the freeze for three more years. Whether it was outright deception, a terrible miscalculation or something in between, we may never know.

But aside from the issue of the Premier’s credibility (already strained by other decisions that were not part of the Liberals’ election platform) a spokesperson for Energy Probe has the correct perspective on this when he says charging a more realistic price for power is ‘better than hiding under the blanket.’

That is exactly what Ontario has been doing ever since Eves capped electricity rates at 4.3 cents per kilowatt hour a year ago in the midst of a revolt by consumers as rates shot skyward following the decision to open the market to competition. He may have placated voters in the short term but he did the province’s taxpayers no favour by keeping rates artificially low. Because the average wholesale price of power has been running at 5.8 cents/kw-h since then, $800,000,000 has been sucked out of the province’s treasury to make up the difference. This ill-conceived, politically-motivated strategy is not sustainable.

It has also done little to encourage energy conservation. With rates kept below the real cost of power, there was less incentive for Ontarians to take the need for conservation seriously. McGuinty’s plan encourages the wiser use of electricity by establishing a structure that rewards conservation.

The average Ontario home currently uses 860 kw-h a month. Homeowners who can cut their consumption to 750 kw-h will see the increase in the charge for power held at about 9%. That sounds like an awful lot but the actual out-of-pocket cost at that level is only $5.00 a month. For consumption over 750 kh-h, the rate will go up by 28%. Few of us can argue that we can’t find ways to cut electricity useage. If all Ontario households took this on as a challenge, it would make a real difference.

How school boards, hospitals, other institutions and businesses are going to deal with the additional cost is worrisome. The NDP, taking a stance that makes it a bedfellow of the Canadian Federation of Independent Business, is arguing the end result will be the loss of tens of thousands of jobs, however the New Democrats never seem to have a problem with governments running a deficit.

Hiding under the blanket may provide temporary shelter from the cold hard facts, but should the whole house collapse under a load of debt, who would be blaming whom?

John Spears
Toronto Star
November 26, 2003

Most Ontario households will pay $5 to $9 a month more for their electricity starting in April under a new pricing system announced by the provincial Liberals.

Energy Minister Dwight Duncan yesterday abolished the cap of 4.3 cents a kilowatt hour that the previous Tory government imposed on the energy component of the electricity price.

The Liberals had promised to keep the cap in place until 2006, but Duncan said the cost of the subsidy – about $700 million in the first year, when the market price of power averaged 6.2 cents a kilowatt hour – is too much for taxpayers to bear.

Instead, starting April 1, householders will pay 4.7 cents a kilowatt hour for the first 750 kilowatt hours of electricity they use each month. For additional electricity, they’ll be charged 5.5 cents a kilowatt hour. The energy component makes up about half the total electricity bill.

Those rates should come close to covering the full cost of power, Duncan said, as projections show the price averaging between 4.7 and 5.8 cents a kilowatt hour depending on weather and the performance of Ontario’s nuclear generators.

The rate increases won’t stop there.

Duncan said local hydro companies, which had their rates frozen by the Conservatives, will be able to recover costs they ran up preparing for the deregulated electricity market. Starting in 2005, they’ll also be permitted to earn profits, regulated by the Ontario Energy Board.

Combining the energy price increase with the local hydros’ rate increase, a household using 1,000 kilowatt hours will pay an extra $9.20 a month for electricity starting in April, a 9 per cent increase.

A household using 750 kilowatt hours would see its bill rise $4.82 a month, an increase of 6 per cent.

According to the energy ministry, 45 per cent of Ontario households use 750 kilowatt hours of power or less each month on average, and 61 per cent use 1,000 kilowatt hours or less.

Small businesses will also be hit by the new rates. A typical pizzeria may see its power bill jump $250 a month.

Duncan said the new rates will remain in effect until May 1, 2005, when the Ontario Energy Board will take over responsibility for setting the rates.

Duncan said the new rates were draining the provincial treasury, already burdened by a $5.6 billion deficit this year.

Conservative Leader Ernie Eves slammed the Liberals for breaking a promise to keep rates capped at 4.3 cents a kilowatt hour until 2006, which was still posted on the Liberal Web site yesterday.

"Mr. McGuinty campaigned against this," Eves said. "He said repeatedly when asked throughout the last year, not just the course of the election campaign, that he was going to leave the cap in place until 2006. All of a sudden it’s a whole new ballgame. He’s changed the rules after the election’s over."

Premier Dalton McGuinty said the cost of keeping the price for consumers and small businesses low while generators received the full market price was "compromising our ability to fund health care and education."

NDP Leader Howard Hampton said the measures will do nothing to curb Ontario’s growing appetite for power.

"This is not a conservation plan," he said. "This is a rate hike."

The rate hikes will be especially hard on low-income consumers, who will also be punished because the higher rates will also push up the cost of rent and food, Hampton said.

Duncan said households should be able to offset much of the rate increases through simple conservation measures.

He also tied future rate increases by local hydros to conservation. The local hydros will be allowed to increase their rates on condition that they reinvest the equivalent of a year’s rate increase in measures to help their customers conserve energy or decrease demand. That’s the equivalent of $225 million across the province, Duncan said.

He acknowledged that more needs to be done to give Ontario a secure supply of electricity at reasonable prices. "This is by no means the last word on energy policy in this province," he said. "This is one step, a beginning, an interim step."

The new pricing won cautiously favourable reviews from some observers.

Peter Love of the Canadian Energy Efficiency Alliance called the new pricing "a step in the right direction," though the new prices are probably still below full market rates.

"It’s provided a lower rate for lower consumption," Love said. "That was something we were looking for to start with."

Tom Adams, executive director of Energy Probe, called it "a small step but a good step."

Over time, he said increasing the price of power by 10 per cent leads to about a 7 per cent reduction in demand as people change their habits, buy more efficient appliances and insulate homes.

Charlie Macaluso, who heads the association representing local utilities, said the new rates will allow the utilities to recover $800 million that the utilities spent gearing up for the deregulated market, and which they haven’t been allowed to recover from their customers.

John Spears
Toronto Star
December 2, 2003

The unfunded debt left in the hands of taxpayers by the former Ontario Hydro has grown by almost $100 million over the past year, new financial statements show.

Despite the province’s stated intention of retiring the debt by 2012, taxpayers now owe $20.2 billion stemming from the province’s ownership of Ontario Hydro, up from $20.1 billion a year ago.

The debt was pushed up in part by $665 million that the Ontario Electricity Financial Corp. had to spend to maintain electricity prices at 4.3 cents a kilowatt hour for householders and small businesses. The actual market price was closer to 6 cents a kilowatt hour, and OEFC had to make up the gap.

Despite the rising debt, a note in the financial statements says it should be retired by 2012, though no repayment plan is outlined.

The report left Tom Adams, a long-time critic of hydro financing, shaking his head.

"They say: ‘Relatively soon, the debt’s going to be gone.’ But every year the debt keeps going up," said Adams, executive director of Energy Probe.

"There’s no reason to believe that we’re going to achieve debt elimination by 2012," he said. "That’s a completely fictitious claim."

The Ontario Hydro debt was set up in its current form when the financially troubled company was split into two operating units in 1999 – Ontario Power Generation and Hydro One.

In order to make them financially viable, the operating companies assumed only a portion of the Ontario Hydro debt. The remainder, much of it not supported by assets, was allocated to OEFC.

That unfunded debt, often referred to as the stranded debt, stood at $19.4 billion in 1999, and continues to grow. OEFC’s repayment plan has never been made public.

The bad news in OEFC’s statements has arrived very late. By law, the agency is supposed to file its financial statements by June 30 each year. The report shows provincial auditor Erik Peters signed off on the statements on July 25, but they were quietly posted on the corporation’s Web site only recently.

That meant the statements were not public prior to the Oct. 3 provincial election that swept the Conservatives from office.

OEFC’s statements show that the first year of the Conservatives’ decision to freeze the energy component of the power bill, which makes up about half the total bill, cost OEFC $665 million.

OEFC’s obligations continue to outstrip its income in spite of an extra charge of 0.7 cents a kilowatt hour imposed by the Conservatives on all customers starting in 2002 to pay down the stranded debt.

That charge raised $889 million in the latest year, but couldn’t entirely offset OEFC’s other costs.

OEFC’s income was boosted by some one-time gains, without which the debt could have grown even more over the past year.

The company recorded a gain of $206 million from the sale of Hydro One notes on public debt markets. And it recorded a gain of $161 million by re-valuing the worth of long-term supply contracts the government has signed with some private power producers.

Those contracts aren’t profitable, however. OEFC’s books show that the province bought the private power for $786 million, but sold it on the wholesale electricity market for $635 million, recording a $151 million loss.

Mark Evans
National Post
December 4, 2003

Canada‘s telecommunications market is getting more competitive as electric utilities roll out plans to offer Internet service over electric lines and accessible through the socket in your wall.

In the past two weeks, Toronto Hydro Telecom Inc. and Hydro-Québec have made moves to bring attention to their telecom efforts. Toronto Hydro Telecom held a tour of their facilities yesterday where they provided details about their strategy and introduced their new president, Ian Miles.

Last month, Hydro-Québec said it is planning to offer high-speed Internet service over its power lines to compete with cable and telephone companies.

The utility, which already uses signals over its power lines to control stoplights, said it will start testing the service in January and hopes to offer the Internet access in a few years.

At a recent telecom conference, Ian Angus, president with Angus Telemanagement Group Inc., said utilities are becoming more important players in the public sector, wholesale and Intranet markets.

"Like system integrators, they are a real spoiler in the business right now," he said. "They are shaking up price levels and seriously worth considering. It could lead to the rebirth of [competitive local exchange carriers."

Utilities entering into the telecom business has been happening in North America for nearly a decade.

In the United States, a big impetus was the Telecommunications Act of 1996, which deregulated the market. Many of these efforts, however, did poorly because there was too much capacity and not enough business.

Mr. Miles said Toronto Hydro Telecom has been in business since 1994 but it has been a "well-kept secret" even though its clients include banks and insurance companies. He said the company, a unit of Toronto Hydro Corp., has seen good growth by focusing on high-end data services over its 450-kilometer fiber optic network that connects more than 440 buildings.

"The approach we have taken to the marketplace keeps us in the high-margin end," he said. "We only deliver services 100% on net, we do not wholesale. That helps us control service quality and keeps margins at a premium."

The company’s services include dedicated Internet access, private lines, video transmission, disaster recovery and metro local area networks. This put it in direct competition with Bell Canada, Telus Corp., Allstream Inc. and Call-Net Enterprises Inc.

Bell Canada spokeswoman France Poulin said it is competitive marketplace that gives customers the ability to choose from a variety of suppliers. "Obviously, customers have choice today, and may, as part of their redundancy strategy, do business with other companies, including utilities, that offer such services."

Mr. Miles said a key to Toronto Hydro Telecom’s success is its conservative and prudent financial strategy. "It is not a ‘Build it and they will come’ approach, which is what a lot of pure telecom companies took," he said. "Our approach was and still continues to be today, secure customer contracts, stay focused and don’t try to be all things to all people."

Tom Adams, executive director with Energy Probe, said one of the challenges facing utilities that have telecom operations is maintaining a "hermetic seal" between the two businesses. The danger, he said, is that you do not want to have regulated utilities subsidizing unregulated business units."

Terence Corcoran
National Post
December 6, 2003

Canada, like most other Western nations, has found nuclear power only works when it enjoys monopoly status and generous public subsidy.

After decades of government control, marked by occasional blackouts, soaring power costs, massive mismanagement and the accumulation of tens of billions in unrepayable debt, Canada’s largest monopoly electricity system is gearing up for a new era – of more government control and greater government intervention! What a relief that must be to citizens of Ontario.

The province’s new Liberal Premier, Dalton McGuinty, skillfully manoeuvring to dodge any responsibility for what may happen in the future under more state management, said yesterday that unfortunately, whatever he does, he can’t guarantee the province’s electricity supply. A wise precaution on his part, since there is little evidence yet this new bout of state management – bigger and more intrusive than in the past – will produce any great leap forward.

This week the province’s Energy Minister, Dwight Duncan, did what all new governments do best: He fired the corporate appointees of the previous government, blamed them for cost overruns and other problems, and declared a new era. "We must rebuild," he said, "over the next 20 years, virtually our entire capacity to power Ontario."

The fired executives – the chairman, CEO and COO of Ontario Power Generation – leave the company, which controls most of the province’s power supply, without a management team. The board of directors is about to get the boot, too. New management and a new board, apparently with tighter leashes from the Cabinet, will soon be parachuted into OPG.

How many cycles of these Stalinist purges, usually in the wake of major cost blowups, does the Ontario power system have to go through? The Liberals are cleaning up the mess left behind by the Harris and Eves Tories; the Tories were cleaning up the unfinished mess left behind by Bob Rae’s New Democrats; and the NDP hired Maurice Strong to clean up the mess left behind by the Peterson Liberals.

Ah, remember the Peterson Liberals. Energy Probe‘s Tom Adams recalls that David Peterson won election in the 1980s on a platform to stop construction of the Darlington nuclear stations. At the time, the province had already spent $3.5-billion on Darlington, and both the NDP and the Liberals were using Darlington’s looming cost overruns as a weapon against the remnants of the Bill Davis Tories. Instead of killing Darlington, however, the Peterson-NDP coalition government gave it a go-ahead, thus cementing the biggest corporate financial meltdown in Canadian history. Ontario Hydro’s final Darlington bill was $14.4-billion, one of the major causes of the company’s eventual insolvency under more than $20-billion in stranded debt.

Not a cent of that debt has been repaid so far, and the total burden of stranded encumbrance is likely to climb by several billions of dollars once the ink dries on the current cost overruns.

The latest failure of state management at OPG has been pinned on the executives and board, although it is patently obvious that the problems at OPG were deeper and bigger than anything that could be overcome by a couple of top executives who were brought in to run the company in 1999. The level of dysfunction documented in a report on OPG’s biggest headache, rebuilding four units at its Pickering nuclear station, can only be described as systemic and profound. Vladimir Putin may have less trouble turning around the Russian economy. If anything, ousted CEO Ron Osborne might well deserve a medal of achievement for having made any progress turning the operation around.

The best CEO talent in the world could not hope to penetrate the deep morass of unaccountability and lack of responsibility running through the massive hierarchical structure that made up OPG management. The report describes managers who failed to own their projects, lack of follow-through on commitments, ineffective management controls, no encouragement to innovation, lack of teamwork. This isn’t a functioning corporation; it’s a collapsed civil service network.

There are few signs the new government is ready with meaningful solutions to any of this. The Minister’s first move was to take the price of electricity, fixed by the ousted Tories, and fix it again at a different price. That’s progress? Michael Trebilcock, co-author of a new study for C.D. Howe Institute this week, said nothing short of market pricing of electricity at the consumer level will keep the lights on in Ontario (www.cdhowe.org). Without market pricing, conservation won’t be effective and new supplies of electricity will not be built, at least not without fresh amounts of government debt.

The first real test of the government’s mettle will come with a decision on whether to continue with OPG’s nuclear refits at Pickering. Some believe the nuclear units should be shut down as failures. Now is the time for a clear, objective review of the business plans for nuclear power at Pickering compared with the cost of building gas turbine plants of equal capacity.

Beyond fixing the price and throwing out top executives, the Ontario government seems set to engage in a major exercise in top-down management of the entire electricity supply system. Instead of more dependence on market forces and privatization, and less of the destructive government involvement that has dogged the Ontario electricity industry for at least four decades, the McGuinty Liberals are planning to give us more government.

The Canadian Press
CJAD 800 AM
December 16, 2003

Toronto: Ontario Power Generation is facing a massive cash shortfall of more than $1 billion for this year and next, and that’s going to add to the province’s deficit, Energy Minister Dwight Duncan said Tuesday.

The "monumental mess" at OPG is so serious that the Ontario government named former federal finance minister John Manley to head a committee that will examine the Crown corporation’s future. "It’s astounding how anybody with 80 per cent of the (electricity) production in Ontario . . . can be in the financial straits they’re in right now," Duncan said.

The financial problems at OPG, which runs and owns the province’s electricity generating stations, will add millions to the province’s deficit due to lower revenues, lower taxes and higher borrowing costs, Duncan said.

"There is considerable impact on the books."

Duncan has asked the power generating company’s new board to do a full financial and operational audit.

"The future viability of the company is at stake," Duncan said at a news conference, saying the changes the government is announcing will help it "avoid bankruptcy."

"The problems are that bad."

In addition, Duncan named a review committee – headed by Manley – to look at OPG’s future role in the province’s electricity market, examine its corporate and management structure and whether it should go ahead with fixing the Pickering nuclear power plant.

Other members of the review committee include Scotiabank chairman Peter Godsoe and former federal energy minister Jake Epp.

Epp recently completed a scathing review of OPG’s refit of the Pickering plant, which is billions over budget and years behind schedule, and being partially blamed for the current financial woes.

Epp has also been named the chair of OPG’s interim board of directors, along with two others.

The board will report back early in the new year on the government’s options to fix the financial fiasco at OPG while the review committee will report back by March 15.

Those appointments were criticized by the NDP and the Sierra Club because none of the people have experience running a massive power utility.

Duncan, who found out about the dismal financial outlook from OPG last Thursday, said OPG now expects a cash shortfall this year of $350 million.

For 2004, the cash shortfall is expected to be between $300 million and $750 million.

"The problems are growing exponentially," Duncan said. "They don’t have cash."

The cash crunch stems from the cost overruns at the Pickering plant, the freeze on electricity rates, and a host of management problems, Duncan said.

The only way this kind of shortfall could occur is if OPG was selling its power below its cost of production, said Tom Adams, executive director of Energy Probe.

Adams suggested that OPG, which dominates the market, kept its prices low so the government’s loss due to the price cap of 4.3 cents per kilowatt-hour wasn’t too high.

The price cap cost the government $800 million this year.

"I think the reason for that is OPG was manipulating the price for political reasons," Adams said. "There’s no business explanation for pricing your product at less than your operating cost."

A lower market price of electricity "kept the previous government from being as strongly criticized as they might otherwise have been," he said. "If people had seen the real cost of power they would have been more alarmed."

Former Conservative energy minister John Baird categorically denied that suggestion.

Instead, Baird blamed the rules set up with the Ontario Energy Board – regulations set up when the Tories opened the electricity market in 2002, where OPG had to give back to consumers any profits made when electricity costs rose above 3.8 cents per kilowatt-hour because of its dominance in the market.

"That obviously has a huge effect on the bottom line, well in excess of $1.5 billion a year," he said.

Duncan said he’ll know the real reasons behind the shortfall when the audit and review are completed.

OPG will have to borrow money to cover its costs, and has already sold off receivables for $300 million this year to deal with the shortfall.

For 2004, OPG is now projecting an after-tax loss of $250 million – $100 million worse than expected just a few months ago and $850 million worse than the $600-million profit projection in its 1999 restructuring plan.