Legislative Assembly of Ontario
Legislative Assembly of Ontario
February 2, 2004
The Chair: I call forward Energy Probe Research Foundation. You have 20 minutes for your presentation. You may choose to leave time within that 20 minutes for questions if you so desire. Please state your names for the purposes of our recording Hansard.
Mr. Thomas Adams: My name is Tom Adams. I’m representing the Energy Probe Research Foundation. With me today is Kal Vepuri, a research associate and visiting scholar.
We’ve prepared a brief presentation to guide our remarks, and our intention is to speak briefly to this presentation and to leave time for questions as much as possible.
Ontario faces a very substantial electricity crisis. This is something that our organization, Energy Probe, has been observing for many years. We are a small charitable organization located in Toronto. We depend on voluntary support from our supporters – we’re a charity – and also on the work of volunteers, who do much of the work of our foundation.
The subject that I wish to address with you today is Ontario’s electricity problems. At the outset, I observe that the committee has a very heavy day of hearings in front of it. We may be the only presenter appearing before you today not asking for money. In fact, our presentation is aimed at reducing government expenditure. We are alarmed by the current trend in expenditure in this area and believe that the current expenditure commitments are making Ontario’s electricity supply problems worse.
We really have three messages we want to leave with you today. The first message is that Ontario’s government-owned electric generating company is, in our view, not deserving of another penny of taxpayer dollars, either lent or given. The second point we want to leave with you is the urgency of moving Ontario electricity consumers to a regime where they pay the real cost of power. We can no longer continue to encourage consumption of electricity by subsidizing the price.
The third key message for today is to ask the committee to use its influence to ensure that we have higher standards of transparency around both the financial plans and financial reports of the crown corporation, Ontario Electricity Financial Corp. This crown corporation is one of the largest individual points of residency, you might say, of taxpayer liabilities in Ontario and yet maintains a very poor standard of transparency.
The crisis in our power system strikes us at many points in the power system, but Ontario Power Generation is at the centre of it. OPG is now running short of cash. In the middle of December, Minister Duncan identified a negative cash situation for OPG requiring an injection that may range between $300 million and $750 million this year simply to cover its costs. We believe that the taxpayers’ equity position in OPG is probably negative.
OPG is driving Ontario’s electricity crisis. It is the largest single cause, and the more tax dollars we allow to go into OPG, the worse the crisis has gotten and the worse it’s likely to get. The Pickering A project, which is OPG’s largest capital expansion program, is now a really serious hole in our power system. But we need to appreciate that OPG was always understood by Ontario Power Generation to be part of its competitive strategy. We believe that its purpose was to scare away independent investment in generation, and in that it was very successful.
The Pickering A project has scared away probably three or more times its own capacity in new investment in new power generation in Ontario. Pickering A’s indirect impact in terms of our power supply is much greater than Pickering A’s direct impact of not being completed on schedule and on time. In fact, the shortage that we suffered in 2002 was not so much a crisis driven by hot weather but by the failure of the Pickering A project.
We believe that by not putting any more tax dollars into OPG, it will force OPG to change its operations and become more efficient. OPG can achieve efficiencies in many areas of its operation, and one area of efficiency that it needs to, I think, look to is to sell some of its underutilized assets. OPG has a large inventory of assets sitting around that aren’t producing any value, like, for example, the Hearn generating station in Toronto.
We believe that a signal from the government that taxpayers are no longer going to involuntarily be investors in the power system will signal new investment that Ontario badly needs.
Ontario Power Generation’s problems are not problems of its institution alone. They are having a knock-on effect, driving up the debt of the taxpayer held at the Ontario Electricity Financial Corp. OEFC, as it’s called, is allowing the stranded debt to grow substantially.
OPG’s problems are a major driver of OEFC’s rising stranded debt. It was originally promised that OEFC would be managing Ontario’s electricity debt downward. That was the promise we received from the previous government back in 1998 when the new legislation for the electricity system was established, the Electricity Act, which provides OEFC’s mandate. It turns out that promise was not realized.
OEFC has a serious transparency crisis. Every year since it was formed, OEFC has failed to comply with the statutory requirements on financial reporting. They report late every year. We believe it has not received adequate scrutiny from the audit process of the Ontario Legislature. We believe that improved transparency rules – sunshine rules – for OEFC are likely to yield substantial benefits in the longer term.
We note with appreciation that for fiscal 2002-03, the most recent government financial year to be reported, there has been a change in the reporting approach. The accounting rules have been adjusted so that OEFC’s revenues and expenditures are reported directly on the provincial government books. This is an important improvement, but we believe that OEFC’s debt management plan must be published annually so the public can see how our interests are being taken care of.
Another recommendation for the future of the Ontario Electricity Financial Corp is to treat it as if it’s a regulated utility. After all, it obtains all its revenues from electricity consumers and, in return, provides the service of debt management. That service is very much analogous to a regulated utility, but it’s not subject to any of the transparency rules that apply through the Ontario Energy Board. We think the energy board is well suited to assist the public in gaining greater transparency around reporting.
I’ll conclude with some final thoughts. Ontario Power Generation, and Ontario Hydro before it, failed not because they invested insufficiently but because they invested unwisely. The lesson of Ontario’s electricity history, over the last generation, really, shows that the more public money – loan guarantees or direct cash – we throw at these problems, the worse the problems get. The solution to stabilize our electricity system, looking into the future, is one where customers pay the real price and the investors who make the investments in much-needed new generation are at risk. If those generation investments fail, the businesses fail. That will establish a level of accountability that we do not have today.
Finally, we need higher standards of transparency. The Ontario Electricity Financial Corp is an institution that will be around for many decades. Its electricity liabilities are something that Ontarians will have to manage beyond the lifetime of most of the people in this room. I think it’s about time we started, for the benefit of future taxpayers who are going to be bearing these responsibilities, putting numbers on the table so we can see what the plans are and, in hindsight, how those plans stand up against what we learn as we grow into this.
Thank you very much, and I look forward to your questions.
The Chair: We’ll begin the questioning with the government.
Mr. Colle: Thank you very much, Tom, for your time.
The Chair: I failed to mention that you have about three minutes each.
Mr. Colle: Mr. Adams, thanks very much for all the work Energy Probe does. It not only helps this government but really helps Ontarians deal with this complex issue. Energy Probe really deserves credit. Sometimes we don’t do that, but I want to thank all the volunteers and everyone who does that.
The critical question here is that we, as MPPs, are going to be faced with making a decision on what we do with Pickering A. We’re going to be caught with the whole issue of what we replace it with, might it be safer just to perhaps pour more money into it, what are the alternatives?
At what point can we get a clear understanding of the options here? Most of us are lay people; we’re not experts. What can we get to help us make this decision and perhaps advise the Minister of Finance on the best way of spending money that’s in short supply here?
Mr. Adams: This is an issue, really, that’s right in front of us now. First of all, one observation that I think doesn’t receive enough attention in terms of understanding the problem around Pickering A is to appreciate that Pickering A is a four-unit station. Units 1, 2, 3 and 4 were all shut down in 1997. In 1998, OPG started the process of trying to bring these units back into service, for good reason – we’d all do the same in their shoes. If you were given the job of bringing back four units, you’d do the easiest job first. You’d want the power most quickly; you’d want the payback on the investment most quickly. So they went for unit 4, the unit that was by far in the best physical condition.
If we proceed with renovation of the remaining three units at Pickering A, the experience we’ve had with unit 4 is likely to look like the good old days. Just to recap, the experience with unit 4 was that the renovation was supposed to cost around $200 million. So far, they’ve spent $1.25 billion just on unit 4 alone, plus at least $170 million on common services, bringing the total figure substantially above $1.4 billion the last time they reported publicly.
The outlook going forward with the other three units – we can’t occupy ourselves with the sum cost; we have to think about the incremental benefit of further effort there. The appreciation that the further units are likely to be more difficult than the one we’ve already done needs to be in our minds when we think about what the alternatives might be.
The Chair: We’ll move to the official opposition.
Mr. O’Toole: Very quickly, I also want to respond by respecting the work you do and the voice you bring to a complex issue. I’ve been on many committees where you have presented, and you always add something to the discussion.
Going back to Adam Beck’s power at cost, that’s never been the case right from day one. They were always over budget and over time right from the beginning. I think you wrote the article I’m referring to – it was in the Post or the Star or something.
In the election, energy of course was a huge issue, and the Liberal platform was to commit to the price freeze. I understand what your response would be, but there again, some of the people who did the work there clearly have a very low grasp of the issue, respectfully.
I want to look clearly at the work done by the generation conservation committee. Their recent report indicated that the likelihood of achieving their commitment on coal, which is the second part, the price freeze being the first part, which they failed on – we can’t use certain parliamentary terms. The second part was the promise to eliminate coal. That’s five plants and about 6,000 megawatts to 7,000 megawatts of energy. It’s clear now that they’ll never reach that, and most of the experts say that. Not that I’m a big supporter of coal, but we have to have the lights and the heat on.
I would like a response from you. Do you think the current track is the right one? Ultimately, the real question I have is on power at cost: What is the real cost of power, going forward, with all the promises they’ve made: a clean, bright future and all that kind of stuff? That might give you a little bit of room, Tom, to respond in a broader way.
Mr. Adams: The current track that we are on is not sustainable. We have an elevation of the frozen price level coming in April. The new frozen price is likely to be substantially below the actual cost of running the existing system and also substantially below the cost of adding new supply, irrespective of what the options are that are pursued. The most efficient options available to us are probably industrial cogeneration, simultaneous production of heat and power. Fuel costs are reasonably high. The efficiency gains help to offset some of that cost, but still, at the new frozen price after April, that’s not going to be enough.
There is a whole wide range of options in terms of where we can go. Of all the sensible approaches, every one of them has a common element, and that is that customers have to pay the real cost.
Mr. O’Toole: And that is what? What is it, Tom?
The Chair: We’ll move to the NDP.
Ms. Churley: There’s no point in this limited time for us to get into the areas where we disagree, Mr. Adams, so I want to clarify with you a couple of things in the areas where I think we agree. I’m not sure, but I believe that you said you support the phasing out of nuclear, like Germany, as you know, just did. That doesn’t mean shutting down everything tomorrow, but phasing it out and stopping the crazy investment.
We both attended a conference on energy this weekend. The big issue was conservation and efficiency, which of course is tied into the whole issue around capping rates, and the fact that it’s simplistic to say – and I agree with you that we should be paying cost for electricity, without taking into account that some people can’t afford it, with all their other household bills. At the same time, we have to bring in a very concerted effort on efficiency conservation and incentives to help people keep their bills down.
Would you agree to that? How would you propose we deal with lower-income people – certain industries that may have to lay people off, all of the upset that happens that we saw when Harris put the caps on – because of the sudden impact?
Mr. Adams: In terms of protecting consumers, our view is that the protection needs to be directed at individuals in need. The idea of subsidizing electricity prices for Rosedale and Parkdale at the same time just doesn’t make sense.
The question of affordability of electricity is really, for low-income people, just one element of a wider problem. Attempting to solve the problem of penury among disadvantaged individuals through the electricity system is, we think, the wrong approach.
Similarly, if there is going to be any effort directed at protecting consumers from electricity prices, which will necessarily have to go up – as Mr. O’Toole and I will agree, the price will have to go up substantially, perhaps to eight cents. But in our view, the industry that’s consuming electricity ought not to be protected to encourage their continued consumption. If it’s not cost-effective for them to use it, then they should simply be left to their own devices. It wouldn’t be beneficial to the power system to be encouraging them to use electricity inefficiently.
The Chair: Thank you for your presentation.
Energy Probe 