Energy Probe

Tom Adams

August 12, 2004

 

The Acting Chair: Our next presenter is the Energy Probe Research Foundation, Tom Adams.

Mr Tom Adams: Thank you very much, Mr Chairman. I will speak briefly in order to leave time for questions. I will restrict my comments to two subjects. One is Energy Probe’s overall analysis of the approach taken with Bill 100 – the legislation itself rather than the surrounding policy issues – and secondly, I wish to address procedural concerns about the approach that’s being taken to the public review of the legislation.

When Ontario’s previous Tory government aborted its plans to open the province’s electricity market to competition, dozens of private power plants that were on the drawing board vanished from existence, their owners writing down their investments to zero. Mr Harris’s successor, Mr Eves, further jeopardized the province’s ability to meet its needs by freezing power rates, encouraging excessive consumption and investing in nuclear power plants – proven non-performers.

Now, Mr McGuinty’s government, panicked by the impending power shortages that Ontario faces due to these decisions of predecessor governments, is going one step further and creating a centralized power authority for the province. Bill 100 will create a new bureaucracy, the Ontario Power Authority, subject to the whims of the government of the day and empowered to develop and implement long-term power plants for the province. It will be able to issue debt and enter into long-term contracts, all backed by taxpayer credit.

10:20 am

Energy Minister Dwight Duncan expects that the power authority will need in the order of $25 billion over the next 16 years but acknowledges that this figure could be as much as 50% higher. Given the sorry history of power authorities around the world, the $40-billion outer perimeter for his estimate may prove to be optimistic.

The Ontario Power Authority is little more than a formal rejuvenation of Ontario Hydro, which collapsed financially and operationally in 1997 under the weight of its nuclear and financial problems. The fates of other centralized power authorities around the world bear an uncanny similarity to the fate that befell Ontario Hydro.

In the UK in 1947, they established something called the Central Electricity Generating Board on the model of Ontario Hydro. Like Ontario Hydro, its preferences were coal and nuclear. By the middle of the 1980s, CEGB was heavily in debt, hounded by serious labour strife and unable to get permission to start the next round of mega-project expansions. In 1987, the Thatcher government lost confidence in CEGB’s ability to meet the country’s future electricity requirements and decided instead to competitively restructure the power system, including breaking up CEGB and privatizing some of the pieces.

Then the truth came out about CEGB’s financial accounts. When CEGB was a government agency, its financial accounts were not subject to the same scrutiny that prevailed when it faced the prospect of issuing prospectuses in public markets. Once the utility needed to meet the disclosure requirements of securities laws, its financial officers faced the possibility of jail time for misleading investors. CEGB drastically revised its financial statements, revealing that its nuclear program was wildly loss-making rather than profitable as previously claimed.

France’s version of Ontario Hydro, called Electricité de France, right now is in the early stages of the same process that killed CEGB. Again, the prospect of privatization is shining light on previously rosy financial accounts. The cash-strapped French government announced in 2002 its intention to sell a portion of its holdings in EDF. Last month, the Economist magazine reported the results of an analysis it had commissioned on Electricité de France’s financial condition. Here’s how the Economist summarized its findings:

"What emerges is a picture of group that used some questionable accounting practices; that has never really made a profit; that has made imprudent use of funds set aside for nuclear decommissioning and waste management; that lacks transparency over the level of its nuclear provisions; and that has indulged in a reckless and costly strategy of international expansion."

California’s botched effort to bring competition to its electricity market failed in 2001, at which point the government of the day decided to switch to central planning. The result: The central planners entered into long-term power contracts with expected costs on the order of $40 billion over the lifetime of the contracts; the expected value, about half that.

The only jurisdictions in Canada where central power authorities have provided low-cost and reliable power are those jurisdictions blessed with abundant natural resources, easily harvested. Quebec, Manitoba and BC have abundant hydroelectric resources. Saskatchewan has practically limitless coal reserves easily available near the surface. In Ontario and New Brunswick, where making electricity is commercially complex owing to the lack of natural resources, central power authorities have accumulated vast debts, far beyond those that could be supported in a market environment.

Jurisdictions around the world that have embraced competition and have had the political capacity to ride out the inevitable bumps along the road have been very successful. Examples include the UK, most parts of the United States – particularly the neighbouring regions where they have a surplus of electricity now – New Zealand and Australia. These jurisdictions have attracted investors and benefited from improved service to customers and, in many instances, lower prices. The only losers in these instances were the existing systems and those that depended on the previous bureaucracies.

Some months ago, Energy Minister Dwight Duncan correctly observed that Ontario’s power system has suffered from political instability in recent years. This government’s comprehensive energy restructuring legislation is supposed to bring an end to this chaos. Unfortunately, by embracing the failed central planning model, Ontario’s electricity chaos is, we fear, destined to continue. Power investments will continue to be dumped into a black hole, and the provincial power supply will be more unstable in future than ever.

Energy Probe’s procedural concerns with this process of review for the government’s restructuring legislation might best be described by contrasting the approach to the review of energy restructuring that is going on now, versus the one that happened the last time we had a comprehensive electricity restructuring effort. As some of you may know, in the mid-1990s, Ontario Hydro internally initiated a process of review to develop the intellectual basis for a comprehensive restructuring of the electricity system. They initiated a process called the TAT process – technical advisory teams – of which Energy Probe became a member. Other customer groups also participated, and a discussion was initiated as to how a new electricity market might be designed. That process continued with the Macdonald committee report, initiated in 1995, and it extended into 1996.

In 1997, the previous government issued a white paper describing its intentions. That white paper was subject to comprehensive debate in public – very detailed, technical debate. A technical committee called the Ontario Market Design Committee was established to develop the legal infrastructure underneath that white paper.

The government’s Bill 35, which was introduced in 1998, was itself subject to extensive review. Finally, when the bill was ultimately passed in October 1998, there was a very high degree of understanding – not necessarily agreement – of what the ultimate intentions were and what the choices were that had been made behind the scenes, as reflected in the legislation.

That process does not prevail now. The public does not have a clear understanding of where this energy legislation is going. These committee hearings are very short. They’ve been hastily assembled. Energy Probe’s attendance at this meeting today was only confirmed yesterday. It resulted in a limited time for preparation. The restructuring of Ontario’s power system is a very complex undertaking. This process is being undertaken in undue haste.

In conclusion, I have two summary comments. One is that Bill 100 will fail to provide a stable structure for Ontario’s power system going forward, and the passage of Bill 100 will necessitate a further comprehensive electricity restructuring in the near future. The second comment is that the review process for this legislation is, sadly, inadequate.

That concludes my prepared remarks. I invite questions from the committee.

The Acting Chair: We have time for one question.

Mr O’Toole: Thank you very much, Mr Adams. You’ve been an observer and a commentator on this topic for a good decade, and I commend you for your review that you’ve given us this morning.

It is a very comprehensive piece, somewhat uncertain in terms of the overarching mandate of the OPA. It’s really just the black hole that you’ve referred to: It’s where they’ll put the money. They’re not sure how they’ll price it, or they’re not sure how they’ll pay for it, except through consumers, either by a direct or indirect tax, as I understand it.

10:30 am

When I look at this bill in a broad sense – because you’ve had a very tertiary view – it’s a regulations bill. It’s a framework bill that’s going to be orchestrated through regulations.

Have you been privy to any of the discussions that I’m told by the minister in a letter that – I raised on his first day of hearings that I wanted to be part of or at least aware of the consultations on the myriad of regulations. Are you aware of any of the regulatory discussions with any stakeholders ongoing?

Mr Adams: No, I’m not aware of any.

Mr O’Toole: You’re not aware, and you’re Pollution Probe, right?

Mr Adams: Energy Probe.

Mr O’Toole: Do you know of any of your colleagues in the industry that are being consulted?

Mr Adams: I represent Energy Probe. I have not specifically asked any other participants or stakeholders in the electricity sector as to their participation, but I’m not aware of any who are participating in the preparation of new regulations. I, personally, am utterly in the dark as to what the intention is for future regulation.

Mr O’Toole: The industry today told us – the large consumers – that we could expect a 30% to 50% increase in the price of electrons. Is that going to have an impact on the economy that drives the rest of our standard of living?

Mr Adams: Electricity prices and overall public welfare are not directly related. All else equal, lower prices are a good thing. But Ontario has, for about a generation or perhaps longer, not paid the full cost of electricity. That’s an unfortunate mistake that will take us perhaps more than a generation to pay off. At the current rate, we’re not paying it off; we’re actually accumulating additional debt. So I disagree with the analysis that’s been presented by some political commentators, complaining that Bill 100 is flawed because it lacks the capacity to direct that customers get lower prices.

The Acting Chair: Thank you for appearing before the committee.

Richard Mackie
Globe and Mail
August 13, 2004

Ontario power consumers should prepare for price shocks starting next May to encourage a new "culture of conservation" in the wake of last year’s blackout, Premier Dalton McGuinty warns.

"We all need to find ways to reduce our consumption. Working together, we can ensure Ontario has an electricity supply that is reliable today and sustainable tomorrow," he said this week.

Energy Minister Dwight Duncan is developing an energy strategy, to be unveiled this fall, on how to boost electricity prices to encourage conservation.

"We have to set up a pricing regime that will incent people to conserve. We don’t have that right now," Mr. Duncan said in an interview.

The strategy is simple: Set electricity prices higher in the peak hours of demand and lower in off-peak hours, likely between 8 p.m. and 6 a.m.

A key to the switch will be the installation of so-called smart meters in four million Ontario homes to record when electricity is consumed.

Those who adjust to using off-peak hours will be rewarded by getting energy bills that are lower than for those who continue to use power in peak periods.

To kick-start the program of price incentives, the government is considering investing at least $500-million to put the meters in place over the next five years.

Neither Mr. McGuinty nor Mr. Duncan would talk about specific prices, which are to be set by the Ontario Energy Board under legislation now before a committee.

The Association of Major Power Consumers in Ontario warned this week that its members face price jumps of between 30 and 53 per cent, largely because of conservation measures and the elimination of coal as a cheap, but polluting fuel for generating electricity.

"Ontario now has electricity rates higher than most competing jurisdictions in North America," president Mary Ellen Richardson said.

The association argued that the coming price increases would have a negative impact on industries facing foreign-based competition that uses cheaper power.

The major consumers of electricity long have benefited from special deals that have held down their costs. By contrast, householders have been exposed to higher prices already and the size of their increases would be smaller than for industry.

Adding to the pressures for a strong strategy to boost conservation is the lack of a long-lasting change in consumer behaviour that many thought would reduce demand after the blackout.

The indifferent public reaction to the sudden loss of electricity last Aug. 14 shows the need for a fiscal incentive to encourage consumers to reduce their demand, government officials say.

In the first six months of last year, Ontario used 76.635 terawatts. This increased to 76.753 terawatts in the first six months this year. (A terawatt is one million megawatts.)

In July, consumption was up slightly by 6,000 megawatts after adjustments were made to account for the cooler weather, IMO spokesman Terry Young said.

The increase in demand this year occurred despite the rise in energy prices for homes and small businesses in April. Until then, the price was frozen at 4.3 cents a kilowatt hour. After April 1 the price was increased to 4.7 cents a kwh for the first 750 kwh used each month — the demand for a small apartment — and 5.5 cents a kwh for any additional power consumed.

But the plans to raise prices to promote conservation will run into political opposition, warned John O’Toole, energy critic for the Progressive Conservative Party.

"It’s more cost for less service," he argued.

"I think [Mr.] McGuinty is just trying to make room for himself to increase prices steadily. Just like the imposition of the health premium, it is part of the government’s plans to put more costs on taxpayers," he said.

Mr. O’Toole also criticized the government promise to shut down Ontario’s five coal-burning generating plants, which contribute 7,500 megawatts of relatively inexpensive power.

"That’s adding to our self-inflicted vulnerability to a blackout. ….. They can’t shut that down without replacing the power. If they replace it they will have to go to natural gas and natural gas prices are volatile right now," he said.

But it is the higher electricity prices and the push for conservation that will cause the most controversy and have the biggest impact on consumers and industries in the immediate future.

While the major power users warn of job losses and an economic slump, several interest groups in the energy field are more or less onside with the government about the need to boost prices to emphasize conservation and rebuild the aging power system.

Tom Adams, a long-standing expert on electricity policy with Energy Probe, said: "We’ve been paying far less than the real cost of producing electricity for probably a generation or longer. And the consequence of that is we have accumulated vast debts."

He added: "Paying the real cost of electricity is not a sufficient condition to solving all of our problems, but it is a necessary step. We cannot make progress in solving this electricity crisis until there is, first of all, an incentive for customers to be more careful with their usage."

Keith Stewart of the Toronto Environmental Alliance, who has examined the deterioration of the power system, also sees a need to promote conservation.

"The grid is being pushed beyond what it was designed to do because we haven’t been investing in conservation measures to actually reduce demand," he said.

"Conservation is much more cost-effective than, for instance, building new transmission lines. If you actually put money into reducing demand, there are fewer electrons travelling through the lines ….. [and] we can reduce our reliance on nuclear plants," Mr. Stewart said.

Toronto Star
August 14, 2004

Sure, if the bizarre series of events that triggered last year’s massive blackout were to be repeated

All Dave Goulding had on his mind about 4 p.m. last Aug. 14 was getting home early.

But as the chief executive of the agency that ties Ontario’s power system together navigated his car along Shuter St. in downtown Toronto, traffic slowed to a crawl as the traffic lights suddenly went dark.

Goulding’s cellphone promptly rang, with the news that there was a power failure — and a big one. His first instinct was to head for the main control room of the Independent Electricity Market Operator (IMO). Then, he realized his gas tank was almost empty and he might not have enough to reach the IMO’s suburban control centre.

He headed back to his downtown headquarters, only to find that it was in the dark.

Goulding and his staff decamped for the next few hours to a nearby hotel, where the lights were on, to keep in touch as best they could.

In Ottawa, staff at Canada’s nuclear safety agency, who oversee the country’s nuclear generators, faced the same problem.

Power to the building housing the Canadian Nuclear Safety Commission had been knocked out. Without backup power, both computer and telephone connections went down, leaving the agency with no way of knowing how Ontario’s nuclear generating stations were coping with the blackout.

In some cases, the answer was: not quite as well as they might have. Nuclear stations rely on power from the main grid to run internal communications and operating systems.

As the grid disintegrated, the reactors had to be disconnected from the system because there were no longer circuits capable of handling their power. That in turn required the reactors to throttle back to about 60 per cent power.

But because the flow of power into the stations’ own electronic and mechanical systems was disrupted, controlling the reactors was difficult. At the Pickering and Darlington stations, operators were forced to shut most of their reactors down completely instead of merely easing back.

But the shutdowns would cast a shadow over the province for a week, as reactors that have been shut down completely must be restarted slowly — a process that turned out to take days.

Power problems were also hampering one of Hydro One’s important control centres in northwest Toronto. A backup diesel generator failed to kick in, leaving staff in the dark initially as they tried to assess the problems and resurrect the transmission system. Hydro One would later be fined when it was discovered the backup generator hadn’t been tested as required by reliability rules.

In the end, the glitches in Ontario proved to be headaches rather than catastrophes. Attention swung to First Energy, the Ohio utility where failure to trim trees near power lines had triggered the blackout, and a chain of errors and sloppiness at First Energy and grid operators that turned the collapse in Ohio into a chain reaction that blacked out 50 million people in Canada and the U.S.

But the problems raised questions about Ontario’s ability to cope with a failure as another Aug. 14 arrived and the question was raised: Could the big blackout happen again?

Energy minister Dwight Duncan cautions that no system is immune to failure.

"Something could happen. Something could go wrong," he says. "Who would have thought that trees overgrowing wires in Ohio would shut down the whole grid?"

But Duncan takes a more optimistic tone on prospects for another blackout.

"What I can say is that on the balance of probabilities, I’m confident there won’t be," he says.

Perhaps a more crucial question is: If a serious failure does happen again, can it be better contained, with a faster recovery?

The people running Ontario’s system say improvements have been made.

But they still warn that one of the key underlying causes of the blackout has not been definitively addressed, and is being held hostage by U.S. politics.

First, the good news.

Ontario has more homegrown power at its disposal today than it did last year.

One mothballed nuclear generating unit at the Pickering A station has returned to service, as well as two more at the privately run Bruce nuclear plant. In addition, a new gas-fired generator has been commissioned in Windsor. The gain: 2,600 megawatts. (On a day of moderate demand, Ontario needs about 20,000 megawatts of power; when demand is high, the requirement is about 25,000 megawatts.)

Goulding and his staff at the IMO have also refined procedures for dealing with emergencies. When the power system is under stress, one solution is to cut demand by disconnecting large power users.

Better plans have been drawn up in consultation with major power users so both they and the IMO know who can be disconnected at short notice in the event of an emergency in order to contain the collapse of the system.

Peter McBride of the Ontario Mining Association says some mine operators are considering the idea of being disconnected at short notice. But details must first be negotiated on how they would be compensated for disruption and lost production in return for their willingness to take power cuts.

Elsewhere, agencies like the IMO and the nuclear safety commission have been shoring up their backup power capabilities and strengthening communications links so they won’t collapse if the grid does go down.

Ontario Power Generation, which operates most of the province’s generators, recently announced it will spend $100 million to improve backup generation at its Pickering B nuclear station so it’s better equipped to handle emergencies.

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`The lesson of the blackout … is that electric power systems need good housekeeping, or they fall down’

Tom Adams, Energy Probe

 

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And Hydro One, which runs the transmission system, has just opened a new control centre near Barrie that is less vulnerable to blackouts. It consolidates operations from a dozen smaller centres sprinkled around the province, which should improve co-ordination in case of a big emergency, says Hydro One’s Peter Gregg.

To ensure that the centre can remain in touch with its network of 14,000 pieces of equipment, the centre has five independently routed fibre optic links to the outside world —three connected to Hydro One’s own fibre optic network and two others through Bell Canada facilities.

Although the $125 million centre with a staff of 200 has been in the works for three years and wasn’t built specifically in response to the blackout, Gregg says it should be able to better handle the problems that hampered the company’s staff in the initial stages of last year’s blackout.

The new generation, increased backup power and better co-ordination all mean the power system should be easier to restart in the event of a massive collapse, Duncan says.

Goulding agrees: "We’re pretty comfortable. Even if we hit record demands, we should be able to manage them."

But problems remain.

One of the issues is Ontario’s connections to its neighbours — especially to the U.S., which supplies much of the power that Ontario imports on days of high demand.

Ontario generators and utilities are subject to strict reliability standards and can be fined by the IMO if they fail to meet them. Such is not the case in the U.S.

An energy bill introduced in Congress last year that would have established mandatory standards has bogged down and was never passed.

"The biggest single issue at this time is the lack of the passage of legislation south of the border," Goulding says.

Duncan agrees: "The lack of mandatory reliability standards in the U.S. still troubles me." U.S. regulators are doing what they can to hold utilities to improve standards, but without the backing of legislation their power is circumscribed.

And as long as Canadian and U.S. systems are closely interconnected, the danger of a U.S. system collapse slopping over the border continues.

To boost Canadian energy security, Duncan has been floating the idea with fellow energy ministers of building a much more robust east-west transmission system to lessen dependence on the U.S. and open up new hydroelectric sites in Canada.

He’d like to get formal talks on the idea underway by next year.

That’s a long-range solution. In the meantime, some experts say there are simpler, less glamorous measures.

Tom Adams, executive director of Energy Probe, notes that last year’s blackout was triggered by a utility’s failure to trim trees growing near power lines.

"The lesson of the blackout, boiled to its essence, is that electric power systems need good housekeeping or they fall down," he says.

Ontario has let both its generating stations and its transmission system grow old, Adams says.

"We haven’t updated our physical equipment," he says. "The average age of our transmission facilities is over 50 years in some parts of the province … We should concentrate on replacing our existing poles before a windstorm blows them over."

Overhanging the reliability of Ontario’s power system is the government’s promise to shut down the province’s coal-burning generators by 2007. The power lost will have to be replaced either by new generation or by reducing the need for power through conservation.

The government has set a target of a 5 per cent cut in overall demand by 2007 and has issued a request for proposals to add 2,500 megawatts of generating capacity or demand reduction — though not all of it will necessarily be online by 2007. It’s seeking another 300 megawatts of renewable generating capacity from sources such as wind or solar power (although the call for proposals triggered responses totalling 4,400 megawatts).

Duncan says that despite the promise to shut coal plants, the government "will never put consumers in jeopardy and will be totally satisfied that adequate alternatives are in place."

The IMO’s Goulding agrees that consumers won’t be deprived of any power in order to keep the shutdown promise.

"One thing I can say about the coal phase-out is we’re not going to let the lights go out," he says.

"If you cannot shut down all those coal-fired plants by 2007 and ensure that we have an adequate supply to maintain a reliable power system, some of that shutdown will have to be delayed until we do have an adequate supply."

Goulding says the IMO has the authority to order a plant to stay in service, but adds: "I don’t anticipate we’ll have to use that."

And some remain skeptical that the province can cope with cutting off the coal units on such a short time frame.

All indicators show that demand for electricity is likely to go up, says McBride of the mining association: "Ruling out coal as a means of producing electricity is not a prudent option."

Ontario’s aging nuclear reactors, which supply more than 40 per cent of the province’s power, are also a question mark. All will need to be replaced or refurbished by 2020. Duncan plans to draw up a plan by this fall outlining what percentage of Ontario’s power should come from nuclear, hydro, wind power and so on.

Nuclear advocates want the province to begin an aggressive nuclear building program, but Duncan says he’s not convinced of the urgency of the decision.

"I’m not certain that this government will have to make a decision on new nukes," he says. "The time pressure may not be there at this point."

News Staff
CTV.ca
August 15, 2004

The Great Blackout of 2003 provided a wake-up call on the fragility of North America’s electricity supply.

For some, it also provided an opportunity to start a family.

Awi and Tanya Sinha call their son Gabriel their blackout baby.

He was conceived on Aug. 14, 2003 — the night the lights went out for about 50 million people in Ontario and numerous U.S. states.

"It was such a unique night and such a special night for us," Tanya said.

But a year later, an opportunity for yet another unique and special night remains a possibility.

"Are we immune from blackouts now? No we are not. But we are in much better position to control the spread of blackout," Ontario Premier Dalton McGuinty said earlier this week while unveiling a $125 million "nerve centre."

The Barrie facility will monitor Ontario’s 29,000 kilometres of transmission lines for problems. However, the 2003 blackout started in Ohio.

The "nerve centre" has been derided by some industry watchers as more PR than CPR for the electrical grid.

"They called it the nerve centre of Ontario’s power system. It’s not, what it is, is a glorified call centre," said Tom Adams of Energy Probe.

Ontario faces electrical problems on many fronts.

The McGuinty Liberals promised to phase out coal-fired power plants by 2007, but it isn’t clear yet what will replace their contribution to the province’s electrical supply.

One solution was to creation the Ontario Power Authority as the agency responsible for ensuring the province has enough electricity and to stimulate thinking about conservation.

Back in April, McGuinty told Ontarians they must reduce their power consumption by five per cent per year over the next three years or it will face a crisis.

One hope is that "smart meters" will encourage people to change their power consumption habits.

Using power at peak times will cost more. The government hopes this will get people in the habit of doing their laundry at night, as one example.

"You give people a tool, show them how to manage the power they use," said Bob Mitchell of Milton Hydro.

For the one-year anniversary of the blackout, the Sinhas are celebrating with the lights off — by choice.

With a report from CTV’s Amanda Lang

John Spears
Toronto Star
October 8, 2004

Ontario Power Generation has five new directors who share something the company’s previous board of directors largely lacked: Broad experience in the energy sector as producers or customers and, in one case, nuclear expertise.

The new directors were announced late yesterday, a day after Energy Minister Dwight Duncan had said the appointments had been made but wouldn’t name them.

They are:

Gary Kugler, recently retired vice president of Atomic Energy of Canada Ltd. In an interview with the Star last year, Kugler had proposed building up to eight new-design Candu nuclear reactors to supply Ontario’s electricity needs.

David MacMillan, non-executive director of Killingholme Power Ltd. of the U.K. OPG says he has "extensive experience in power projects and financing."

Marie Rounding, until recently chief executive of the Canadian Gas Association, and former chair of the Ontario Energy Board.

William Sheffield, former chief executive of SAPPI Fine Papers and a former executive at Abitibi Consolidated. He also spent 17 years at Stelco Inc.

David Unruh, vice chairman of Westcoast Energy Inc., a gas transmission company owned by Duke Energy.

OPG has been governed by an interim board since the previous directors either were fired by Duncan or resigned last December after the minister disparaged the company’s performance.

Three of the four interim board members will remain on the new board.

Jake Epp, a former federal cabinet minister, will continue as chairman. Ian Ross and James Hankinson will also remain on the board.

Duncan had said he was looking for directors with experience in the energy field.

Tom Adams, executive director of Energy Probe, noted in an interview that none of the old board members at OPG had nuclear expertise, nor did its top executives.

The lack of expertise at the top meant that crucial projects such as the refit of the Pickering A nuclear station were launched without adequate planning, and ran billions of dollars over budget before the board realized the project was in trouble.

But Adams and opposition critics, interviewed before the directors were named, said the lack of public input or review of the appointments is troubling.

The current process "doesn’t seem very democratic," said Adams. Instead, it seems to carry on the highly politicized process of the government single-handedly picking directors, traditionally the system at Ontario Hydro.

The result was bad governance and a financially crippled company, Adams said.

Howard Hampton, leader of the New Democratic Party, said the Liberals are politicizing the energy system.

"Everything gets done out of the minister’s office," Hampton said, including setting power prices and making key appointments.

"The issue of electricity supply, electricity price and electricity sources is central to our economy, central to our environment and I would argue to our sense of social order," Hampton said.

"It ought to be handled in a public and open way . . . This business of doing it all behind closed doors, it just reeks of exactly what the Harris Conservatives did."

Hampton and Conservative critic John O’Toole both suggested that as a minimum, the new board appointees should have been referred to the Legislature committee that reviews appointments to provincial agencies, boards and commissions.

Jack Gibbons of the Ontario Clean Air Alliance disagreed. Appointing directors is the government’s responsibility as elected representatives of the people, who are the ultimate shareholders, he said.

"They’ll suffer the consequences if they appoint bad people," he said. "I don’t think they should pass the responsibility off to someone else."

Sean Conway, formerly a senior Liberal MPP and cabinet minister now with the law firm Gowlings, said he’d be curious to see the list of those who had declined the invitation to sit on the OPG board, which will face huge challenges.

"I can’t imagine there’s a long line-up of people" seeking directorships, he said. But it’s "an important and tough assignment."

OPG produces two-thirds of Ontario’s electricity in a system that’s showing the stress of high demand and low supply. In future, its nuclear and large hydro generators will be regulated by the Ontario Energy Board, and Duncan has also said he wants to review OPG’s fundamental role in Ontario’s energy system.

April Lindgren
The Ottawa Citizen
November 10, 2004

Toronto: Ontario electricity users will pay more than $1 billion on their power bills over the next six years to cover the cost of smart meters that the government wants installed in homes and businesses provincewide.

The smart-meter initiative, which will make Ontario the first North American jurisdiction to record residential power consumption data on an hourly basis, will add $3 to $4 in ongoing capital and operating costs to each monthly bill when the system is fully installed in 2010.

The draft plan for introducing the meter system, released yesterday by the Ontario Energy Board, is the second major element of an all-new, power-pricing regime being introduced by Premier Dalton McGuinty’s Liberal government.

Beginning April 1, electricity prices will vary according to when power is used during the day with the highest costs during periods of peak demand. Together, the new meters and the variable power costs will enable consumers to tailor their electricity use to low-cost periods.

"Customers will pay according to what they use and when they use it," the energy board said in its report. "Those who conserve will not subsidize those who do not."

The smart-meter proposal comes at a time when Ontario is desperately searching for ways to avert major electricity shortages over the next few years.

Right now, there is little incentive to conserve because consumers pay a flat rate of 4.7 cents per kilowatt hour for the first 750 kilowatt hours each month and 5.5 cents per kilowatt hour thereafter.

The introduction of smart meters would put Ontario in the company of Italy, which is currently installing 30 million of the devices nationwide, and Australia, which is installing a similar system over the next five years.

"This is progress," Tom Adams, executive director of the electricity watchdog group Energy Probe, said of the Ontario proposal. "It is going to provide us with the information and infrastructure fundamental to a smarter electricity system – a power system that better connects the customers’ electricity bill with the reality of what power costs to produce."

Mr. Adams also praised a new provision that will see the energy board alert consumers 24 hours in advance of "critical" days when the electricity system is at capacity and power prices are extremely high.

"These are usually hot summer days when air conditioners are running on full or evenings during cold snaps when heaters, ovens and lights are all in use," the energy board report said. "While there are usually no more than 15 events like this each year, electricity at these times can be very expensive. Customers with smart meters will be able to save by cutting back their use during those critical days."

The Liberals have pledged to install 800,000 smart meters by the end of 2007 and to ensure 4.3 million customers in the province have the devices by 2010. It will, however, be some time before everyone can take advantage of the savings offered by the new system because large customers with peak demands of more than 200 kilowatts will get the new meters first.

Beginning in 2006, they will be installed in all new buildings as well as in industrial and commercial operations with peak loads of 50 to 200 kilowatts.

Municipal power distributors will be responsible for selecting the meter system they want and for introducing it. They will also start charging everyone in their area an additional fee for overall capital and operating costs as soon as the first of the meters are installed.

"Because it will take several years to complete the installation of smart meters in a distributor’s territory, the impact on customer bills will be small initially," the energy board said in its draft plan. "It will rise as the implementation program progresses."

The energy board will outline minimum technical standards for the meters, including a requirement the system allow consumers to obtain information on their previous day’s electricity consumption via Internet or telephone.

"A cheaper system would be one where you find out about usage at the end of the month," said Mr. Adams. "That would be a lower-cost system but it wouldn’t be as valuable in terms of conservation because you are not as able to adjust your usage when you have to wait 30 days to find out what it was.

"The shorter the feedback period, the more chance the customer has to manage their usage."

Conservative energy critic John O’Toole said the government has been too quick to adopt the smart-meter option when other alternatives are available. In New Brunswick, he noted, consumers are going to be able to buy cards credited with $100 worth of power that can be inserted in their meters.

Mr. O’Toole also predicted the installation of smart meters will allow the Liberals to blame higher electricity bills on consumers who do not do not conserve aggressively.

"The government is going to say: ‘If your bill is up, don’t blame me, you have a smart meter’," he said, noting that couples who come home from work each day don’t have much choice but to turn on the stove to cook during the peak demand evening hours.

The energy board is expected to submit a final report on issue to Energy Minister Dwight Duncan in mid-February after receiving public comments this month.

John Spears
Toronto Star
November 18, 2004

Ontario Power Generation hasn’t been given the guidance to plan its future and lacks adequate control over its finances, chairman Jake Epp has told the Toronto Board of Trade.

In a breakfast speech yesterday, Epp also alluded to problems at the big Nanticoke coal-burning generating station, which has been out of action more than one-third of the time this year.

Epp said OPG is still waiting for the provincial government, the company’s sole shareholder, to define its likely role in the years ahead. The province had promised to do that this fall.

"You should have been able to hear from me today both a plan for 2005 and a five-year rolling plan," Epp said.

But he can’t map out a medium-term plan because the provincial government hasn’t told him what they want OPG to be. The province hasn’t decreed whether the company will continue to be the province’s dominant generator producing two-thirds of its power.

"There are a lot of issues that need to be taken care of, whether you’re talking about supply, you’re talking about the market, whether you’re talking about OPG’s role, or the role of the private sector," Epp said

The uncertainty hanging over OPG is eating at morale inside the company, Epp said. He’s been visiting OPG facilities around the province, and giving employees this message:

"I cannot tell you what our collective futures are. But you’re professionals; do your jobs and we’ll get back to you when we have better information."

OPG reported a loss in its third quarter this week of $15 million on revenue of $1.41 billion, down from a profit of $34 million on the same revenue a year earlier.

Epp noted that OPG has had to refund $850 million to customers in the first nine months of 2004 ($201 million in the latest quarter). That refund, imposed on OPG when the electricity market was first set up because of the company’s market dominance, is a huge drag on profit, he said:

"This company, on the first day of its fiscal year, cannot be successful."

This year’s profits are lower than last year’s due to higher pension costs, higher depreciation and higher nuclear maintenance costs.

Epp also noted problems at an unnamed coal-burning plant, clearly the 3,920-megawatt Nanticoke station, which according to company figures has been out of service 36.5 per cent of the time this year.

That’s partly the fault of the marketplace, which can ask generators to switch on or off at five minutes notice. Coal plants don’t adapt well to the frequent stops and starts, Epp said:

"Equipment is much more likely to break down."

Tom Adams, executive director of Energy Probe, said that sounds like a credible explanation for Nanticoke’s performance.

The short-notice stops and starts make life difficult for some other types of generators as well, he said, and might mean the Ontario market system should be re-thought.

Adams said the lack of direction given so far to Epp and his board of directors is making life tough for OPG.

"I’ve got some sympathy for a guy who’s trying to steer the ship and not being told where to go," he said.

Eye magazine
December 23, 2004

Re: "Procedural pitfalls" by Gord Perks (Enviro, Dec. 16)

In criticizing the Ontario Energy Board for its passionless debate, Perks has overlooked the pattern of environmental success that arises from due process and meaningful energy prices.

The cumbersome and technical OEB process has helped the environment, for example by killing a huge and, ultimately, unjustified liquefied natural gas storage project proposed for Eastern Ontario in the early 1980s. Perks’ criticism misses the relative environmental success of the long history of regulated natural gas delivery rates compared with the long history of self-regulated electricity rates under Ontario Hydro and also compared with municipally regulated water utility rates.

Public regulation of gas delivery was one of the essential ingredients that gave Ontario one of the best gas delivery systems in North America without public expense.

Meanwhile, Ontario Hydro and its successor, Ontario Power Generation, continue to give us massive public debt and nuclear headaches. The municipal council in Walkerton used to pride itself on having the lowest water rates in the region.

Public utility regulation can be more effective in protecting poor customers than political control. Political processes are often the best tool we have for setting environmental standards, but Ontario’s experience in gas, electricity and water proves that overseeing the construction of smart infrastructure and charging rates that fully recover the associated costs is better suited for a quasi-judicial process like the OEB than the lobbying model Perks prefers.

Tom Adams, Executive Director, Energy Probe

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Procedural pitfalls" by Gord Perks (Enviro, Dec. 16)

Last week, chance took me to the hearing room of the Ontario Energy Board. The OEB sets the rules for our energy system. If your electrical utility or natural gas provider wants to jack rates, it needs the OEB’s permission. The OEB has some features I’m tempted to love: it sets the rules in public, it explains its choices in writing and it listens to a wide variety of interests. Frankly though, I can’t think of less loveable entity.

Modern bureaucracy has a soul-deadening aesthetic. It has a thrifty, grey, fluorescent, plastic-and-concrete interior decoration chic that says: "There are no passions here. No colourful thinking or flights of imagination. Style and human warmth are dangerous and subversive frills." The OEB hearing room is an exemplar of this look.

And the way they talk! As a quasi-court, the OEB is all legal formalism. Nobody has a name. The Board members are "Board Members." Lawyers are "Learned Colleagues." The interest groups are "Intervenors." Nobody has values or beliefs, rather they "Present Submissions," and "Seek Relief." The OEB "Accepts" or "Rejects" reasons based on "Interpretations" of precedents or stated government policy. God forbid they might have hopes or cares either way. They are dispassionate neutrality embodied in conservative clothes and tidy haircuts. The day I was there, the head of the OEB hearing panel was turgidly churning through a ruling on energy conservation plans. Twice he apologized for using plain language. You’d think he’d farted in church.

That day, the "Matter Before the Board" (#RP-2004-0203) was the energy conservation plans of the six biggest electrical utilities in Ontario, including Toronto Hydro. Conservation means using less electricity, so that we don’t overheat the planet and kill people by burning coal and making smog. Here’s how the OEB decides how much money utilities spend saving the world:

"CDM Budget = 1/3 x (MARR), where: MARR = RATE BASE x [(CER x ROE)] + [(1-CER) x DEBT RATE)], Rate Base is fully explained on Pages 3-5 to 3-8 of the Rate Handbook CER is the Common Equity Ratio (inputted decimal places), ROE is the Return on Equity (usually 9.88 per cent and inputted as 0.0988), and, Debt Rate is the debt/equity split. For utilities with rate bases less than $100 million, the debt equity split was deemed to be 50/50 (inputted as 0.5)."

Now, OEB regulars know that CDM means "conservation and demand management," and MARR means "market adjusted revenue requirement." But nobody else would.

I’m tempted to try to explain what the formula means, but the thought fills me with ennui. I’d rather say why I was there. Utilities and governments want to help save the planet by charging more for electricity. (If people have to pay more they’ll use less.) Some environmentalists agree, but many of us think it’s dangerous humbug. We’d rather see tough energy-efficiency standards for appliances and heating systems. We hope for a government with the courage to invest in green power sources. We don’t believe people will unplug their air conditioners to save a dollar or two. And we have the example of Enron to show that free enterprise in electricity can be a dangerous fraud.

At the OEB hearing, we at the Toronto Environmental Alliance teamed up with anti-poverty types to point out that low-income families are screwed by the make-’em-pay approach. In fact, after unaffordable rents, energy costs are the most common money-related reason people get evicted. We intervened in hearing #RP-2004-0203 to try to force the big utilities to take measures to help low-income families conserve energy without going broke. The OEB said we raised an important point, but chose not to tell the utilities to do anything about it.

As I sat in that neutral grey temple of bureaucracy wishing I’d brought whoopee cushions, it occurred to me that we are complete suckers for Big Ideas that take the human beings out of democracy. The OEB is public. There are no specific exclusions about who can come make an argument. But the whole setting, style, language and approach exclude just about everyone from participating, and further insist that the few that do participate check their hearts at the door.

The same can be said about using free-market principles to solve environmental problems. It would be very nice for everyone concerned if Adam Smith’s invisible hand could guide us to a green prosperity, but it can’t. We actually have to sit down and decide what matters to us, and create ways of solving our problems all by ourselves.

It’s scary, hard work trying to figure out how to save the planet. It’s messy, tough politics deciding who pays for what. But that’s exactly why we need more people involved. We simply can’t rely on grey people in grey rooms or on the march of commerce to solve our problems for us.

Gord Perks is a campaigner with the Toronto Environmental Alliance. Enviro appears every two weeks.

Doug Alexander
Bloomberg.com
January 25, 2005

Ontario needs to reconsider its resistance to coal as an energy source with the government pledging to phase out coal-fired power plants by 2007, the head of the new provincial power authority said.

"I don’t see that coal is necessarily ruled out providing it can be used in a more environmentally acceptable format than the present technology allows," Jan Carr, appointed to lead the Ontario Power Authority two weeks ago, said at a conference in Toronto.

Carr’s comments may be at odds with Premier Dalton McGuinty’s promise to shut down Ontario’s five coal plants, which produce 25 percent of the province’s electricity. Ontario faces energy shortages because there aren’t enough new power projects being built to replace the electricity produced by coal, according to a report for the provincial energy ministry.

"It’s just a matter of time before the McGuinty government is forced to admit the obvious: that they cannot meet their promise," said Tom Adams, executive director of Energy Probe, a research group that advocates energy conservation. Phasing out coal "is not achievable."

Ted Gruetzner, a spokesman for the energy ministry, said the government is "committed" to shutting down its coal operations by 2007.

Carr said technological advances in the next 20 years could make coal a viable, less-polluting energy source.

Ontario needs to add 25,000 megawatts of generating capacity by 2020 at an estimated cost of C$25 billion ($20.2 billion) to C$40 billion. One megawatt of electricity is enough to light 1,000 homes.

The Ontario government is reviewing proposals for new power projects that generate as much as 2,500 megawatts in the next two years. A C$900 million refurbishment of a reactor at Ontario Power Generation Inc.’s Pickering A nuclear station, scheduled to be restarted by July, will add another 515 megawatts.

The government set up the Ontario Power Authority earlier this month to oversee long-term planning of the province’s energy needs and to supervise the electrical transmission and generation systems. The agency also can award contracts to private companies wanting to build power facilities.

Lee Greenberg
National Post
February 1, 2005

Ontario’s plan to phase out coal-fired generating plants by 2007 is based on bad science, a report released yesterday states.

The study, commissioned by conservative think-tank the Fraser Institute, urges the government to abandon its coal decision, which author Kenneth Green says was made in a "hasty and unexamined" way.

Mr. Green, the Fraser Institute’s chief scientist, writes that "closing the coal-fired plants will imperil industrial development in Ontario, increase energy costs, and reduce the reliability of the electricity supply."

Coal-fired plants account for about one-quarter of Ontario’s electricity supply, equal to 7,000 megawatts. Energy Minister Dwight Duncan has announced plans to bring about 4,800 MW of new generation online by the cut-off date. At the same time, experts are cautioning of a looming electricity supply crisis, with two-thirds of the province’s generating capacity becoming obsolete in the next 20 years.

Mr. Green said the decision to abandon coal, taken by the Liberals while in opposition, was based on selective science and should be re-evaluated.

The study attacks two studies by the Ontario Medical Association and the Toronto Board of Public health that claim air-pollution levels kill thousands of people in the province every year.

Researchers ignored several U.S. studies that linked higher pollution with lower mortality rates, the study states, calling the practice tantamount to scientific "cherry-picking." "There’s no convincing evidence those plants are causing damage to people’s health or their property," Mr. Green said in an interview.

"There is no question that coal-fired plants contribute to Ontario’s air pollution emissions. The question is whether the harm associated with these emissions exceed the social and economic benefits of the electricity they provide."

Anti-coal proponents derided the report. "It’s just not true," said Jack Gibbons, chair of the Ontario Clean Air Alliance. "According the Ontario Medical Association, air pollution is a public health crisis in Ontario that’s killing over 2,000 people a year in the province. And I believe that the OMA is a much more credible source on public health issues than the Fraser Institute." Mr. Gibbons said Ontario’s five coal-fired plants produce as much pollution as 6.2 million cars and are responsible for 20% of Ontario’s smog. "Coal-fired power plants are a 19th Century technology that have no place in 20th Century Ontario."

But Tom Adams, executive director of Energy Probe, an industry watchdog opposed to nuclear generation, called the report worthwhile. "I think there are areas of environmental policy where a real consideration of the cost and benefits have not been taken into account."