Energy Probe

Paul Waldie
Globe and Mail
July 20, 2002

 The future of Hydro One Inc. became even more cloudy yesterday with the firing of Eleanor Clitheroe.

The utility, one of the largest in North America, has endured a series of upheavals in the past two months. Since June, Hydro One’s entire board of directors has quit, its chief executive officer, Ms. Clitheroe, has been fired and its initial public offering has been scrapped.

The utility will be run by co-CEOs until the board can find another chief executive, all while the company defends itself in a lawsuit from its former CEO.

Meanwhile, the Ontario government, which owns the utility, is trying to find a strategic partner to buy a 49-per-cent stake in it before the end of the year.

"The sale of the minority interest had some huge questions marks before today," said Tom Adams of Energy Probe, a Toronto-based environmental group. "And today’s developments are just going to make a bad situation worse."

Investment bankers were already shaking their heads at the turmoil and changes in direction at Hydro One and few believe the situation is any clearer now.

"The taint of political interference still lingers at Hydro One," a Bay Street lawyer said. But others said yesterday’s announcement will help clear the air.

"Any sort of resolution to an issue like this is good, so from that perspective I suspect that would be beneficial," said James Dutkiewicz, an investment manager with YMG Capital Management Inc. in Toronto.

Glen Wright, whom the government named as chairman after the former board quit in June, said yesterday that the removal of Ms. Clitheroe will help stabilize the utility for the sale.

"Clearing up the issues around the leadership of the place and getting the place stabilized and organized will assist in the acquisition of a strategic partner," he said.

Adam Zimmerman, a Hydro One director and former chairman of Noranda Inc., agreed and added that the directors were unanimous that Ms. Clitheroe had to go.

"I don’t think anybody takes any joy out of it at all," he said. "This is a pretty shocking thing for her. It’s pretty tough to have to look at losing a job like that."

Mr. Wright said he would become co-CEO with Tom Parkinson, who runs the company’s maintenance and engineering services.

Mr. Wright, who has no experience operating a power company, said he will also remain Hydro One’s chairman. And he will keep his $250,000 a year job as chairman of another Ontario agency, the Workplace Safety and Insurance Board. Mr. Wright’s business background is in insurance and he is a political strategist for the Progressive Conservatives.

"I obviously have to rearrange a few things," he said. "I do have to now make a commitment to stay on somewhat longer until we have stabilized."

Mr. Parkinson has been at Hydro One less than a year. He earns $400,000 annually, Mr. Wright said, and he will not receive a pay raise for becoming co-CEO and chief operating officer.

Mr. Parkinson joined the company from Australia where he ran NorthPower, a government-owned utility in New South Wales that was merged into a group of private power companies last year. In 2000, he was criticized for taking a pay package of more than $500,000 while his company’s profits plunged by more than half. At the time, Mr. Parkinson was one of the highest-paid public servants in Australia.

Mr. Wright said he didn’t know how many other executives at Hydro One will agree to stay. Many were recruited by Ms. Clitheroe in preparation for the initial public offering. Sources say they remain loyal to her.

The new board was also ordered by the provincial government to roll back executive compensation and severance packages. Mr. Wright has said he wanted to have the new compensation packages in place by the end of this month.

"We have offered all four [senior executives] employment and we are asking them to stay with the organization. We are in discussion with them," he said yesterday.

Last night, Hydro One said Ken Hartwick, the company’s chief financial officer, has agreed to stay on. Mr. Hartwick received $633,346 last year in salary and bonus.

Lee Greenberg, Gary Dimmock
Ottawa Citizen
September 28, 2002

Barrett Chute’s generating turbines, at the end of the ‘power canal’ shown at centre, could not pass water fast enough on June 23. The spillway, shown on the right behind a dam, was opened like a safety valve to relieve pressure on the turbines.
– Ottawa Citizen

How the provincial hydroelectric utility responds to demands for power is in the midst of a revolution. If 1906 was the beginning of life for public hydro in Ontario, then 1995 was the beginning of the end.

And May 1, 2002 – less than two months before the tragedy at High Falls – marked a definite watershed in the provincial history of power production.

In 1906, Sir Adam Beck, a Tory MPP and mayor of London, recommended the creation of the Hydro Electric Power Commission. Coal strikes in Pennsylvania four years earlier had cut off Ontario’s power supply and shut down factories, convincing Canadian officials that an autonomous electricity utility was badly needed. It was formed that same year under the mantra of "power at cost to the people of Ontario."

With Beck as its charismatic leader, Hydro grew at an astonishing pace. By 1917 it had become one of the world’s largest hydroelectric utilities. "Nothing is too big for us," Beck famously declared in 1914. "Nothing is too expensive to imagine. Nothing is too visionary."

But by the time the international financier and environmentalist Maurice Strong took over the utility in 1992, Beck’s declaration loomed like a dark cloud. Ontario Hydro was an unwieldy, creaking "corporation in crisis," according its new chairman. And with Hydro facing a $34-billion debt, not many disagreed.

So in July 1995, after chopping 10,000 jobs, Mr. Strong recommended that the company be privatized.

That must have been music to the ears of Conservative premier Mike Harris, who had just been elected to office on his neo-conservative platform, the Common Sense Revolution.

In May 1999, after much consultation, Ontario Hydro was split into five companies. The two most visible were the commercial spinoffs: Ontario Power Generation would be the company that competed with other generators in a new electricity marketplace; Hydro One was set up to transmit, distribute and retail electricity, taking care of the power lines that span the province.

The two companies with a lower profile were the Electrical Safety Authority, which deals with setting safety standards, and the Ontario Electricity Financial Corporation, a company set up to deal with servicing and paying down Ontario Hydro’s stranded debt.

The fifth entity, the Independent Market Operator, would be the agency at the heart of it all. It would match the buyers and sellers of electricity, creating and regulating the new marketplace. It is, essentially, the "grid operator," ensuring that the same amount of power being used by consumers is generated by such companies as OPG.

"We decide every day how much power you’re going to need based on temperature, time of year, time of week and time of day," says the IMO’s Ted Gruetzner. "That is given out every day, saying this is what we think the demand curve will look like. And then the sellers of power will offer into that market."

Every half-hour or so, OPG lets the market operator know how much energy it can provide and at what cost. This is called bidding, and it is treated as a commercial contract. So if OPG says that it can provide 50 megawatts of power at $100 a mw from Barrett Chute, then it is then responsible for providing that energy at that price at that time.

The IMO takes this information, matches it with its demand schedule – a forecast of electricity consumption – and chooses the cheapest sources of power.

The original date for launching the system had been set for March 2000, but the wholesale change in operations made that target impossible to meet. So it was delayed.

The system was finally switched on this spring, radically altering a century-old supply-and-demand system for power in the province. June 23 fell on the 54th day of the new electricity marketplace.

The new system was based on a straightforward free-market rationale: If hydro employees could appreciate the value of the commodity they were creating, they would make more commercially sound decisions.

However, they were accustomed to a Crown corporation culture that needed adjusting. So OPG contracted the University of Toronto’s Rotman School of Management to create a tailor-made MBA program for senior executives, many of whom had only ever worked for a public-sector monopoly.

"We needed to get everyone up to speed quickly and into that commercial mindset," OPG executive vice-president John Murphy told the National Post.

In the wake of the High Falls tragedy, Mr. Conway raised questions at Queen’s Park about whether adjusting to the new marketplace might have contributed to what happened.

"Have hydroelectric generators changed their operating procedures to contemplate changes that are occasioned by the open and competitive electricity market as compared to procedures those hydroelectric generators might have had in the pre-May 1, 2002, marketplace?" he asked Energy Minister Chris Stockwell. "Several of my constituents, long-time residents of the Calabogie area, believe that a significant part of the tragedy . . . had to do with changes in the operating procedures of the hydroelectric stations that have long been established on the lower Madawaska River."

—

At the tree line, Adam stood next to his father. He looked up and said: "They’re gone. Now we have to go get help."

They ran down the ledge, along the side of the channel, with the water still gushing and sending other sunbathers cascading down the falls and into the bay below.

The Mad River raged for more than an hour before hydro workers finally closed the sluice gates.

—

Hydroelectric dam operators sit in front of an imposing control panel. That’s always been there. But two computers, one a soft-screen machine operated by touch and another one with a mouse, are new.

The systems that were installed to help OPG communicate with the IMO were installed by Innogy, a giant power generator and supplier which itself had emerged phoenix-like from deregulation in Britain to become a multibillion-dollar generator and supplier of electricity.

With that software, the Innogy America Web site trumpets that "every operator has the complete set of tools to make the appropriate commercial decisions."

And, it adds, "in the deregulated market, they truly are commercial decisions, not just technical or operational decisions as in the past."

Innogy sent software specialist Robin Gomm, from head office in Swindon, England, to install the system in Toronto.

Innogy’s Electronic Dispatch and Logging software provides an electronic means of receiving dispatch instructions from the IMO. Those instructions are shaped by the amount of energy OPG indicates it can produce and by the amount of power the IMO indicates it needs.

An instruction from the IMO – and they can come every few minutes – can’t be missed.

"It will pop up on the screen automatically to them and sound an alarm saying ‘a new instruction has arrived from the IMO,’ " said Mr. Gomm, describing in general terms how the system works.

Operators have only 20 seconds to respond to the instructions. But Mr. Gomm says that the way the system was configured, orders would come in prevalidated. Rubberstamped.

In other words, on June 23, it wouldn’t have mattered if an operator spotted a potential problem with carrying out an IMO instruction. OPG had indicated it could produce a certain amount of electricity from a certain generating station, and the IMO had responded by placing its order.

Mr. Gomm says the computer network wouldn’t have allowed operators to fully operate the dams along the Madawaska. They would have received orders to produce energy, and even if they thought filling the orders might have caused problems, they would have been forced to accept them.

"Twenty seconds isn’t enough really for them to do it," said Mr. Gomm, explaining how the new "five-minute market" for electricity in North America depends upon constant monitoring of prices by the IMO and instant response to power purchases by generating stations.

"So we accept it on their behalf and they have to follow it."

But what if an operator sees that following the instructions could cause problems?

Mr. Gomm says the way the system was set up, even problematic instructions are accepted and carried out. Flawed transactions would be logged so that the IMO and OPG can review them later and gradually work out the kinks in the demand-supply relationship.

"It’s like saying, when you get in your car to drive home, ‘The maximum speed of my car is 100 miles per hour.’ And if someone comes along and tells you to drive at 110, you would say, ‘I can’t drive at 110, I can only drive 100.’ But you’d still try to do it. And that’s what they do now."

Mr. Gomm says the power generators "are relying on the grid controllers (the IMO) to send through valid instructions."

When he was reached for comment in early July, Mr. Gomm was heading to Toronto to meet with OPG officials.

Exactly how IMO-OPG transactions affected what happened at Barrett Chute on June 23 is one of many unknowns yet to be explained by the agencies or the investigators. But a source familiar with OPG operations has informed the Citizen that, since the incident at High Falls, orders from the IMO are no longer coming in "rubberstamped."

—

Now at the bottom of the falls, Mike saw Aaron floating in the bay. He swam out, brought him to shore and tried desperately to revive him. An ambulance arrived and raced him to hospital. But it was too late.

—

Entries in an OPG log book from June 23 were leaked. They said that at 12:30 p.m., the Mountain Chute generating station – the dam just upstream from Barrett Chute – was ordered to make more energy than expected.

Mountain Chute was releasing more water than the next dam down the line, Barrett Chute, could handle that day. And no one was there to witness it.

Though the dam is controlled remotely, from the Chenaux plant on the Ottawa River, a 25-person maintenance crew works at Barrett Chute weekdays between 8 a.m. and 4 p.m. On Sundays, a handful of operators overseeing the Madawaska generating stations sit in front of computer screen at Chenaux, a world away from High Falls.

Mountain Chute’s response to the increased demand for power and the IMO’s request to rev up was to begin sending water through its turbines at a rate of 398 cubic metres per second. Normally, Barrett Chute’s four generating units downstream would have had enough capacity to deal with the extra inflow. But as fate would have it, there were only three units operating that Sunday.

One of the four Barrett generating "units" was down for maintenance. The station could only process 289 cms.

With that fourth generator working, Barrett Chute could have handled the difference. But with it down, choices about what to do were reduced to one. Water was racing toward Barrett Chute dam at a rate which could not be sent through its turbines. The only option left was to release water through the emergency spillway.

"Barrett Chute . . . will not be able to sustain inflow for extended period of time," the log reported. "Staff dispatched to Barrett Chute to initiate spill."

Exactly what was done to warn sunbathers and other people before water was released above High Falls remains unclear.

"Our policy is to try to warn people," said OPG spokesman John Earl in the aftermath of the tragedy.

And some people were warned. But those warned were farthest away: three boaters and several ATV riders, according to police, all well downstream at Calabogie Lake, more than two kilometres from where the Cadieuxs and others had been bathing.

Chuck Pautler, vice-president of public affairs at OPG, described how dam operators can also issue a "water warning" by sending "a small amount over a period of time" as a means of sending bathers a message that a flood will follow.

"It’s enough to let people know that they should get out of the water," he told the Citizen after the accident.

But there were no sirens, no loud horns.

Still, any OPG employee who walked atop the dam wall would have seen the Cadieuxs plopping down slides at High Falls. Presumably, no one saw – or even checked – the area below the spillway gate.

Since the tragedy occurred, Mr. Stockwell has ordered physical inspections at all hydro dams across Ontario and a full review of operational procedures.

Finally, High Falls has been plastered with signs reading "Dangerous Waters. Keep Away. Rapid Changes in water level and flow without warning."

New signs of danger: Ontario Power Generation has posted new warning signs and conducted a safety awareness blitz since the June 23 tragedy at its Barrett Chute Generating Station. The station is part of a chain of hydroelectric dams run by OPG along a stretch of the Madawaska River that has an elevation change four times greater than Niagara Falls. – Ottawa Citizen

But six "No Trespassing" signs put up in the aftermath of the deaths quickly disappeared, according to OPG spokesperson Bill McKinlay. "In several instances trespassing charges have been laid."

—

Mike Cadieux is a grieving man. But he is also an angry man. "It shouldn’t have happened, but it did," he says. "We lost two beautiful people."

He lays blame for the loss of his wife and son squarely on Ontario Power Generation.

"They did wrong," he insists.

There was no warning about the flood, he says, and not a sign along the well-worn path leading to the falls.

"This was not an accident. This was a controlled happening."

Nobody, he fumes, even bothered to look down from the dam to see if the coast was clear.

"How do you miss a safety step like that? I just really hope that they change the way they do business. Remember, this is a company that prides itself on safety-first."

He pauses, then adds: "We’ll always have the memory of that day until the minute they took it away."

Several weeks after the deaths, the Citizen returned to High Falls and retraced the family’s steps. Every single stick of wood and piece of garbage had been swept to a new place. The wall of water had come and gone twice – first on June 23, then two weeks later when police first on June 23, then two weeks later when police recreated the disaster to try to understand what had happened.

Somehow, through all of that, Cyndi’s wallet had remained untouched on the ground and was discovered by two reporters. It was still filled with tiny pebbles and sand from the raging waters.

The wallet was returned to Cyndi’s mother, Donna Brydges, later that day.

Lee Greenberg, Gary Dimmock
Ottawa Citizen
September 28, 2002

 The brothers walked ahead, leading their parents up the rocks of High Falls. On the steamy June 23 afternoon, the first Sunday of summer, the two boys – Aaron, 7, and Adam, 9 – were keen to wade in the shallow pools along a dammed channel of the Madawaska River near Calabogie.

The boys’ father and mother – Mike and Cyndi Cadieux – had been separated for the past two years, but were finally putting differences aside for the sake of a family outing. It was to be salve on old wounds: some lounging, some laughing at a place they had visited dozens of times over the years, on days much like this.

But on this day, the fun would last all of 30 minutes.

A gate at the Barrett Chute Generating Station – just above the spot where the Cadieuxs stood and some 20 other sunbathers lazed about nearby – would suddenly sweep open and send a deadly torrent of water equal to two Rideau Rivers surging down the channel.

Barrett Chute Generating Station
– Ottawa Citizen

The channel is a hydro spillway – a safety valve of sorts – but, by all accounts, it had never been used to relieve pressure on the dam except during the spring runoff. Locals, like the Cadieuxs, had long since laid claim to the exposed riverbed as a beautiful summer playground.

Now, inexplicably, the river was rushing to reclaim its rocks, rampaging down High Falls in a deafening thunder.

In a matter of seconds, people would be hurled against trees or submerged by the advancing wall of water, describing later how they’d only escaped death by some miracle. But not everyone would escape. A family finally coping with separation was about to be permanently, tragically shattered.

It was just after 2 p.m. when Mike first noticed the pool was rising, slowly filling up like a sink. His older son, Adam, was off to the right, on higher ground playing along the tree line. But Aaron was to the left with Cyndi, on a lower shelf of rock, wading in water that was creeping higher and higher.

—

Nearly three months after the tragedy at High Falls, it’s clear the OPP investigation that was supposed to last several weeks will stretch into several months. And still the key events of June 23 are shrouded in secrecy.

Employees of Ontario Power Generation – the provincial agency that operates the Barrett Chute station – have received memos reminding them to keep quiet. Their bosses in Toronto stopped speaking soon after the incident and insisted that all questions be submitted in writing.

Something extremely unusual happened that day, something that reaches beyond the events of a single afternoon. A conspiracy of chances, played out over months and even years, set the stage for disaster. Then in a moment – a fateful, fatal decision not yet publicly revealed pending completion of the police probe and a probable coroner’s inquiry – unleashed the pent up violence of the Madawaska at the worst possible time.

The accomplices, remarkably, include a wet spring and a suffocating heat wave, which not only sent the Cadieuxs to High Falls but also created an enormous spike in electricity demand as people across Ontario switched on air conditioners.

At the same time, Ontario’s electricity supply was limited – partly because of an extended shutdown of one of its key nuclear power generators. So the province’s response to the call for more power was to tap, in turn, one of its greatest resources of hydroelectricity: the same Madawaska River system to which swimmers throughout the Ottawa Valley were flocking.

Why some went to High Falls – situated as it is just below a hydro dam that held back millions of tonnes of water – can only be explained by questionable security measures and what sociologists would call local knowledge, an accumulation of experience over generations that convinced the sunbathers they had nothing to fear.

But four other factors – to degrees that can’t yet be ascertained – would transform fearlessness to terror in an instant: A fledgling open market for electricity in Ontario that appears to have put extra pressure on OPG to respond quickly to commercial demands; A new computer system that can automatically override decisions by dam operators; A disabled generating unit among the four turbines at the Barrett Chute station that ultimately forced a diversion of water through the spillway at High Falls, and; A water warning system that tragically, obviously, failed to alert the Cadieuxs and others to the impending peril.

—

Up the rocks some 150 metres, away from the crowd of sunbathers, was where Mike, 39, and Cyndi, 32, had gone for some of their first dates as a young couple.

On this afternoon, they had picked the same spot. And it was Mike, at his wife’s behest, who had first slid down the slippery, wet rocks to make sure it was safe for the boys.

Below the family, scattered on what area residents call the "hot rocks," the 20-odd sunbathers lounged about, while a group of teens swam across the bay farther down, a floating beer cooler in tow.

The Cadieuxs felt so comfortable, so safe, that when the water began rising, Mike calmly pulled Aaron out of the pool, then turned to retrieve the few belongings they’d left on the rocks.

—

The first aboriginals to have contact with the river called it ‘mad water’ and the name stuck. The Madawaska became known as Mad River.

Early European settlers to the area were mostly fur traders and log drivers who lived hard and died young. They accepted their yearly losses to the river as a matter of fate, and legend has it there’s an unmarked grave every kilometre or so along the shore, for the scores of loggers swept to their deaths over several generations.

But while the Madawaska pioneers rightly regarded their river with fear, in the early part of the 20th century the province’s fledgling electricity industry looked at it with hope, as a vast reservoir of unfulfilled promise.

Hydroelectric power is generated when large volumes of water fall down massive tubes, called penstocks, and onto turbines. The water hits the turbines, spinning them and, in turn, driving a generator.

Power generating capacity is directly proportional to the height that water falls. Thus, the enormous potential of the Madawaska: A small stretch of the river, between Bark Lake and Arnprior, drops 244 metres – the equivalent of nearly four Niagara Falls. The lower Madawaska would become a jewel in the crown of Ontario Hydro.

Today the lower Madawaska consists of five generating stations – Mountain Chute, Barrett Chute, Calabogie, Stewartville and Arnprior – and two other control dams upstream that regulate the amount of water coming into the system.

Dams serve as storage facilities, holding water upstream, in the forebay, as potential energy. But every inch of additional water places massive extra pressure on the dam walls. A dam is "overtopped" – with potentially disastrous consequences – when water levels exceed the height of the dam walls.

But having too little water in reserve can also wreak havoc. In 1995, a dry winter and even drier summer lowered water levels throughout the Madawaska system. Then a generator at Pickering’s nuclear station went off-line. Hydro officials in Toronto decided to use the Stewartville generating station, the second-last on the Madawaska, to make up for the lost electricity supply. They opened it up, and already-low water levels got so low that residents remember how they could walk across the once-mighty Madawaska without getting their feet wet.

The Barrett Chute station was built in 1942. The dam featured an opening into the main course of the river for generating electricity, and a spillway gate above the High Falls channel for use as an overflow valve – a kind of safety drain to discharge excess water, typically from spring flooding, when it can’t be passed through the turbines quickly enough.

—

Mike picked up the cooler, sunglasses and a new pair of sandals, and tossed them aside on dry land.

Then, he recalls, one of the boys started screaming that the water was coming.

The pool started rising fast. Adam was off to the side, still on higher ground and closest to his father. Aaron was surrounded again by water, about 10 metres away in the other direction.

One boy to the left, one to the right. "Which one do you go for?" he says.

Seven-year-old Aaron Cadieux and his brother Adam, 9, had eagerly led their parents on the path to High Falls, a favourite spot for family outings. When the wall of water came, their father, Mike Cadieux, didn’t have time to rescue both of his sons.
– Ottawa Citizen

The hot rocks at High Falls have been a place to cool off for as long as people can remember. Technically, people aren’t supposed to go there. But Hydro officials and local authorities have turned a blind eye to the routine use of the area for sunbathing. In fact, it is publicized as a tourist destination on Web sites promoting the region.

Over the years, warning signs about the dangers at the dam would often be used as kindling for fires. Even after June 23, some new signs were taken by partygoers.
– Ottawa Citizen

In rural Renfrew County, accessible pieces of paradise like the rocks are hard to find. Property along the Ottawa River is largely privately owned. The Logos Land waterpark charges admission. Even the most obvious spot, the Renfrew public beach, is regularly shut down because of pollution.

High Falls is an alternative, and though it is set imposingly in the shadows of a massive concrete dam, no one had ever heard of someone being injured there.

"People have been going there for decades," says area MPP Sean Conway.

In fact, the spot is so quasi-official that, only weeks before June 23, Greater Madawaska Council had requested increased police patrols at High Falls after someone noticed that bonfires were not being properly extinguished and litter was piling up.

"The property was being abused," says Reeve Barry Moran. "There was generally a lot of rowdiness."

Years ago, a request for added patrols would have gone straight to Ontario Hydro. But the security detail that patrolled the area was fired in a round of layoffs years ago.

Police who would be called to the scene on June 23 said they were "shocked" to find no signs warning against trespassing.

Jimmy Campbell – a retired Hydro worker who spent 39 years on the Madawaska system and helped build the dam at Barrett Chute – never put that much faith in warning signs.

More often than not, he says, signs would get used as kindling for campfires.

But some years ago, when Ontario Hydro built a fence along the other side of the river but left the High Falls side open, he and his co-workers were left wondering why the job was left half-finished.

"We discussed it in the gang," he said grimly. "In my opinion, they should have fenced it here like they fenced it at Niagara Falls. . . . A life there isn’t worth any more than a life here."

—

Mike began to move toward Aaron but was swept by rising water. It moved the 260-pound man three or four metres, but he managed to get to higher ground, near Adam.

It was Cyndi who managed to wrap her arms tight around the younger boy, Aaron. Then she looked over at her husband.

She looked, he says, as if she knew they were going to die.

—

Highly unusual weather this spring set the stage for the tragedy at High Falls.

Tom Adams, who closely monitors the province’s power-generating operations as executive director of the Toronto-based watchdog Energy Probe, believes it was a rare imbalance of a dry early spring followed by extremely wet weather in June that left OPG scrambling to manage its water levels that day at Barrett Chute.

"Normally, in the spring, they let a lot of water out just before the freshet – the spring thaw," he says.

Snowmelts and spring rains join forces to raise water levels everywhere. Power generators "open the system up" during this period, allowing water to run its course down the Madawaska and into the Ottawa River relatively unhindered. Then they narrow the sluice gates at the end of the spring.

This year was different from most. The spring runoff, according to Mr. Adams, was virtually non-existent. Snowmelts came down as trickles.

"They may have left the levels higher than normal," said Mr. Adams, suggesting that OPG held back as much water as it could for potential power generation.

Then, in June, the skies opened up. More than double the normal 70 mm of rain fell on Calabogie.

Mr. Adams believes that at this point, OPG "found themselves in a situation where they had more water than they knew how to deal with."

OPG executives have said that heavy rains had caused water to build up behind the dam in the weeks before the tragedy. That put pressure on the turbines, they said, and as a result they were forced to release water through a secondary channel – the High Falls spillway.

No one in the area can ever remember a discharge during the summer – let alone a massive release like the one on June 23 – down High Falls spillway.

Mr. Campbell, a veteran of the river, says it was simply unprecedented. "Never," he says bluntly. "We never spilled in the summertime."

Barrett Chute dam
– Ottawa Citizen

They didn’t hear the roar of a two-metre wall of water until it was on them.

It was at that second, as the Mad River came crashing down from the sluice gates above, that Mike let out a desperate yell: "Swim as hard as you can."

—

While it was a wet June that left OPG with a brimming reservoir above the Barrett Chute station, it was the unseasonably balmy weather on June 23 that helped create a critical situation at the dam that Sunday afternoon.

In a "cascading" or interconnected series of dams, generating stations are used as part of a "peaking" system which responds to sharp spikes in demand for electricity.

Typically, these spikes come during the "electricity rush hour" between 4 p.m. and 7 p.m. – the time when people are cooking supper.

But on June 23, the spike in demand came much earlier than that. And it came because temperatures rose – very early in the day – from an expected 28 degrees to a sweltering 31. The historical average temperature for June 23 at Calabogie is 25.

Cyndi Cadieux, who made home with her two boys in a two-bedroom apartment in Calabogie, had three fans running before noon that morning. It still wasn’t enough to keep the boys cool, which is one of the reasons they’d decided to head to High Falls.

But in tens of thousands of homes across Ontario, the first response to the muggy weather was to crank up air conditioners. The provincial power system would have to react by cranking up its production.

But on June 23, that wasn’t easy to do. Just this week, it was reported that on June 11 Unit 6 at the Bruce B nuclear generating station went down due to an accident during maintenance. It would stay down for the entire summer, cutting the station’s power output by 25 per cent.

According to Bruce Power, the four units of the Bruce B plant produce enough electricity to supply a city the size of Toronto. With one-quarter of that electricity gone, the IMO was scrounging for power from other sources.

The Madawaska stations were about to get a tap on the shoulder and a request to make more electricity.

—

Aaron was pulled under and disappeared. But the torrent sent Cyndi cartwheeling violently down the falls. She hurtled along the overflow passageway, over two 90-degree chutes, until she was entangled in a shrub at the bottom of the falls. There was a gash on her head; she had died before she stopped tumbling.

Cyndi Cadieux, 32, had her first dates at High Falls with husband-to-be Mike.
– Ottawa Citizen

To continue reading see: http://energy.probeinternational.org/utility-reform/reforming-ontarios-electrical-generation-sector/part-two-conspiracy-chances 

Peter Geigen-Miller
London Free Press
October 1, 2002

 The province’s electricity market opened for competition May 1 and since then net power prices have increased 15 per cent, says industry watchdog Energy Probe.

High summer prices have lingered into September and the Independent Electricity Market Operator, which operates the deregulated market, sees no immediate relief.

The market operator predicts continued tight power supplies with upward pressure on prices.

Tom Adams of Energy Probe estimates the electricity price increase since May 1 works out to about 15 per cent when rebates and other factors are calculated in.

Now that summer is past, London Hydro expects moderate fall weather to bring a drop in prices back to levels seen in May, says spokesperson Nancy Hutton.

Adams is more pessimistic.

He’s worried Ontario is counting too heavily on nuclear power, a reliance that put the province on the brink of power blackouts during the summer, said Adams.

Shortages occurred because upgrades to units at the Pickering A nuclear station are behind schedule and the units were not ready to run this summer as scheduled, he said.

On top of that, a unit at the Bruce nuclear station was out of service for weeks after an accident.

Continuing heavy reliance on "unreliable" nuclear power will make a bad situation worse, said Adams. "I’m expecting to see very significant price volatility. I’m expecting to see the debt charge on our electricity bills to increase to pay for (the upgrades). I’m pessimistic to the point I’m afraid we could have blackouts."

NDP Leader Howard Hampton, leading a fight against electricity deregulation, agrees blackouts or brownouts are a possibility this fall because of tight supplies.

And deregulation has failed to deliver its promise of lower prices, said Hampton. "That promise is turning out to be quite false. Hydro bills are up virtually everywhere."

Before deregulation, electricity sold at a fixed price of 4.3 cents a kilowatt hour.

Prices dropped to an average 2.8 cents a kilowatt hour the week after May 1 and stayed low through May and most of June. Then came the heat wave, soaring demand for power and price spikes. Imports from neighbouring states and provinces were needed to keep lights glowing and conditioners humming.

John Spears
Toronto Star
October 19, 2002

Picture yourself in a marketplace where there aren’t enough goods to buy, there’s only one stall selling them, you can’t buy in bulk when prices are low, and you can’t refuse to buy when prices are high.

Now picture yourself as an electricity user in Ontario.

The province’s new competitive electricity market kept the lights on in the province, barely, through a summer of searing heat and record power demand.

But to the surprise of no one, the new market hit some bumps.

Prices soared to previously unheard-of levels during the hottest weather. On four separate occasions, authorities pleaded with customers to cut back on power use.

Ontario paid suppliers outside the province as much as 40 times the average price for emergency power, while domestic generators received much less from their own marketplace.

And although prices followed a roller coaster path through the day – very high late in the afternoon, very low overnight – frustrated householders discovered they had no way of capturing the low prices and avoiding the high ones.

Now, as strains on the system have eased but warnings loom of similar problems next summer, regulators, industry officials and policy makers are sorting through the evidence looking for ways to improve the system.

For some, such as New Democratic Party leader Howard Hampton, the summer’s experience showed the folly of moving to a market system in the first place. He favours a return to a publicly owned power system, tightly regulated by a beefed up, independent-minded Ontario Energy Board.

Others argue the system can work if it’s properly designed.

Jan Carr, an electricity industry consultant, says many of the problems stem from timidity, with a system stuck half way between a genuine market system and the old command-and-control Ontario Hydro system.

"We’ve got half-competition," says Carr. "You can’t have partial competition."

And some big power consumers such as Dofasco Inc. contend that some of the market troubles stem from a design process that listened more to the people who produce power than the people who use it.

"One of our concerns going in was who would look at this from a customer perspective, making sure that customers were at the forefront of decision-making about everything from privatization to how the market works," says Dofasco’s Gord Forstner.

Because there’s no consensus diagnosis, it’s hard to find a consensus solution.

Forstner stresses that solutions aren’t likely to emerge in a hurry – and shouldn’t be forced.

"I’m not sure if we’re in a position yet to be prescriptive. These aren’t simple issues," he warns.

"We want the best market we can have, but there are no silver bullets to make that happen."

Here’s a rundown of some of the diagnoses and treatments – not all of which are compatible with each other – following the long, hot summer.

Supply

Framing the terms of debate is a report from the market surveillance panel, an arm’s-length group established to guide the Independent Electricity Market Operator (IMO), which runs the new marketplace.

The panel contends that the province lacks enough generation. When demand soared to more than 25,000 megawatts this summer, up to 4,000 megawatts had to be imported. While the Bruce and Pickering restarts are supposed to alleviate the squeeze, no one can be certain they’ll be ready.

Not everyone agrees with the committee.

One potential investor – who asked not to be named – said that the shortfalls seem to exist only until the big nuclear plants start up again over the next two years.

But firms that want to build generators are looking at long-term returns. What, he asked, is the incentive to build if the shortage is short-term?

Forstner says competition is a bigger issue than supply.

"We want to have more competition in generation," says Forstner, noting that Ontario Power Generation still dominates the marketplace with about 70 per cent market share.

Dofasco doesn’t pretend to have any magic answers, but Forstner notes that a special committee looking into the province’s electricity system, headed by Donald Macdonald, had suggested splitting what is now Ontario Power Generation into five separate and competing units.

Instead, it remains a single entity, albeit under orders to divest control of significant portions of its assets.

Whether the problem is too much supply or too little, private investors who might provide the competition are sitting on the sidelines.

The market surveillance panel notes that 6,000 megawatts of generating capacity has been pencilled in to come on stream by 2005, in addition to restarting the Bruce A and Pickering A nuclear stations. But less than 20 per cent is now under construction.

Carr, managing director of Barker, Dunn & Rossi, says that one of the keys to enticing new entries to provide both more supply and more competition is a better marketplace.

Along with physical control of generating capacity, Carr notes, OPG holds vast amounts of inside market information unavailable to potential competitors – a huge disincentive to new entrants. There’s no plan in place to de-control that information.

He thinks there should be. When all market players know what’s going on, there’s much less chance for select insiders to play games.

In Alberta, for example, a Web site shows the status of every generator in the province – whether it’s off or on, working at full or half speed. OPG won’t divulge that information about its generators.

Keeping the lid on information also invites abuse when it is in the hands of some market participants but not others, Carr notes. Insider trading, for instance, is a crime of unequal access to information.

But Carr goes further than simply advocating improvements to the existing spot market run by the IMO.

He says what’s needed is an entirely new market in addition to the spot market, which has been very volatile and hasn’t provided good signals about which way prices are heading.

Carr proposes a binding day-ahead market, operated by an independent organization similar to the Toronto Stock Exchange.

A day-ahead market in which buyers and sellers are both bound by their bids and offers would reduce volatility in the daily price, he argues, and it would give better signals to industrial consumers who may want to tailor their activity to conform to power price movements.

Some private generators argue that they need a further incentive to commit the millions needed to build new capacity.

Not all generators are created equal. The big nuclear plants are designed to run 24 hours a day, 7 days a week. But what’s needed to take the edge off the price spikes is "peaking" capacity — generators that can be fired up quickly when demand heats up, and will provide extra supply to keep prices from going through the roof.

The trouble is, these plants may only operate 60 or 70 days a year. Potential investors say few firms will want to build such plants unless new mechanisms are devised to reward them for being on standby.

Demand

For a market to work, consumers have to be able to buy when prices are low and back off when prices rise.

"We’ve got half-competition. You can’t have partial competition."

Jan Carr

Electricity industry consultant

"We want the best market we can have, but there are no silver bullets to make that happen."

Gord Forstner of Dofasco

The market surveillance panel found that the current market doesn’t provide enough consumers with the opportunity to do that.

Nearly all householders who pay market rates pay a monthly average price for their power.

They can run their dryers at night when prices are low, but they’ll still be charged the monthly average price for that power – not the low night-time price that the market generally delivers.

Some businesses, including most large users, have "interval meters" that allow the firms to pay low prices when the price is low, and force them to pay high prices when the price is high.

But even these firms may not be getting information fast enough in real time to take full advantage of price swings.

Tom Adams, executive director of Energy Probe, calls interval meters "the front line of customer protection."

There’s monthly costs involved in running an interval meter that may not make it a practical proposition for most ordinary householders. But he insists there’s huge room for businesses and some householders to tailor their power use to market conditions.

That in turn cuts the demand for expensive generators that stand idle most of the year and are only called on a handful of days a year to meet the market peaks.

And it curbs the extreme price spikes that really hurt consumers who absolutely cannot turn off the power – such as a patient on home dialysis.

Adams points out there’s an up-front cost to installing interval meters, and the Ontario Energy Board hasn’t yet made it clear that utilities can recoup those costs through their rates.

Interval meters may also provide better two-way communication with customers, since some systems connect customers to the utility via phone or the Internet.

This allows other innovative demand management measures. A Florida utility, for instance, pays some customers for permission to install devices in appliances, such as freezers, allowing the utility to switch them off for up to an hour when demand soars.

The system saves power equal to the output of a major generating unit.

Political interference

Dominion Bond Rating Service pointed to meddling as a major drawback this month.

"Political intervention creates significant uncertainty for market participants and reduces the incentive to invest in the Ontario market," the analysis stated.

Political meddling has been rife. Local utilities first felt the sting two years ago when they were set free to earn profits and applied for rate increases to boost their margins.

The province immediately introduced legislation to block the increases, then leaned on the energy board to roll them back.

Dominion cites more recent examples. The province put Hydro One up for sale, then pulled it back and fired its directors. Premier Ernie Eves has intervened in the complicated (and still partly secret) formula for determining what rebate OPG must give its customers.

And in announcing its review of the energy board’s mandate, the province has thrown a wrench into plans to sell a minority stake in Hydro One – which is regulated by the board.

Anyone who favours a competitive market deplores the interference, but it’s hard to find a way to stop it.

"Have an election, I suppose," shrugs Carr.

Imports

Many Ontario consumers were startled to discover that electricity imported into Ontario runs on a separate marketplace. Dominion and other market watchers question whether there’s a reason for this.

They say it provides an incentive for generators to build "peaking" plants – those designed to operate when demand and prices are high – outside Ontario instead of inside, so they can enjoy the high prices.

It may also provide opportunities for manipulating prices. The IMO is probing a number of instances where imports were promised but not delivered, leaving the domestic market suddenly short of power and almost instantly doubling the price.

Since Ontario had to pay up to $2 a kilowatt hour for the imports for brief periods (the average energy price is just over 5 cents), it was good for consumers that the imports weren’t allowed to set the price. But businesses still pay the high import prices sooner or later through "uplift" charges that, at times, have doubled the energy portion of their bill.

The reason for the mismatch is that the two markets operate on different time scales. Imports operate on a North American standard, where bids and offers are taken, and are made binding a day ahead of delivery. The Ontario spot market operates on a much shorter lead time.

Carr’s proposed day-ahead market would line up the time frames and allow imports and domestic power to trade on the same basis.

Regulation

The new electricity market has left the Ontario Energy Board scrambling to meet new responsibilities.

It was unexpectedly ordered to ride herd on retail energy marketers following a stream of public complaints about unscrupulous tactics.

The province says it’s reviewing the OEB’s mandate.

The Ontario Energy Association, representing both electricity and gas industries, has applauded the review of the board.

"It needs more resources for sure," chairman Peter Budd said, arguing it should have a status similar to the Ontario Securities Commission.

That includes freedom to set its own pay scales to attract top talent. Currently the board is bound by Ontario civil service pay scales. It’s one area in which there does seem to be consensus across the spectrum.

Stopping the market

The NDP’s Howard Hampton argues that electricity is too important to be left to the mercy of the market.

Because OPG, Hydro One and most municipal utilities are still in public hands, Hampton says, it’s not too late.

The current market system, Hampton charges, is "wide open to manipulation."

He says any efficiencies gained by privatization are offset many times over by the higher rates that will be needed to pay profits to private generators, transmission firms, local utilities, marketers and retailers.

"When you add in the new profit takers, the new fee takers, the commission takers and the new taxes, electricity is more expensive for the consumer."

Hampton acknowledges that the old monopoly wielding Ontario Hydro became too powerful, but he says it could be held in check by a vigorous, well-funded energy board.

John Spears
Toronto Star
October 26, 2002

A safety defect discovered at the Darlington nuclear generating station in mid-August triggered a warning that the huge plant could have been pulled out of service during a summer of record electricity demand.

No shutdown was ordered, the plant continued to operate and the province’s lights stayed on. But the impact of the warning, which came after an employee happened to see a shaft of light shining through a hole into a supposedly steam-proof room containing vital safety equipment, highlighted Ontario’s shortage of electricity during peak demand periods.

Darlington is Ontario Power Generation’s second-biggest generating station, producing up to 3,524 megawatts of power at any given time. During the summer, the province was using up to 25,000 megawatts, of which up to 4,000 had to be imported.

The Independent Electricity Market Operator, also known as IMO, which runs the province’s power grid, had to ask consumers on four separate occasions this summer to curb their use of power because demand was outstripping supply.

One of those appeals was issued Aug. 12, the day after the safety problem was discovered at Darlington, throwing its continued operation temporarily into question.

Ontario Power Generation reported the safety problem within four hours to the Canadian Nuclear Safety Commission, or CNSC, according to John Earl, a spokesperson for Ontario Power Generation.

"We reported that, along with an action plan," Earl said. "We put forward in the plan how we wanted to monitor, identify and repair these openings."

The plan involved a commitment to inspect all 282 steam-proof rooms at the complex by Aug. 23 and repair all holes within four hours of finding them. Ontario Power Generation also alerted the IMO that Darlington might have to shut down.

"It was a possibility that they would have to remove some or all of the generation from service," IMO spokesperson Ted Gruetzner said in an interview yesterday. "It was a notification to say that we have this problem, that we’re speaking to the CNSC."

Earl said the safety commission had staff on the spot.

If the commission has deep concerns, it can order a nuclear-station operator to show cause why the station should not be shut down. No such order was issued in this case.

Ontario’s shortage of generating capacity has been well documented.

IMO chief Dave Goulding said last month the province is "kept alive by its neighbours" any time the temperature rises above 30 degrees because local generators can’t keep up with the demand.

But the lines that carry imported power were loaded to their limits during the summer. If Darlington had shut down, imports could not have been used to replace the output.

Gruetzner acknowledged that losing Darlington would have put severe pressure on the province’s electric grid, but declined to speculate whether blackouts would have occurred.

The full plant inspection prompted by the employee’s original discovery on Aug. 11 revealed "many more gaps beyond the license limit of 75 square centimetres," according to a CNSC report.

Darlington’s generators are driven by steam, which is heated by its nuclear reactors. Rooms containing important equipment must be steam-proof in case a steam vessel ruptures and spews scalding, wet vapour over the sensitive equipment.

A report filed with the CNSC says the gap in the steam-proof room was found during a "routine inspection."

But according to a transcript of a question and answer session before the commission last month, Darlington vice-president Dominic Iafrate gave a somewhat different account.

"It was due to a very alert operator who, on a Sunday afternoon, looked up and saw a little bit of light coming through that penetration and thought something was amiss," he said.

Some of the holes may have existed since the complex was built. The building in question has a corrugated steel roof and U-shaped gaps where it meets the top of the wall, and "these were not sealed," according to Iafrate.

Norman Rubin of Energy Probe said the incident highlights the dilemma created by reliance on nuclear power. When serious safety problems occur, regulators can be faced with throwing the electricity grid into disarray if they apply safety standards rigorously and order a shutdown.

He said the problem could have been discovered easily if OPG had ever performed the simple test of vacuuming air out of the rooms and checking whether air was leaking back in.

Janet McFarland
Globe and Mail
November 4, 2002

Private-sector companies are growing increasingly reluctant to build new electricity-generating plants in Ontario, arguing the province’s deregulation policies are muddled and the market conditions are poor.

Last week, New York electricity giant Sithe Energies Inc. said it was postponing its plans to build two large power plants in the Toronto region, citing a list of concerns about the regulatory system and the lack of progress in creating a competitive market through the sale of power plants owned by Ontario Power Generation Inc. OPG, a Crown corporation, continues to control about 75 per cent of Ontario’s electricity market.

"The conditions in the market don’t support new investment," says Duane Cramer, vice-president of development at Sithe Energies.

The need for new electricity generation in Ontario has become increasingly acute since the province faced soaring electricity prices this summer because of inadequate supply.

Ontario ended up importing large amounts of expensive electricity from surrounding U.S. states and provinces, and the market operator has forecast a similar situation next summer.

Moreover, OPG announced last week that it is facing another delay in the reopening of the Pickering A nuclear reactors, further postponing another major source of additional electricity.

Mr. Cramer said companies such as Sithe have not been convinced to build, despite the evident need for more electricity in the province.

He said it is difficult for new plants – most of which are gas-fired – to compete with lower-cost nuclear and hydroelectric power plants, and with OPG’s continued market dominance. Nuclear and hydro plants provide Ontario with cheap base electricity, so new power plants have to reap their profits from pricing at peak times – an uncertain basis to justify construction.

As well, Mr. Cramer said new producers cannot develop reliable forecasts about the electricity market in Ontario because of uncertainties about the reopening of the Pickering A nuclear reactors, and unclear dates about the closing of the province’s coal-fired plants.

He said the province’s willingness to continue to invest huge sums of public money in the increasingly over-budget renovation of Pickering A means there is no level playing field for private companies that must compete with OPG.

"It casts a cloud over the market," he said. "There is no private-sector test they have to meet. It’s very hard to envision a private-sector company putting $3-billion into a 30-year-old nuclear plant."

Various private-sector companies have filed almost 50 applications with the Independent Electricity Market Operator (IMO), the government body that manages the electricity system, to build new power plants. But almost no major projects have been launched, despite the fact that Ontario’s reserve margins of electricity are among the lowest in North America.

TransAlta Corp. is nearing completion of a power plant near Sarnia, while OPG and Atco Ltd. are raising money for a joint project they plan to build near Windsor. But other plans for major plants remain on the drawing board, and no new projects have been started in the past year.

Even TransAlta has said it will not invest more once its current project is finished, with chief executive officer Steve Snyder citing concerns about the bungling of the proposed privatization of power lines firm Hydro One and uncertain market rules. In early October, Stanley Marshall, CEO of St. John’s-based power company Fortis Inc., was also highly critical of the Ontario government’s handling of deregulation, saying it has discouraged big players from investing.

Jan Carr, an electricity consultant to the private sector, says private investment is critical to guaranteeing adequate future electricity supply.

"The entire electricity restructuring policy is founded on the principle that demand will be met through market forces," says Mr. Carr of Barker Dunn & Rossi in Toronto. "There’s no question we need it. And it’s not happening."

By contrast, he said the Alberta government has done a better job of attracting private investment by ensuring quick-sale assets to guarantee a competitive marketplace. (Alberta and Ontario are the only Canadian provinces to deregulate their electricity industries.) As well, Mr. Carr said there is not the same lingering political uncertainty in Alberta about possible rule changes, while Ontario has waffled in its plans.

Tom Adams, executive director of Toronto-based industry watchdog Energy Probe, says the private sector has been backing away from Ontario’s electricity sector for the past three years, deterred by delays in opening the market, by the spectre of the reopening of the Pickering A reactors, by major rate discounts offered by the Ontario government to big industrial clients, and by the reversal of the plan to privatize Hydro One.

Mr. Adams says electricity producers are also upset about the IMO’s system of pricing electricity.

Electricity imports are excluded from setting the spot market price, so market conditions are not directly linked to market pricing. Power plants outside Ontario can receive extremely high prices for exports to Ontario at peak times, but plants in Ontario receive far less for their electricity at the same time. This erodes the incentive to build plants in Ontario to capitalize on high costs at peak times.

"When it comes down to it, the big problem in Ontario is chaotic electricity politics," Mr. Adams adds. "All the other problems are fixable, but political chaos has a way of becoming a runaway brush fire."

Paul Vieira
National Post
November 12, 2002

MISSISSAUGA, ON — The Ontario government said yesterday it will cap the price consumers pay for hydro power until 2006 – a move critics contend spells the end of the province’s electricity deregulation, adds billions in taxpayer-owed debt and increases the risk of California-style blackouts.

Ernie Eves, the Premier, said the price cap – at 4.3¢ a kilowatt hour – will be retroactive to May 1, when reforms kicked in to open the province’s $10-billion market to competition. Consumers will be refunded the difference between what they paid since May 1 and what they would have paid at the capped rate.

As a result, households and small businesses will receive initial rebates of at least $75 in the mail by the end of the year – or $300-million in total. The remainder will be credited through future electricity bills.

"There are a lot things you can do without – but electricity is not one of them," Mr. Eves said at a media conference held in a large house in Mississauga.

"It is unacceptable that families are being hit with hydro bills they can’t afford and businesses are facing cost increases significantly larger than they can handle. The problem requires immediate action and we are taking it," the Premier said.

Rebates were originally scheduled to be mailed starting in May, one year after the market was opened.

To make his point, Mr. Eves told the Hardatt family – who hosted the announcement – that a recent hydro bill would be $117.49 less under the new regime.

"For us, I know for sure we were second-guessing whether we would actually bother putting up Christmas lights," Meena Hardatt said. "This will make a big difference."

The price cap will remain in place until at least 2006 and until sufficient supply to meet Ontario’s hydro needs is assured, Mr. Eves said.

The province will fund the rebates through revenue recorded by Ontario Power Generation Inc., the Crown-owned utility that controls 75% of the power production market.

In essence, the government is banking that electricity prices will remain below 4.3¢ a kilowatt hour. Anything exceeding that cap will be subsidized by the province – which critics say is how the debt of the old Ontario Hydro ballooned to $38-billion.

Mr. Eves also said people who signed long-term fixed price contracts, usually at a price of 5.75¢ a kilowatt hour or higher, will be eligible to get the capped electricity rate. However, the province will pay the power retailers the difference.

Provincial Opposition leaders and industry watchers said the move will cost taxpayers billions of dollars.

"[The Tories are] prepared to do whatever it takes to buy the election," said Dalton McGuinty, leader of the Ontario Liberal party.

"Our kids are going to pay a heavy price for this government’s bungling."

"It’s a $1-billion-a-year coverup," Howard Hampton, leader of the New Democratic Party, added. "The government is going to now ask people to subsidize profit-driven hydro companies through the taxes we pay.

"Expect an election within three or four months before the tax pain of this comes out."

Ontario households have seen their hydro bills jump by roughly 25% since the province’s power market was opened to private-sector competition. Under the new system the price of electricity was set on the open market, and the jump in price was largely the result of heavy demand (as consumers cranked up their air conditioners to deal with a hot, humid summer) and acute supply problems (as OPG failed to return the much-troubled Pickering A nuclear facility to service before last summer as originally scheduled).

Deregulation was intended to attract private-sector utilities to Ontario to build power plants. This, in turn, would create competition and lead to lower prices for consumers.

But utilities have stayed away, due to a number of factors, such as delays in introducing deregulation and continued government interference in the market, such as the cancellation of the Hydro One privatization.

John Baird, Ontario’s Energy Minister, will announce as early as today ways the government plans to encourage and entice utilities to invest.

But it will be too little and too late now that the province has introduced a price cap for consumers, said Tom Adams, executive director of industry watchdog Energy Probe.

"Ontario is behaving like a banana republic," he said. "The liberalization of the electricity market has ended because, without a floating price, you have no market. . . . There’s going to be a huge retreat from any investment capital that was still looking for places to go to help solve our electricity problems."

Mr. Adams also warned rolling blackouts are in the offing because households have no reason to reduce power consumption with this new capped price.

"We just barely had enough electricity to make it through last summer. Now, by disconnecting the primary source of energy conservation signals to the market . . . the likelihood of blackouts this winter has gone way up. Not just this winter, but next summer as well."

Paul Vieira
National Post
November 13, 2002

John Baird, left, Ontario’s Minister for Energy, talks with Niagara MPP Bart Maves in Niagara Falls, Ont., yesterday after announcing a plan to boost electricity supply by expanding a generating plant. Credit: Kevin Frayer, The Canadian Press

NIAGARA FALLS – The debt ratings of Ontario utilities were put under review yesterday and a leading brokerage called the province’s decision to impose a price cap on electricity for consumers "A Comedy in Three Acts."

Business leaders were strongly condemning the price cap yesterday, even as John Baird, the Nepean-Carleton MPP and Energy Minister, attempted to lure power producers to the province with new tax breaks.

Industry observers were quick to attack Mr. Baird’s announcement of measures to encourage investment and add much-needed supply to the province’s $10-billion electricity sector.

Plans to allow a Crown-owned utility to pursue two new projects came in for particular criticism, with critics saying it signals a dangerous return to the debt-ridden Ontario Hydro monopoly.

Dominion Bond Rating Service placed the debt ratings of 11 utilities – including the provincially owned Ontario Power Generation Inc. (OPG) and Hydro One – under review with "negative implications."

"The proposed plan, as it currently stands, could have significant negative implications on the financial profiles of these companies," the credit rating firm said. "The plan highlights the high degree of political intervention that exists."

If the utilities’ ratings are downgraded, their cost of borrowing money would increase and the added costs may be passed on to consumers.

In a scathing report titled "A Comedy in Three Acts," BMO Nesbitt Burns described the province’s move to cap prices as "politically motivated," adding it "fails to address the real issues: inadequate supply and unmitigated demand."

"The plan perpetuates the subsidization of electric power rates, this time [potentially] by the taxpayer and municipalities," the brokerage said in its report about the gas and electricity sector.

The cap, at 4.3 cents a kilowatt hour (KwH), is retroactive to May 1. The government has promised to refund consumers the difference between what they have paid since that date and what they would have paid under the capped rate. The province will also make up the difference if the spot price for power exceeds 4.3 cents.

Mr. Baird during an interview yesterday said the government can afford to impose a cap because it expects to bank money at times when the spot price is below 4.3 cents KwH; OPG will be required to set aside revenue and it hopes new plants will come on stream to help drive the price below 4.3 cents KwH.

The Minister tried to persuade producers to bring new plants on line by offering "comprehensive" tax holidays and 100% asset writeoffs. Mr. Baird could not say how much the tax breaks will cost Ontarians and industry observers say the relief will have little or no impact.

"If someone asked me about investing in Ontario [electricity], I would tell them to stick their money in the bank or other places, because the situation in Ontario is full of uncertainty," said Donald Macdonald, a former federal Liberal finance minister and the author of a report that served as a template for Ontario’s attempt at deregulation.

But yesterday’s announcement means the utility is set to get bigger. "This marks the return of Ontario Hydro," said Tom Adams, of the watchdog group Energy Probe.

"These are all old Ontario Hydro projects that are being brushed off and brought forward as if they are some kind of solution to the problem."

The Minister said he asked OPG to pursue two projects – an expansion of its Beck hydroelectric facility in Niagara Falls and the rehabilitation of the gas-fired Hearn plant on Toronto’s waterfront.

Andrew Coyne
National Post
November 20, 2002

The McGuinty Clean Air Plan, as it is described on the Ontario Liberals’ Web site, was designed to address a serious problem, indeed the most serious problem imaginable – simply, that "the air we breathe is killing us." Boldly confronting the crisis, the Liberals proposed what can only be called emergency measures: among them, a 5% reduction in the province’s electricity consumption by 2007, to be accomplished in part by shutting down all of its coal-fired generators.

But that was until last week, and the Conservative government’s abrupt decision to put the Ontario electricity market, barely six months after it was deregulated, under the equivalent of martial law, rolling back rates to 1995 levels and freezing them there until 2006. At the time, the Liberal leader, the eponymous Dalton McGuinty, denounced the Tories for their opportunism, suggesting that the cost of maintaining rates below market levels – by rebating the difference to consumers – would prove unsupportable. It was, he said, a "quick fix, a transparent attempt to buy votes, to buy our favour with our own money."

As I say, that was last week. This week, Mr. McGuinty announced that the quick fix he had denounced not seven days before is now Liberal party policy. A Liberal government, he declared, would freeze rates at the same 4.3 cents per kilowatt-hour as the Tories, and for the same time frame. As long as votes were being bought, he was not about to be outbid. And how would he pay for this? "Likely through higher debt at Ontario Hydro." So there’s one difference. He would not buy our favour with our own money. He’d buy it with our children’s.

Welcome to the new, revised McGuinty Clean Air Plan: The government will borrow billions of dollars to subsidize energy consumption. It will, in effect, pay people to pollute the air. So kiss goodbye to any hope of reducing consumption, and with it any notion of getting out of coal. The province is going to need every watt of supply it can find just to keep pace with the demand it is furiously stoking. And what was that about Kyoto? "Ontario Liberals," the party Web site claims, "have been behind the Kyoto protocol all along." Not any more, it seems.

So we will have subsidies for energy consumption: Both parties now favour that. But that might mean shortages, especially since private supplies of power have dried up, investors being unwilling to enter a market in which their assets could be confiscated at any moment by sudden shifts in policy. So we will also have subsidies for production. The government’s "plan" talks of spraying funds on new and alternative energy sources. But by far the biggest subsidies will go to patching up the province’s existing nuclear plants, the same ones that were responsible for most of the $38-billion in debt run up under the province’s previous experience with a state-run energy monopoly.

Oh, I almost forgot: There will also be subsidies for conservation. The same government that pays you to consume will also pay you not to consume. But since it is in fact you that is paying either way, the government’s plan amounts to taxing you twice (three times, if you count the subsidies to producers) to no net effect. Is it possible, do you think, that this policy could be improved upon?

Yes it is. Rather than subsidizing everybody, we could stop subsidizing anybody: charging consumers the full cost of energy, while forcing producers whose costs exceed competitive market rates to go out of business. It will not be easy for the government to extricate itself from the mess it has made of electricity deregulation, whose collapse was all but preordained by flaws built into the very foundation. Having frozen rates, moreover, it will be politically difficult to unfreeze them. But it can be done.

The first necessity is to get private suppliers back into the market. It isn’t only mistrust of the government that has deterred them. It was the prospect of competing with a government-owned supplier, Ontario Power Generation (successor to Ontario Hydro), with 70% of the market and most of its assets already paid for – the government having thoughtfully lifted the debts incurred in their acquisition off of its balance sheet. Breaking up OPG and selling its non-nuclear assets, as the government was originally advised to do, would make it possible for private suppliers to compete, while sending a signal of the government’s commitment to a market solution. Over time, the nuclear plants could be retired, as lower-cost private power, mostly from natural gas, filled the gap.

A well-functioning private market could in all likelihood deliver power for less than the regulated rate. To give private suppliers a further incentive, the government should announce that, once wholesale rates have stabilized at less than 4.3 cents a kilowatt-hour for some sustained period – six months, maybe 12 – it will decontrol retail rates. Producers would be assured of a free market, consumers would benefit from lower rates, and – best of all, from the government’s point of view – it would all happen after the next election.