Energy Probe

Thomas Marr-Laing
Globe and Mail
June 13, 2002

Letter to the Editor:

OTTAWA — Re Unfettered Electricity Markets Fuel Cynics In Alberta (June 6): Tom Adams of Energy Probe suggests that electricity deregulation in Alberta has helped the province move to a less coal-dependent power system. This offers a limited reflection of what’s really happening in this province.

While we have seen an increase in natural gas generation and wind power relative to coal since deregulation, more than 2,400 megawatts of new coal generation has been announced – half of this capacity has been approved and one plant is under construction.

Companies are more wary about placing 40-year bets on coal plants, so, to offset the economic uncertainty of deregulation, the provincial government and industry have agreed to weak (i.e. cheap) pollution-control standards.

In fact, Alberta is on a track to increase greenhouse gas emissions from the electricity sector by more than 80 per cent by 2010, with large increases in emissions of particulate matter, nitrogen oxides, sulphur dioxide, mercury and other pollutants as well.

The future of deregulation points to higher consumer prices, higher pollution and more coal.

Thomas Marr-Laing
Director, Energy Watch Program, Pembina Institute

Alan Findlay/Queen’s Park Bureau
Toronto Sun
July 24, 2002

A recent political appointment at one of Ontario’s electricity companies is raising concerns about more trouble ahead following the controversy at Hydro One.

The province recently hired Michael Gourley as CEO of the Ontario Electricity Financial Corp., which manages the $38-billion debt racked up by the old Ontario Hydro.

"Gourley is high-priced help," Tom Adams of Energy Probe said. "This guy is not a B-team player, so he’s an expensive guy."

Gourley was deputy minister of finance when Premier Ernie Eves was minister of finance in the mid-1990s.

He then headed for Bay Street as a consultant with Price-Waterhouse Coopers.

Adams said Gourley’s arrival suggests that the financial corporation faces serious problems. The company has already missed three consecutive statutory deadlines in filing public reporting of its finances, he said.

"Gourley’s got a tiger on his hands here," Adams said, adding the company’s massive chunk of public liability has likely grown to $40 billion, thanks to problems at sister companies Hydro One and Ontario Power Generation.

First, former premier Mike Harris’ planned IPO was scrapped by his successor Ernie Eves. The company’s board later resigned.

Last week, the interim board fired president and CEO Eleanor Clitheroe, citing six-figure travel and recreation expenses.

Liberal MPP Michael Bryant said there may be another electricity shocker in store for the public and electricity ratepayers.

"It looks like they’re bringing in the top guns to clean up a company that has failed to produce any public disclosure," Bryant said.

John Spears
Toronto Star
September 5, 2002

The unfunded debt left by the former Ontario Hydro has increased during the past year, newly released financial statements show.

And one energy critic predicts the special debt reduction charge that consumers are now paying on their hydro bills will have to be increased if there’s to be any hope of paying it off.

The annual report of the Ontario Electricity Financial Corp., or OEFC, which holds the Ontario Hydro debt, shows the unfunded portion of the debt has grown by $700 million since OEFC assumed it in 1999.

Ontario Hydro left debt of $38.1 billion, but part of it was offset by assets worth $18.7 billion, leaving an unfunded debt of $19.4 billion when OEFC took over. It is also referred to as stranded debt.

The latest annual report shows the stranded debt had grown to $20.1 billion as of March, 2002. It was $20.0 billion a year earlier.

The province has earmarked incomes generated by Ontario Hydro’s successor companies, and payments in lieu of taxes made by the province’s local utilities, toward paying it.

But Ontario Power Generation, which owns about 70 per cent of the province’s generating capacity, restated its earnings last year, which reduced the money flowing to OEFC.

Tom Adams, executive director of Energy Probe and a critic of Ontario Hydro’s financing, said the news is discouraging.

"At the rate we’re going, we’ll never pay off the stranded debt," he said. "We’re not quite treading water."

Electricity users in Ontario are paying a special charge of 0.7 cents a kilowatt hour to help pay down the stranded debt. But Adams said the charge – which was supposed to be temporary – will become long term, and will likely increase to 1 cent a kilowatt hour.

Adams noted that OEFC’s report projects the debt will be retired in 2012, rather than earlier projections of 2010.

"From year to year, they might be changing all kinds of things," he said – including, perhaps, an assumption that the special debt reduction charge might be increased.

Reuters

October 3, 2000

The following statement was released by the ratings agency

New York, Oct. 11, 2002 — Standard & Poor’s Ratings Services today said that the potential for ongoing political intervention could affect its credit ratings on Ontario utilities in the future. Up until recently, political intervention has been restricted to the predominantly government-owned electricity industry. This intervention resulted in the weakening of the financial profiles of all electricity distribution companies, except Hydro One Inc. (A/Negative/A-1), due to the three-year phase-in of the 2001 ROE revenue requirement, and the cancellation of the privatization of Hydro One, which has materially reduced the company’s financial flexibility, as well as significant changes in the executive management team and board of directors of the company.

More recently, Ontario Premier Ernie Eves indicated in public comments that despite Ontario Power Generation Inc.’s (BBB+/Negative/-) (OPG’s) divestiture of about 6,700 MW of generating capacity, the rate cap could remain in place until 2004, contrary to the terms of the Power Mitigation Agreement that stipulated there would be an easing of the applicable rate cap as OPG reduced its market share. Further, Mr. Eves also recently commented on the potential enhancement of the Ontario Energy Board’s (OEB’s) powers to protect consumers against rate increases after an OEB decision involving Union Gas Ltd. (A/Stable/-). Union Gas is one of only two nongovernment-owned utilities in Ontario. Although Standard & Poor’s will not take any immediate ratings actions, ratings assessments in the future will incorporate the effect of a potentially less supportive regulatory environment, the growing risk of political intervention, and a lack of transparency as to the driving forces behind future regulatory decisions or outcomes.

Eric Reguly
Globe and Mail
May 3, 2003

The lights were on yesterday in Ontario, and what a luxury that was. When ample juice should have been available – a day too cool for air conditioners, too warm for heaters – the province still had to import electricity because about one-third of the generating capacity was under repair and out of commission. It did so at horrendous cost.

In the morning, paying for imports pushed the average hourly price to 15.4 cents a kilowatt-hour, or 3½ times higher than the 4.3-cent rate freeze imposed on half the market – big industrial and commercial users still pay market rates – by Ontario Premier Ernie Eves.

By the afternoon, the price had fallen to 6.15 cents, still substantially above the fixed rate. And who paid for the difference? Taxpayers did. The extra cost is piled on to the debt of Ontario Electricity Financial Corp., one of the successor companies to the old Ontario Hydro.

Since May 1, 2002, when the Ontario electricity market was opened, only to be slammed shut a few months later by Mr. Eves, who saw votes vanish as the deregulated price rose, the farcical economics of deploying taxpayers’ money to subsidize taxpayers’ electricity bills has cost an estimated $500-million to $700-million. In theory, new generating capacity, combined with acts of God in the form of moderate summers and winters, are supposed to drop the price below 4.3 cents during big chunks of the year, thus paying off the subsidy.

This hasn’t happened. According to the Independent Electricity Market Operator, the trading hub of the wholesale electricity marketplace, the average electricity price since last May has been 5.84 cents, or 36 per cent above the fixed rate.

So here we are, on the first anniversary of the historic opening of the Ontario electricity market, with a closed market that is providing the taxpayer with a negative return on investment. As the costs to the taxpayer have climbed, so has the electricity market’s unreliability factor, to the point that brownouts and rolling blackouts are distinct possibilities this summer.

How do we know that shortages loom? If the government were certain it could manage with existing generating capacity, topped up by imports now and again, it wouldn’t be installing two diesel-fired emergency generators in Toronto.

The plan to install the temporary generators was revealed a few days ago. The reversal is remarkable. Ontario’s move to an open electricity market originally came with a commitment to shunt generating capacity into the private sector, and make it cleaner by phasing out the old coal and oil burners that are Kyoto’s public enemy No. 1.

Now, the government is back in the generating business and has picked the dirtiest way to produce electricity (Eliot Spitzer, take note; the New York State Attorney-General is using NAFTA to press Ontario to reduce pollution from three coal-fired Ontario plants).

Still, the presence of the emergency generators may not be enough to keep the lights and air conditioners on.

The electricity brain trust at Queen’s Park apparently miscalculated a couple of things. The first was the return of the massive Pickering nuclear station, where four of the eight generating units, each capable of pumping out 500 megawatts, have been idle for more than five years.

The overhaul of the units is costing billions (original estimate: $800-million), and the first of the four units was supposed to be back in action at the end of 2000. All four are still inactive and the latest target date for the startup of the first – June – seems fantasy. Without Pickering, combined with startup delays in the Bruce 4 nuclear reactor, the potential for electricity shortages this summer can only soar.

Basic economics was the other monster miscalculation. When you price a product at artificially low prices, customers tend to take advantage of the discount.

So it is with Ontario’s electricity. Users know that, no matter how much they use, the per-kilowatt price remains the same. So leave the Christmas lights on all year.

Energy Probe‘s Tom Adams, whose predictions on the unravelling of the electricity market were prescient, conservatively estimates the rate freeze has boosted demand by about 500 megawatts, equivalent to almost 2 per cent of Ontario’s theoretical generating capacity of 27,000 megawatts. His calculation is based on electricity price elasticity data, where, over the short term, a 10-per-cent price increase cuts demand 1 to 2 per cent (over the long term, the same price increase would reduce demand by 7 per cent).

Put the two factors together – rising demand because of the artificially low price, and a severe shortage of generating capacity – and you have a recipe for a fine summer’s day electricity blowup. Watch for a diesel generator to be installed in a neighbourhood near you.

Elaine Della-Mattia
The Sault Star
September 30, 2003

Calling the provincial election race in Sault Ste. Marie "neck-and-neck," Liberal leader Dalton McGuinty swooped into the city Monday with just days remaining in the campaign.

He told party faithful at the Marconi Hall that the latest polls indicate the Liberal and NDP "are in a dead heat" locally.

The Liberals have not won the Sault Ste. Marie riding since the 1930s.

Introduced to the crowd as "the next premier of Ontario," McGuinty took centre stage between local candidate David Orazietti and Algoma-Manitoulin Liberal incumbent Mike Brown before a lunchtime crowd.

"I know that we are in a very close race here," McGuinty said. "I’m saying to the people of Sault Ste. Marie – join us. We can bring us real positive change."

Incumbent NDP Tony Martin, seeking his fourth-term, responded Monday that NDP polling shows that he is still ahead but it’s not a vote that he’s taking for granted. "We’re still out there pushing hard to the wire," Martin said.

"We’ll work to the end for the last vote and get them all into the ballot box."

McGuinty said that the Liberal team is ambitious and aspires to something better than what currently exists in Ontario.

The new government must make improvements to the health care and education sectors while still living within Ontario’s financial means, he said.

McGuinty’s address focused on his party’s platform to improve health care by expanding the number of hospital beds, shortening waiting lists and increasing the number of doctors and nurses by expanding medical schools.

The Liberals say that since 1995, the number of communities with a shortage of family doctors has more than doubled to 122.

In Sault Ste. Marie, more than 12,000 people do not have family doctors. The city is short at least eight doctors and Northern Ontario is short at least 119, McGuinty said.

He said his government would set up 150 family health teams of doctors, nurses and other health care professionals along the lines of the Sault’s Group Health Centre.

McGuinty told reporters afterwards his government would examine the Sault Area Hospital’s proposal for a new facility and try to get that built, keeping costs under control.

"Let’s make sure we keep those costs under control and we will be there for our share," McGuinty said.

He added that he is willing to sit down and talk to local officials about the new hospital plan but has concerns about escalating costs.

"I also have a sense of responsibility to ensure that we are prioritizing the health care system for this community," he said.

McGuinty promised to stop taking government jobs out of the North but made no specific commitment to return the lost Ontario Lottery and Gaming Corp. jobs to Sault Ste. Marie.

"We will work to ensure that we strengthen the local economy," he said.

Orazietti said "we have been ignored in Sault Ste. Marie for 13 years and it is time for change."

Orazietti, a city councillor currently completing his second term, said the city needs representation inside Queen’s Park where the decisions are being made.

"We can’t afford one more day of NDP representation in this city and frankly we can’t afford four more years of a Tory government that has taken jobs out of Northern Ontario, underfunded our health care, underfunded our education and left us with soaring energy prices," he said.

Earlier in the day in North Bay, McGuinty pledged to build more hydroelectric generating plants to boost the province’s power supply.

"Either we can go without electricity or we can ensure that we have enough electricity. We will proceed in a measured and prudent way to ensure we have enough electricity that we need in the province of Ontario."

The Liberal platform includes incentives to producers and users of wind and solar power. Residents who use excessive amounts of power would pay a higher rate and "smart meters" would record both how much and when the power is used.

The current rate cap would be kept in place until 2006, he said.

But electricity watchdog Energy Probe has said there is no way the rate freeze can last until 2006, noting "there’s just not enough money to go around" to cover the difference between the freeze and the market cost of electricity.

– With files from The Canadian Press

Scott Anderson
NOW magazine
December 20, 2001

As the tories set the stage for commercialized electricity in Ontario, behind-the-scenes private interests are revving up for the pending power trading frenzy. Giant U.S. power marketers like Enron Canada, whose Houston-based, George W. Bush-connected parent company recently filed for bankruptcy protection south of the border, have been lining up to get a piece of the action. Large, shareholder-owned power marketers have become prominent players over the last decade as states south of the border deregulated electricity in the belief that an open market and more choice would mean lower costs for consumers.

For better or worse, for the last few years the Ontario government has been quietly moving us toward total integration with power markets in the U.S. northeast, effectively breaking down the border for a small army of private players.

"We really are evolving into more of a North American marketplace," says Francis Bradley, vice-president of the Canadian Electricity Association, representing Canada’s 30 largest utilities.

In December 1999, Ontario’s Independent Electricity Market Operator (IMO), set up by the Tories to manage the deregulated market, signed a memorandum of understanding with equivalent organizations in New York, New Jersey, Pennsylvania and the New England states to "develop a seamless regional market for wholesale electricity trading," as IMO president and CEO Dave Goulding put it.

But despite what you might think, this "seamless market" didn’t exactly come out of an FTA-like, bilateral trade negotiation. The impetus was actually an arbitrary order from the U.S. Federal Energy Regulatory Commission (FERC) that requires utilities south of the border to form regional free trade power blocs. FERC’s idea is that offering customers more choice through a larger free market will keep prices low.

And so, if Canadian players want access to those markets, we basically have no choice but to sign on. Addressing the Toronto Board of Trade two years ago at a "power breakfast," FERC commissioner Brenda Breathitt delicately put it this way:

"We acknowledge the sovereign authority of Canadian governments over Canadian entities and transactions that take place in Canada. Nevertheless, we continue to believe that expansion of electricity trade in the North American bulk power market requires that regional institutions include all market participants so that everyone may enjoy direct access to market information and the benefits of (lower) transmission rates."

As if that weren’t enough, in the mid-1990s FERC also issued Order 888, which requires Canadian power generators who want access to wholesale markets in the U.S. to obtain a licence from FERC. But to obtain that licence, the provinces’ utilities must first demonstrate to FERC that their markets are open to U.S. power. Although Ontario Power Generation already sells power to neighbouring states, they can’t sell directly to non-border states without a FERC licence.

These FERC orders have effectively paved the way for U.S. power interests to invade Ontario.

Power marketers like Enron treat electricity like a commodity, not a public trust. They buy and sell wholesale electricity on the "spot market," which has been described as "institutionalized day trading." As well, they provide long-term power at fixed rates for customers including municipal utilities and large corporations.

They’ve been criticized as middle-men who are only interested in buying power low and selling it high. But like them or not, power marketers are expected to be significant players in the new Ontario power scene.

"I would expect (electricity) trading to grow from nothing in Ontario to significant fractions of the annual volume of generation," predicts U of T economist Donald Dewees.

For a variety of reasons, lower rates and reliable supply were not exactly the outcome when the markets recently opened in California and Alberta. While the problems in those markets can’t be blamed entirely on the power marketers, they have been significant players in those markets.

"I like the idea of marketers being around," says Energy Probe‘s Tom Adams. "I like the liquidity they offer – it ultimately helps customers. But at the same time, they’re always going to be trying to gain (from) the system for their own benefit. It’s only safe if you’ve got effective regulators."

Adams doesn’t mince his words when it comes to assessing Ontario’s regulator, the Ontario Energy Board.

"It’s a disaster area," he says. "We’re in big trouble."

There’s already widespread fear here, even among some of the province’s largest corporations, which rely on abundant, cheap power for manufacturing, that prices will rise once Ontario’s market is deregulated in May.

Currently, over 250 organizations have registered with Ontario’s new IMO to participate in the competitive market. Included on that long list are some of North America’s largest power marketers, including, Aquila Canada, Duke Energy Marketing, Dynegy, El Paso Market Energy, Mirant Americas Energy Marketing, TransAlta Energy Marketing and, of course, Enron.

In fact, Enron Canada’s president, Rob Milnthorp, is actually a "stakeholder" member of the board of Ontario’s IMO, which is interesting considering that the organization, legislated into existence by the Tories, is, according to its Web site, "independent of all other players in the industry and is managed in the interest of all involved." As well, the IMO board "approves the market rules, policies and guidelines which govern the IMO-administered markets."

Enron Canada has already carved out a significant piece of the wholesale power pie in the competitive Alberta market, including the right to exclusively market power from the province’s Sundance generation facility, which the company recently sold off.

Enron was a big player in Alberta, according to William Lacey, an electricity market analyst with FirstEnergy Capital in Calgary.

According to Lacey, Enron transacts approximately $14 billion in gas and electricity contracts in Canada per year. Since January 2001, Enron Canada has entered into 30,000 contracts representing 30 million megawatt hours.

Enron Canada officials were unavailable for comment.

But if the company ultimately ceases operations (it wasn’t part of the parent company’s bankruptcy filings in the U.S., but it recently lost a court battle in Alberta to keep customers from cancelling contracts), it will no doubt deal a blow to the free power market in Alberta.

"Is that a good thing or a bad thing?" reflects Lacey. "I guess it depends on what side of the fence you’re on. Some people view the marketing side of the business as not adding any value – they’re lining their own pockets. And other people say they create a market that may not (otherwise) be there."