HYDRO: ON THE EDGE

The deregulated market faces an uncertain future

Toronto Sun - September 15, 2002
By Alan Findlay

The men and women who power up your lights and air conditioners are breathing a giant sigh of relief this week.

It's been a long, hot summer that has left them frazzled and counting their blessings that the system squeaked by with enough power.

As the mercury soared and people set their air conditioners to "igloo," the agency overseeing Ontario's electrical market declared emergencies on 23 days when power supplies became a concern.

The province's generators were cranked to the max, transmission wires to neighbouring provinces and states were importing power at full capacity, and the public was asked to conserve power by turning down air conditioners and turning off unnecessary lights.

Even then, the Independent Electricity Market Operator (IMO) was forced to hedge back electrical output in order to spread the available hydro across the province.

"Those are the days we're right to the edge," IMO spokesman Ted Gruetzner said.

Dave Goulding, the Operator's CEO, painted a stark picture of the summer scenario during a meeting of the Ontario Energy Association last week.

"Any time the temperature hits 30 degrees, we're going to be kept alive by our neighbours," Goulding reportedly said. "Clearly what we need is more internal resources, more generation."

And with tight supplies under the new electricity regime, bigger bottom lines on electricity bills soon follow. The generation charge averaged 6.4 cents per kilowatt hour in August. By comparison, the set generation price prior to the major market change on May 1 was 4.3 cents.

SEASON OF SUCCESS

Even so, surviving a record-breaking hot summer is widely considered a success within the electricity industry and the provincial government.

The fact that Ontario squeaked through is a sign that the province's infant deregulated system is up and running, Andrew Johnson, Bruce Power VP of power marketing, said.

"This actually has been a success story."

But it's a far cry from the scenario provincial energy ministers had long been promoting as the brave new world of competitive electricity companies generating electricity and delivering it door to door.

"I've said time and time again that we are not California, nor are we Alberta. We have the opposite problem of California and Alberta. We have plenty of supply," Jim Wilson declared in the Ontario legislature on May 16, 2001.

What a difference a hot day makes. New Energy Minister John Baird refused to say last week whether he was confident there would be enough power during the coldest days of the coming winter or the hottest days of next summer.

"I don't have a crystal ball," Baird said.

Next Friday, the IMO will be releasing its own crystal ball projections of how it predicts Ontario will fare in the next three high- demand seasons. Gruetzner said the agency's officials are reluctant to tip their hand to what will be in the 18-month outlook report, but there are signs of both hope and concern in the eyes of others.

Bruce Power's Johnson lists several new generation projects expected to be up and running in the coming months and years. His own company's nuclear plant expects before next summer to restart a generator that will add approximately 750 megawatts to the province's summer peak of 25,400 megawatts. Another 750 megawatts will soon follow, he said.

Pickering's nuclear plant is expected to start up 500 megawatts of new generation by early in the new year, in time for the winter power crunch. In total, Pickering A's restart will add 2,000 megawatts to the grid over the next three years.

Smaller projects in Windsor and Sarnia are also in the works, Baird said last week.

Ontario's electricity grid company, Hydro One, will also be able to plug into 500 megawatts of additional power from Michigan sometime next year, a company spokesman confirmed.

Another factor that bodes well for the future is that Ontario winters have been warming up along with the summers.

Contrary to the historical pattern, Ontarians haven't been sucking up as much electricity to fight the cold in recent winters as they have been to beat the heat six months later. Given that new trend, last summer should be as bad as it gets, the optimists argue.

The view from Energy Probe's Tom Adams isn't so rosy.

The former IMO director said both nuclear restarts have already been delayed and are coming in overpriced, which creates uncertainty around future supply.

MARKET UNCERTAINTY

The fact that Bruce Power's parent company, British Energy, is facing insolvency adds even more uncertainty to the market.

Combine that with a system fatigued from a strenuous and extraordinarily hot summer and low water levels for hydro-electric generators and people should be wondering whether the lights might dim one day soon, Adams warned.

"Prices are going to be high and volatile and the IMO's going to get real nervous about reliability," Adams said, referring to the agency's upcoming 18-month projection.

"If you go back over the last several 18-month outlooks, the IMO's been getting gloomier and gloomier."

The good news for the fall is that prices should start settling back down as temperatures cool.

The milder weather also means relief for plant managers hoping to tune up their generators for winter, Adams said.

"The power system right now is really tired," he said. "It needs some R and R. It needs to go into the shop for rehab."

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