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Ontario Power Generation board chair Bill Farlinger, who was fired Thursday, was appointed by Mike Harris

Answers still owed on Pickering fiasco

Toronto Star - December 6, 2003
by Jennifer Wells

On May 30, then energy minister John Baird made what at the time seemed a simple, if aggravatingly belated, pledge. "Ontario taxpayers," he said, "are entitled to know the details of the Pickering A restoration project."

Thus was launched the three-person investigation into the botched refurbishment of the four nuclear reactors that constitute Pickering A. Led by former federal energy minister Jake Epp, the sum of that investigation is now known: The nuclear recovery plan has been reconfirmed to be massively over budget, its final financial destination still unscheduled; and the chair of Ontario Power Generation, accompanied by the corporation's two top executives, has been thrown over the ramparts.

But the cursory Epp review leaves unanswered the biggest question of all: Where'd the money go?

Absent a full forensic audit, the answers due to Ontario taxpayers will not be forthcoming.

It's easy to get scared off the OPG file. One only has to hear the term "stranded debt" to recall that all matters related to Hydro are thickly mudlike.

So the only thing for it is to tease a few highlights from the Hydro briefing book and then ask, do we really know all we need to know?

The question puts me in mind of a tart letter erstwhile Hydro chair Bill Farlinger sent to the Financial Post in August, 1997. Farlinger, appointed to the chairman's job by premier Mike Harris in 1995, was displeased by an opinion piece run in that paper asserting that the Hydro board had been asleep at the switch. "Boards do not and cannot manage companies," wrote Farlinger. Rather, boards oversee management which in turn manage companies and it's up to boards to get rid of bad management.

The Hydro board, steered by Farlinger, had found itself overseeing a company in crisis. That August a multi-volume report landed in their laps documenting widespread management distress, and compromised safety margins, throughout Hydro's nuclear fleet. During the course of a single meeting that month, the Hydro board took the radical decision to adopt what was known as the Nuclear Asset Optimization Plan, or NAOP. As part of the plan, the four units at Pickering would be laid up, with a staged restart commencing in the spring of 2000. Or so it was hoped. The initial cost estimate was reported at $800 to $900 million. (The Epp report puts the price tag at $780 million.)

Bill Farlinger had taken the message to the people on Aug. 13, 1997, lamenting that the nuclear operations bore the signature marks of a "cult" and proclaiming that dramatic action had been taken to fix the mess.

As he said in his letter to the Post, "most of the senior management in nuclear were dismissed," the CEO, assuming responsibility, had resigned, and a new management team of experts had been recruited from the U.S. "All these events were driven by Ontario Hydro's board. And the board has directed the new nuclear management team to fix the problems and return our nuclear fleet to world-class standards, and authorized the financial plan to do so."

The speed of the board's decision to adopt NAOP was so startlingly swift, that an all-party select committee, chaired by MPP Derwyn Shea, was launched to peer into Hydro's nuclear affairs.

One engineer described Pickering as a `candy store.'

A reread of Hansard offers a number of key reminders of the top-of-mind issues of the day: Committee members asked over and over how a board could make such a great big decision so quickly, and how it was that no other options were considered, and how it was that NAOP could be embraced absent a financial model against which to test its assumed outcomes.

And what, precisely, did Bill Farlinger bring to the table vis vis credentials? The career accountant referenced a couple of studies he had done on the industry. Farlinger's interest lay in electricity reform, not in nuke operations. But upon the departure of Hydro's beleaguered CEO, it was Farlinger as chairman who then assumed additional responsibilities as the utility's president, and its CEO. As far as who was responsible, operationally, for Hydro, no one was more responsible than Bill Farlinger. "I don't pretend to be qualified to be the CEO of this company," Farlinger told the committee. "I just happen to be that for the time being."

In responding to committee questions, Farlinger asked one himself: "Where did we go wrong? How could we have improved on the past? I don't know. We do need open accountability in a government-owned company and we haven't had completely open disclosure of everything that was going on in the company, particularly in nuclear. That's my take on it."

In March, 1998, Ron Osborne stepped in to take on the job as chief executive officer.

Like Farlinger, Osborne knew not the first thing about running a utility. But competition in electricity was looming, and taking Hydro's generating assets through the process of "decontrol" was seen as the great task.

As for the nuclear operations, well, experts had been hired to take care of that little problem.

Happily for a multitude of American nuclear types, the massive nuclear recovery operation meant massively well-paid jobs. Ontario taxpayers have been offered just a small peek into the rich rewards offered to the imported talent. While Ron Osborne, by example, scored a salary of $775,000 in 2000, a fellow named Gene Preston, who was in charge of the Pickering project, scored $1.1 million that year.

Two years later, his last with the utility, Preston took home slightly more than $1 million in salary, received a car allowance of $22,500, a bonus of $76,500 and $1.4 million in a retirement payout, for a total of more than $2.5 million, which does not include the paid-for costs to move back to the U.S. and the purchase of the man's home.

Ontario Power Generation never did offer an official explanation for Preston's sudden departure a little over a year ago, but we can guess. The project of which he was in charge was an unmitigated disaster.

Under Preston, and others hired by him, an entire strata of super-paid nuclear engineers appeared at Pickering, dubbed onsite as the Million-Dollar Club.

One engineer who was hired described Pickering as a "candy store." The scuttlebutt amongst disaffected former employees is that the utility is facing hefty pension exposure for short-term super hires. None of this has been probed, at least not for public consumption. Six years after Bill Farlinger proclaimed a desire for "open accountability" taxpayers can scrutinize little beyond this week's much discussed salaries of the departed executives, and Farlinger himself.

What else is there? Last month, I wrote about a little known job shop called PowerSource Canada, which emerged from nowhere in the spring of 2002. Immediately upon incorporation, the company with no history was awarded untendered contracts for Pickering assignments. The company has no offices, and a CEO who resides in Chicago. How this outfit suddenly emerged to be the recipient of at least tens of millions of dollars in contract work is not known.

OPG declines to answer any questions on the company. A day after the story ran, OPG's Graham Brown, who was chief operating officer at the utility until Thursday, sent out an all-points e-mail to OPG workers saying that he "promptly and thoroughly investigated" PowerSource using an "external specialist firm" after receiving anonymous communications from staff. "No evidence of any wrong-doing by PowerSource, OPG or any employee of OPG was found."

On Wednesday, OPG decline to offer any further clarification, such as naming the external firm. "These matters are of a commercial nature or are protected by employee/employer confidentiality," said OPG media relations manager John Earl in an e-mail.

OPG has been hiding behind this thin veil for far too long. The Epp report serves as an executive summary of one of the biggest boondoggles ever. Now let's start to crunch some numbers.

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