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Ontario's hydro bill: $40B

Energy minister pegs high cost of upgrading aging system
Critics fear way being paved for sell-off to private sector

Toronto Star - March 18, 2004
by Richard Brennan and John Spears

Ontario is looking at a staggering price tag of up to $40 billion to upgrade the province's aging electricity system, Energy Minister Dwight Duncan said yesterday.

"It could well be one of the largest peacetime investments in the history of this country," he said.

At a news conference, Duncan strongly hinted that the near-bankrupt Ontario Power Generation could be broken up, which critics say paves the way for a sell-off to the private sector.

A financial review has concluded that money-losing OPG's survival is in question.

The provincially owned company produces 70 per cent of the province's power, and Duncan said something has to be done soon to get more power on line before 2006-07, which he calls "crunch" time when demand for electricity will outstrip supply.

Because the Liberal government has promised to close the five coal-fired plants by 2007 and the aging nuclear plants are either down for repairs or acting up on a regular basis, Ontario is faced with a serious power shortage.

Duncan said he could not say whether prices will have to go higher than the 4.7 cents a kilowatt hour for the first 750 kilowatt hours and 5.5 cents for anything after that, effective April 1. The price is being increased slightly from the cap of 4.3 cents per kilowatt hour put on by the former Conservative government.

"What I can tell you is this ... if we don't respond prices will go up," the minister told reporters. "Doing nothing is not an option."

Duncan said he will spell out where the $30 billion to $40 billion is going to come from when he lays out the government's plans to improve generation some time in the fall.

New Democrat MPP Peter Kormos (Niagara Centre) said is "pretty clear" that the government is "laying the groundwork to dismantle power generation, to privatize it, to sell it off piecemeal." "The sad observation is that the privatization and deregulation of electricity in this province ... was supposed to provide more supply, lower cost, reduced debt, but in fact it has increased debt, reduced supply and increased cost," Kormos said.

Tory MPP Garfield Dunlop (Simcoe North) said it would be irresponsible for the government to close the coal-fired plants in less than three years without knowing what will replace them. "He is trying to keep one of his promises that they made during the election to close the five coal-fired generating plants, but my guess right now is that it won't happen," Dunlop said.

Duncan noted that the province has to remain competitive with such neighbouring states as New York and Michigan so that power-hungry Ontario industries can compete.

He has said he hasn't ruled out the construction of new nuclear plants, which would take eight to 10 years to produce power, but he promises the government's plan will call for a mixture of generation, so as not to be too dependent on one source.

The government is to release today a report on OPG's future from a panel headed by former federal finance minister John Manley. Duncan has refused to say whether the utility will stay in public hands.

The Manley report is expected to recommend that the nuclear division of OPG be run as a separate unit from the firm's electricity operations. As well, the panel is likely to say that OPG's head office should move to Niagara Falls from Toronto.

Manley will recommend what to do with the refurbishment of the Pickering A nuclear plant, which is three years late and $2 billion to $3 billion over budget.

And, Duncan said, "Darlington, which is our newest nuke, is now at the stage in its life where we can expect problems to start with it, according to what the experts have told me."

The Liberal government is under pressure from Atomic Energy of Canada Ltd. to build as many as eight new reactors, but the Liberals are under just as much political pressure from environmentalists to walk away from nuclear technology.

"There is no magic bullet," said Duncan, emphasizing that to meet energy demands, Ontario will have to rely on a combination of conservation and generation from many sources, including renewable resources.

The province is about to issue a request for proposals to build 2,500 megawatts of generating capacity to replace one-third of the power now produced by the coal-fired plants. There is a 580-megawatt gas-fired plant near Windsor, or about the same as one nuclear reactor, waiting in the wings."We will (also) be announcing a conservation plan, we have to make a decision on Pickering A units one, two and three, we have to make decision on Bruce A, units one and two, so there are ways of moving (along on new generation)," Duncan said. "At this moment it is not (enough) but we will lay out a plan where I believe we will get to where we have to be in order to achieve our goals," he said.

Duncan said it is important to the environment and to the health of Ontarians that the coal-fired plants are closed, and to that end the province is asking the federal government for $300 million to help defray the cost of building power line connections to Quebec and Manitoba.

"The (coal-fired) plants, many of them are scheduled to come off line in any event between 2010 and 2020, We're simply speeding it up," he said.

Jack Gibbons, of the Ontario Clean Air Alliance, said the power lost when these plants close can be recovered "by very aggressively promoting energy conservation, by bringing on new wind power projects, by bringing on new water power projects and by investing in very high efficiency gas-fired power plants."

The release of Manley's report today comes on the heels of the release of an independent review of OPG's performance by accountants KPMG.

The review traced a big portion of the troubled company's financial woes back to the approval in a single afternoon in 1997 of a $1.6 billion plan to launch 66 projects to supposedly fix Ontario's troubled nuclear plants. The plan was approved by then-chairman William Farlinger and the Ontario Hydro board.

KPMG said lost profits as a result of the flawed plan have put OPG in a severe financial bind and that "its viability under the current business model is in question."

The accounting firm said that plan, launched by Hydro executive vice-president Carl Andognini, continues to weigh down the financial performance of the OPG, Ontario Hydro's successor.

Andognini, a U.S. nuclear expert, brought in a "dream team" of other U.S. nuclear consultants who set about diagnosing the problems at the reactors owned by Ontario Hydro — inherited by OPG when Ontario Hydro was broken up in 1998.

The plan failed to deliver $1.5 billion in expected pre-tax earnings over five years, the review concluded. And another $1.5 billion in expected profit was lost as OPG poured money into trying to restart the Pickering A nuclear generating station.

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