Ontario's new power brokers ditch the debts generated by nuclear machine

Greener technology - and lessons of the past - ignored in Hydro restructuring, critics charge

By: Suzanne Elston

  Ontario's utility customers will start paying higher rates for their power when the electricity market opens up to competition in November. Although restructuring and the local public utilities are taking the rap for the increases, the blame rests squarely with Ontario Hydro. Over the years, Ontario Hydro managed to mount a $ 38.5 billion debt - $ 22 billion above and beyond the value of its assets. Most of this was created by the massive cost overruns at Hydro's nuclear power plants. "They thought they were building assets and they were building liabilities", said Tom Adams, Executive Director of Energy Probe.
  Hydro's debt has threatened to literally bankrupt the province. Trouble at the Pickering and Bruce nuclear generating stations forced the province to shut down eight of the province's 20 reactors. According to Adams, "If Hydro had been left alone, it was going to lose its ability to maintain a reliable system."
 

What's troubling about the scenario created by Bill 35 is that Ontario Hydro's successor companies are free once again to start running up new debt

  As Adams explains, this couldn't be allowed to happen because our entire economy is dependent on electricity. "The reason re-structuring is legitimate is because Ontario needs a reliable source of energy."
  The result was Bill 35 - the Energy Competition Act. Under the bill, Ontario Hydro has been re-structured into four main components: Ontario Power Generation (OPG), which will continue to provide 90 per cent of the province's electricity; Ontario Hydro Services Company (OHSC), the province-wide grid; the Independent Market Operator, which will control electricity flow; and Ontario Hydro Financial Corporation, which will manage Hydro's outstanding debt.
 

Pickering nuclear power station

  What's troubling about the scenario created by Bill 35 is that Ontario Hydro's successor companies are free once again to start running up new debt. Since the old debt has been reshuffled - hidden in the utility bills of the new companies' customers - the credit lines of the new companies are no longer maxed out. Here's a glimpse at how the electricity business has changed. Before Bill 35, municipal utilities charged customers on a "power at cost" (or not-for profit) basis. Under the new Act, they must now show a "business rate of return" (that is: a profit) , which is one reason why consumers will soon be faced with rate increases. Another contributor to the rising rates is the provision that - instead of paying business taxes on their profits - the utilities will be making payments to retire Ontario Hydro's old debt. Consumers will also be paying a separate "competition transition charge" (or CTC) on their monthly bill - which will also be applied to the debt. What will be the exact impact of this new system for consumers? No-one seems to know.
  "We know that the government's intention is to keep new rates as close as possible to the rate that consumers are paying now, but it's hard to tell until the market is working", said economist David Argue. Under the Market Power Mitigation Agreement, 90 per cent of generation prices are capped at 3.8 cents per kilowatt-hour.
  Any rate increases will be carefully scrutinized before they are approved by the Ontario Energy Board (OEB). "What most consumers don't realize is that the wholesale cost of power has been frozen for five years", said Mike McLeod, head of Strategic Services for the OEB.
 

To protect their environmental and economic interests, the best thing that consumers can do is to stay informed, and to be alert to the possibility the new power brokers may practice some sleight of hand

  David Argue said that it was only creative accounting on behalf of Ontario Hydro that kept rates frozen. Argue believes that in addition to an increase in energy costs, consumers will be seeing an increase in the distribution portion of the bill. "We were spending so much money on nuclear construction, the distribution systems were being neglected", he said. "It's likely that there will have to be some investment in these areas." It's hoped that some of these costs will be offset by savings realized by the amalgamation of public utilities.
  Environmentalists argue that rate increases, theoretically, should be a good thing. "We think that consumers should be paying more - precisely $1.86 more per month," says Jack Gibbons, chair of the Ontario Clean Air Alliance. "This [additional revenue] would allow the province to convert its highly polluting coal stations to cleaner burning natural gas. This will save the province, and ultimately the taxpayer, in terms of health costs." Higher prices may also encourage consumers to look for creative ways to cut energy costs. Yet in the real world, where there are political pressures to keep energy rates low, current government policy points towards a less optimistic environmental outcome. "Because the price is going up anyway, the government is trying to compensate by lowering the pollution controls that Ontario Power Generation is subject to", Gibbons continues. "This means that OPG can increase the output of its cheap but dirty coal-fired plants." To protect their environmental and economic interests, the best thing that consumers can do is to stay informed, and to be alert to the possibility the new power brokers may practice some sleight of hand. "Take a close look at the offerings", advised David Argue. Competition in the electricity market will be similar to the opening of the phone and gas markets. "That which is available this year, may not necessarily be available next", he said.
  "Look for suppliers that have a diversified energy source, including renewables", added Greg Allen, a sustainable energy consultant. "In the long run, renewables will be the most stable and economical source of energy."

Suzanne Elston is a syndicated newspaper columnist, radio commentator and motivational speaker, but considers being a parent her most important job. Her most recently published work is a contribution to Sweeping the Earth: Women Taking Action for a Healthy Planet. Along with her husband Brian and their three wonderful children, she lives in their family's 1827 farmhouse. Suzanne can be contacted at selston@tvo.org.

Get More/Do More
What do you think about potential energy rate increases?
Straight Goods wants to know

Write Mike Harris and tell him to cut the purse strings to Ontario Power Generation and Ontario Hydro Services Company. E-mail webprem@gov.on.ca or fax (416)-325-7578. (Snail mail: Hon. Michael Harris, Room 281, Main Building, Queen's Park, Toronto, ON M7A 1A1).

"The Ontario Energy Board makes its decisions on what it sees and hears. If consumers are concerned then they need to voice those concerns to the board", said the OEB's Mike McLeod. "The board has to listen because that's its mandate."
Speak up. Contact the OEB at BoardSec@oeb.gov.on.ca, fax (416)-440-7656, or phone toll-free 1-877-632-2727. (snail mail: Ontario Energy Board, P.O. Box 2319, Suite 2601, 2300 Yonge Street. Toronto, ON M4P 1E4)

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