MUNICIPAL ELECTRIC ASSOCIATION
ONTARIO NATURAL GAS ASSOCIATION
INDEPENDENT POWER PRODUCERS' SOCIETY OF ONTARIO
CONTENTS
Thursday 23 October 1997
Municipal Electric Association
Mr Kent Edwards
Mr Tony Jennings
Mr John Murphy
Canadian Nuclear Association
Mr Murray Stewart
Mr Colin Hunt
Ontario Natural Gas Association
Mr Bernie Jones
Mr Paul Pinnington
Mr Juri Otsason
Mr Bruce Rogers
Independent Power Producers' Society of Ontario
Mr Tom Brett
Mr Bill Taylor
Mr John Brace
Mr Al Barnstable
Mr Bruce Ander
Mr Stephen Probyn
SELECT COMMITTEE ON ONTARIO HYDRO NUCLEAR AFFAIRS
Chair / Président
Mr Derwyn Shea (High Park-Swansea PC)
Vice-Chair / Vice-Président
Mr Monte Kwinter (Wilson Heights L)
Mr Sean Conway (Renfrew North / -Nord L)
Mrs Barbara Fisher (Bruce PC)
Mr Doug Galt (Northumberland PC)
Mrs Helen Johns (Huron PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Floyd Laughren (Nickel Belt ND)
Mr John R. O'Toole (Durham East / -Est PC)
Mr Derwyn Shea (High Park-Swansea PC)
Clerk / Greffière
Ms Donna Bryce
Staff / Personnel
Ms Anne Marzalik, research officer, Legislative Research Service
Mr Richard Campbell, consultant
Mr Robert Power, legal counsel; Mr Adam Chamberlain, legal counsel
The committee met at 0920 in room 151.
The Chair (Mr Derwyn Shea): The committee will be in session. We are running just a little behind schedule.
The subcommittee met earlier today and has been dealing with the itinerary of the committee for the next week or two. It has agreed that it will continue with its visit to the Bruce. That will take place on Wednesday and Thursday and public hearings will be held on Wednesday evening and Thursday morning. We will detail that in greater depth before the day is over for members of the committee so they'll see where we're at.
There is some discussion about the first of next week and in that regard I will turn my attention to Mr Galt.
Mr Doug Galt (Northumberland): Looking at the schedule, tentatively put on the schedule had been going to Pickering and Darlington in the third week; in other words, the week of November 3. In view of the fact there's a looming strike by the teachers, and a possibility of the House being called back dear knows when, I think it's extremely important that we get out to all three communities. I'm suggesting that next Tuesday we spend the day touring the plants of Pickering and Darlington. I think it's very, very important that this committee have the opportunity to see the bricks and mortar, see how they operate, see the staff, visit with the staff and make sure that is accomplished, as well as going to Bruce next week. We can continue to use the Monday afternoon and the Monday evening for the purpose of receiving delegations.
Mr John O'Toole (Durham East): Out of respect for the member for Northumberland, I would have to raise an objection to spending one day at two very important facilities where the conditions and the situation are somewhat different than Bruce. I don't want them to be treated as one unit. It's in Durham and I represent the people of Durham. Not to be in contradiction with Mr Galt, I think the issues are different and important and should each be given a day as originally agreed. That's my opinion and view on the issue.
The Chair: The outline of a tentative schedule that's been laid before us is one that you find some concurrence in.
Mr O'Toole: Yes. If we'll have a day at each site, I'm completely on side.
Mr Floyd Laughren (Nickel Belt): I want to speak in support of Mr O'Toole's concerns. I think it's terribly important to go to Bruce. I'm convinced by others' arguments, not my own quite frankly, that the other areas need to be treated the same way Bruce is, where you go, have a visit and then have a hearing in the community for people who want to express concerns to the committee. I am and always had been in support of that original tentative schedule and I think we should stick to that. There are important briefings that we need to get through next Monday and Tuesday and then I think it's a good schedule for the week of November 3 to do the Darlington-Pickering tour.
Mr Sean G. Conway (Renfrew North): I just want to repeat what I said in the subcommittee, that I think the original plan for two days at Bruce next week and then the week following we would go to Pickering and Darlington is, all things considered, the better plan. So I would agree with Mr O'Toole and therefore not agree with Dr Galt. I'd like to stick to our tentative schedule, which is next week to Bruce, and the week following, Darlington and Pickering.
Mrs Barbara Fisher (Bruce): I absolutely support the position of Mr O'Toole. I'm the recipient of a job loss site. He's the recipient of the pickup. All through the hearings it's been very clear that there could have been different interests. As well, my goal as a member of this committee is to ensure that all of Ontario Hydro is fixed this time, not just that respective to the Bruce. I personally feel that I need to gain exposure to the Pickering and Darlington sites. They are different. We've had panellists come before us time and time again telling us of the differences and we need to review those.
I would make this request, that we not only, in deciding this morning, assure Mr O'Toole and all of us that if we say we don't have it next week because next week was supposed to be the prescribed week, then in fact we make not only the commitment but the promise that it won't be slashed off the schedule somehow. If it means we have to work all night to make this happen, I mean four consecutive nights to pick up the extra hours, we made the commitment in the beginning that we would do that, but it's imperative that we go to all the sites.
Mr Galt: With respect to what Mr O'Toole is saying, the reason I was bringing it forth -- I hadn't had a chance to discuss it with him earlier and maybe I should have -- is that my concern was really on his behalf and his community's. If a teachers' strike does occur and if the House has to be called back and therefore it may be bumped because of that, with the House sitting, and we may not get out there prior to this report being developed, and if he's comfortable with that and it's on record, then I'm comfortable with that.
I was looking out for the members in that area and concerned about a possibility of this committee not getting out there to tour prior to this report going in. With what's sitting on the horizon, that's a very distinct possibility; I don't think there's any question. If he's comfortable with the fact that this report may go in prior to our being able to get out there to tour that facility, then so be it. I'm not about to object to that. I was concerned that we might not get out there and he would be put in a very awkward position by the fact that we hadn't visited the plant in his area.
The Chair: Can I be of help? Maybe I can help there.
First of all, if I can guide the committee in this way, we have a tentative schedule that was set up for us, I think we will recall, and it indicated that for next week we would do two days for Bruce and then the following week there would be two days, so that each site was discretely handled, including deputations. That seemed to be sitting well, although I do recognize, Dr Galt, that you would continue to say, "I'm concerned about that part of it," and you have kept that consistently on record.
Two things I want to remind the committee about: First of all, whether the House is recalled or not is not within our domain. That is something we'll deal with if it happens, and if it happens, then as Chair of the committee I'll make every effort to make sure that we reschedule so that the House leaders understand the significance of our task, the importance of the visits that we wish to make, and I'll tie that to the December 1 deadline.
We have some measure of comfort because, as you will read the minutes that went through Parliament, we have a right to extend beyond the first, if we need to. We are trying to ensure that the first is our deadline, and this committee has been very diligent at keeping to that schedule. But if we have to go beyond that because of circumstances that are certainly not within our control, then I think none of the House leaders would be concerned about that. I think this committee would still want to be sure that it has taken due diligence for whatever it's doing, and that includes the appropriate visits. I think we all want to make sure that all three sites receive appropriate treatment in terms of visitations and hearings from this committee.
Does that help at all? Is that a reasonable, commonsense approach? Then you've made your point and Mr O'Toole has, and may I suggest it might be helpful if your motion then were taken off the table.
Mr Galt: I didn't make a motion.
The Chair: I took it that you had, but I will --
Mr Galt: I was just speaking on behalf of it, and I'll certainly bow to Mr O'Toole, being the member who represents that particular plant. As long as he is comfortable, I'm certainly comfortable.
The Chair: Mr Kwinter, you wanted to raise something?
Mr Monte Kwinter (Wilson Heights): I was just going to say exactly what you said.
The Chair: We are in complete accord.
Mr Kwinter: Complete accord.
The Chair: Clearly, that chat I had with you yesterday has worked wonders.
Mr Kwinter: I just wanted to make the point that the December 1 deadline is a target and we hope to meet it, but if extraordinary circumstances intervene, then we're going to have make some sort of an adjustment. I don't think there's any concern.
Mr Galt: If Mr O'Toole is comfortable, that's great.
The Chair: Thank you, Mr Vice, I appreciate those words of support. We are in agreement. There is no motion on the floor, so we will continue with the tentative schedules that we have before us that now are a little more firmed up.
Mr Conway: Since Dr Galt has got urgency on his mind and since he's also the parliamentary assistant to the Minister of Energy --
Mr Galt: Wrong.
Mr Conway: Wrong. It's environment, right?
Mr Galt: Yes.
Mr Conway: I thought maybe I might ask the parliamentary assistant to get that white paper to this committee, like today, since urgency was on some people's mind.
The Chair: Thank you, Mr Conway. That was out of order, but nevertheless it was well executed.
0930
MUNICIPAL ELECTRIC ASSOCIATION
The Chair: May we turn our attention to the first deputation of the day and that is the Municipal Electric Association. My schedule has Kent Edwards and Tony Jennings who are appearing before the committee as witnesses. For the purpose of Hansard, would you be good enough to identify yourselves? Then, if you'll proceed with your deputation, we will proceed with questioning by caucus in rotation. Welcome and thank you for being here.
Mr Kent Edwards: My name is Kent Edwards. I'm president of the Municipal Electric Association and general manager of the Windsor Utilities Commission. With me is Tony Jennings who is chief executive officer of the Municipal Electric Association. I want to say at the outset that I'm pleased to be here. I'm also pleased that the committee is sitting on this issue. To begin our deputation, I'll call on Mr Jennings to give a brief profile of the MEA and then I'll carry it from there.
Mr Tony Jennings: Mr Chairman, I will do that. Can I get some guidance from you on how we're going to handle time? We had assumed about an hour from your schedule.
The Chair: If you would assume you have slightly less than an hour, what I'll try to do is use some discretion as Chair to truncate where I can and massage the schedule a little bit. I know the committee will give me its support as I try to do that, what's convenient.
Mr Jennings: Our expectation was that most of the time should be your ability to ask questions anyway.
Let me just give a little introductory background about the association. Many of you are already aware of it, but very quickly, we represent 306 municipal electric utilities throughout the province that have a long-standing history in delivering electricity within their communities. They range from very large to very small. They are in all parts of the province. They represent somewhat over 70% of Ontario Hydro's load, 70% of Ontario Hydro's business, and look on themselves as the primary customers of Ontario Hydro, approaching $7 billion in sales. They, in turn, serve about 2.8 million customers of all sizes and kinds. They ask the association to speak on their behalf and on behalf of their customers of all kinds.
The MEA, to a large extent, acts as a cooperative providing services to its members and allowing them to do things jointly, like setting standards and developing approaches, doing research on distribution. Some of that used to be done in cooperation with Ontario Hydro. They discontinued that a while ago and we've had to expand our activities in that regard to pick that up.
But probably more relevant to you today is that the association represents the municipal utilities with Ontario Hydro, with the energy board, with the government and with others on a variety of broad issues for them and their customers. It's a non-exclusive representation. Some of our member utilities will decide to appear on their own. They may have a slight variation or a significant variation from the position the majority take. But on most things we do represent them and I think some of that will be relevant to your discussions today.
Mr Edwards: There are several areas where we may be able to bring some information to the committee. As Mr Jennings notes, we are the municipal utilities; that makes us in the wires business in the local communities across the country. It does not make us nuclear experts. However, I think the environment this crisis has developed in should help the committee. I want to touch on a number of areas. Basically, I'll pick up on a little bit of the relationship of the utilities to Ontario Hydro, provide you with a view of what went wrong from our vantage point -- I understand you have been probing that -- look at some of the customer issues around the finance and nuclear out of the August announcements, briefly on the IIPA and, finally, with some recommendations.
To begin with the relationship to Ontario Hydro, as you may know, Hydro was initially set up as a trustee of the utilities, and the Power Corporation Act still carries obligations of Hydro to the utilities. They are also, at the same time, our regulator. They exercise that over our rates and over our capital budgets. At an operating level, the relationship is primarily at the interface of where we take power from the corporation.
The corporation professes itself to be our exclusive supplier. We have some difficulty with that, but we're working through that. The operating interface is a working level. It does not reach into the Hydro operations as far as the nuclear or any of the other generating supplies are concerned, except in our corporate proceedings. On those issues, the corporate issues, the larger industry issues, of late our formal route to communications with Hydro has been through the Ontario Energy Board. There will be a thread of that and there are some briefing papers that have been circulated to the committee on some of the representations to the Ontario Energy Board.
In addition, as Mr Jennings notes, the Municipal Electric Association on behalf of its members often carries issues common to the industry through to government, and I may touch on some of that as well.
A brief history of the relationship I think is in order. I'll keep it very brief, to the last decade. Up until the late 1980s, early 1990s, Hydro was primarily in construction. At that time, they were into their demand-supply plan, you will recall. They were looking for environmental assessment on new nuclear plants and combustion turbine units. They were encouraging utilities to enter into non-utility generation, as they were with the private sector. I'm sure Mr Laughren remembers Falconbridge. There were others around the province and several within the utilities. They were also advocating demand management programs in order to address the perceived deficiency of supply that they were forecasting at that time.
A couple of things came out of that. Particularly out of the non-utility generation issues, it became apparent that independent power could compete quite handily with Ontario Hydro. When that became apparent, Hydro began to realize that their rates were in fact too high to be competitive. What transpired became known as kind of the death spiral. Utilities or others would enter into agreements for independent power, leaving the rest of the customers, their neighbours, to pay for the assets of Ontario Hydro.
We recognized that with some reluctance because it seemed to change in the matter of a day, I believe. Ontario Hydro's forecasts were turned around. They were now projecting surpluses instead of deficits and the programs were all withdrawn and the demand-supply plan collapsed. We proceeded from there with the Ministry of Energy to develop an agreement for non-utility generation and linked to that was a partnership agreement with Ontario Hydro to set the framework for the relationship of the utilities to Hydro on an ongoing basis.
Unfortunately, those agreements were never followed. I think after the ink was dry, they were filed and that was the end of that exercise. Our recourse since that time has been, as I say, through the Ontario Energy Board. We have not seen Ontario Hydro being particularly agreeable to following the recommendations of the energy board in recent years, which has led us to raise issues to a higher level of government, some might say to pester the government from time to time about certain issues. The government has been somewhat reluctant to interfere in Hydro's affairs. That has left us to use the courts as a final recourse. I paint a picture of a rather deteriorating relationship there.
0940
If I put that in the context of what you've been probing, of what went wrong, I go back to the construction period when Hydro was focused on the growth of the generating assets, trying to meet the growth of the Ontario economy. All of the industry focus was then on activity and we were quite in step with them, I think. However, as time passed, about the same time as the demand-supply plan issue, it became apparent that the forecasting was not correct, that the continued growth we'd seen in the past wasn't going to go on into the future.
The reasons for the miss in the forecast I don't think need to be explored in great depth, whether it was the change in the economy or a shift in energy use as the gas markets were deregulated. In any event, the load flattened out and at the same time we were faced with Darlington coming into the system -- a very major, major new plant.
Darlington was a little bit like the elephant in the belly of the snake. It pushed the rates up very quickly, caused the issues that I referred to, the rates to be too high to compete with alternative sources of energy. Hydro then shifted its focus from one of construction and growth to one of finance, cost control and downsizing. What we see coming out of that is a reduced emphasis on preventive maintenance, more of a tendency to fix things when they're broken, and I think we see that in the IIPA report.
There's a further step beyond that where, following the global trend to deregulation of the electric industry, Hydro entered into a mode of positioning itself for competition, and while they espoused a mode of competition, in fact in outward appearances and practices they adopted many protective kinds of policies. They focused their competition, in some cases, on our membership, our utilities, and we found ourselves to be a competitor to Hydro as opposed to a customer, very much alienating some of the utilities because at the same time Ontario Hydro was regulating them. There was an emphasis at the corporate strategic level on general corporate survival, I would say, at this point.
I think our bottom line on that is that the corporation had really become very large and senior management had become very distant from its operations.
Then in August we received the report; I think you've been referring to it as the Andognini report. There are some customer issues that come out of that obviously in finance and some in nuclear. In finance, this additional $5 billion to $8 billion was of course devastating news. If I put that in the context of a year's total bill for Hydro, it's a 50% to 80% increase. Hydro has characterized that as later. Pay me now or pay me later, our customers will still have to pay that bill, if that's the solution. That's at a time when rates are already too high and I think Ontario's competitive position and global position in industry are severely threatened.
We're highly sceptical of the nuclear recovery plan and we'll be recommending that you do proceed with some further review of that plan.
On the nuclear side, let me put the concern for safety and environment aside. It's a very critical issue and I'm sure it's going to require more exploration. But we've been positioned that the nuclear had an enviable track record. It was world-class leadership. We have seen the Atomic Energy Control Board licences continue to be granted. Ontario Hydro has continued a hard line on alternative supplies and in opposition to demand management.
This did come to us as a concern. We raised some of these concerns at the energy board and you'll find some of these issues in the briefing notes. We were concerned of course with Darlington -- the cost, the way it was entered into the rate base, the impact it had on the general economy.
We were concerned about the power of the unions in the nuclear division. The unions had the power to shut down Ontario Hydro's nuclear division, which basically turned the lights off in the province. There was a real imbalance of power at the negotiating table that we wished to have addressed. The energy board agreed with that position and made recommendations to government and the government chose to take no action.
We also have had a thread through recent energy board hearings probing the nuclear operating and management budgets and at the 1994 hearing, which was the last hearing that had the scope to probe into these matters, we noted in our final argument: "Due to the unforgiving nature of the nuclear technology, Ontario Hydro must be careful not to put too much pressure on Ontario Hydro nuclear budgets. Loss of use of the nuclear assets will impose a cost on ratepayers far in excess of any short-term rate savings which may be realized by holding too tight a rein on nuclear costs."
That was in 1994. The Andognini report, the IIPA, had some disturbing information in it. Let me say that we've only been able to see the summary information, have not got into the information below the surface of that report, and I don't profess to have the knowledge or competence to deal in a deeper depth. However, in the summary there are some disturbing things.
First, I note that the report starts with an identification that the business plan is out by $3.6 billion before the IIPA recommendations begin to kick in. That implies to me a culpability that cuts two ways. Management was apparently setting productivity targets that were unrealistic and the operating divisions were not challenging those targets, were accepting them and ignoring them, it would seem to me. I guess perhaps, as Mr Conway so eloquently put it, more than Mr Kupcis perhaps should fall on their sword. We're not out here for more blood, but we do want to see some competence and accountability brought back into Hydro's operations.
Also, the report refers to several of the apparent problems in the plants. A lot of those problems are in the non-nuclear parts of the plants. The only reference that I have picked up is the pressure tubes within the calandria. Other components, such as the boilers, steam generators, cable problems, these are components that are common to all generation or have parallel appurtenances in another generating plant's non-nuclear and it leads us to have the concern of whether these same issues exist elsewhere in the corporation. Does that say that some of the non-nuclear generators, if subjected to a similar assessment, should also be laid out?
There's some comfort that the findings confirm what the AECB has been saying, that the plants are safe, that the technology is robust, but there's also the concern that improvements are definitely needed. It points to the problem of management, and I think that problem is a top-down problem consistent with the environment of the time.
0950
In the bottom line, I would say the summary reports we received, on which the Hydro board made their judgement, their decisions, that there is not enough information there to make that kind of decision that was made -- in the matter of one day to spend $5 billion to $8 billion. I really do believe that decision has to be revisited. In looking at it, and as I say, this is a summary view from a non-professional position, I would certainly not feel comfortable in throwing out all of the options that were presented in the IIPA.
That leads me to some theories on this. I know you're all familiar with and have been briefed on the Macdonald report, the competition that's pending in the industry and the white paper we're going to see soon -- and I repeat: soon. You've already probed the issue of privatization, the issue that perhaps the corporation is positioning itself as being incompetent in order that it might precipitate privatization. I would go down another avenue, suggesting that this also would serve to enhance stranded assets in a deregulated industry.
A further view or theory is that the nuclear business, as a must-run, base load business, will continue and will be price-cap regulated. This activity would make sure that the price cap is as high as possible.
In the broader context, Ontario Hydro has pictured itself as being a competitor in the North American market, despite tie-line constraints, despite the impact of market power in Ontario, where they would dominate the market here. The theory here would lead that by Hydro's mismanagement causing the debt to increase, threatening the security of the debt will cause the decision-makers to hold Hydro together in order that they might proceed on that North American plan.
I bring these to you. They are simply theories, but it raises a lot of scepticism with Ontario Hydro at the present time. We wonder whether they're making their decisions on a going-concern basis or whether they're positioning themselves for a competitive market, a deregulated market, a strategic position. That in itself is reason to go back and review the steps that have been taken.
I'll wrap up with some recommendations. I think we all want the lowest-cost safe recovery plan. We question, though, that seven nuclear units have to be laid up at the same time. Certainly we encourage the committee to get a second opinion on that, and that second opinion should go beyond a review of the finance, the numbers; it should go into the actual nuclear operations and recommendations.
Upon reflection of the decision, if it's still determined that the A units, either Pickering or Bruce or both, have to be laid up, then we would suggest that any new capacity that's going to be introduced into the system be introduced in competition with Ontario Hydro into a competitive market. I know a central marketing operation is being established. I think it should probably be spun off and it should become the vehicle for purchasing additional power, not the Genco, the John Fox unit.
Following on that, if Bruce and/or Pickering are laid up, the decision for them to return to service should not just be the environmental licensing requirements. It should also be a true market test against alternative supply options before those are brought on.
The final recommendation is probably the most substantive. I think the changes that have to be made should fit into the new competitive environment that we expect in the very near future. In that line, we would suggest that the nuclear operations be severed from Ontario Hydro, be given a separate governance, be set up as public corporations, be subject to price-cap regulation that's binding.
A focused separate nuclear organization I think is the only way that we'll not be back in a committee hearing again in a few years. If we are able to harness the resources of Ontario and those communities that are so closely entwined with the nuclear business and focus on superior performance, safety and reliability, I think the asset there, this robust technology, has the greatest possibility of coming back to service the province in the way it was originally intended.
I'll conclude my comments there, and we're looking for questions.
The Chair: There are a number of questions. We'll do five-minute rotations to begin with and see how the time spans out. My counsel to each caucus would be to keep the questions very concise so we can elicit as much information as possible in a short period of time. I'll begin with the Liberal caucus.
Mr Conway: Thank you, gentlemen. One of the key cost components of the so-called nuclear recovery plan that the Ontario Hydro board agreed to on August 12 has to do with the replacement power that will be required as a result of the laying up of seven of the 19 current reactors. What is the view of the MEA about, first of all, the availability in the short and intermediate term of that amount of replacement power and what would you have to say about Hydro's estimated cost of approximately $2.5 billion for that replacement power?
Mr Edwards: I think we would have difficulty putting figures to the cost of replacement power without doing some further research. What does concern me is that if the reliability problems are universal across the organization, across the supply system, then we're putting a tremendous reliance on the balance of the generation by shutting down as many as seven nuclear plants. The reserve margin that's left is very narrow compared to what we're accustomed to and we're dealing at a time when the generating units are portrayed as being rather baulky and unreliable. I would have a real concern that we would be in trouble if they proceed with that plan.
Mr Conway: Should the committee be concerned that the non-nuclear plants that Ontario Hydro has and will be relying on to an increasing degree -- the recovery plan clearly anticipates firing up the Lennox GS, converting it to gas, and relying to an even greater extent on the fossil plants like the thermal plants at Lakeview and Lambton. Are there any concerns at the MEA about the ability of the thermal plants to take over to such an increased extent for, say, the next three to five years?
Mr Edwards: I think the concern is the general concern that I've portrayed.
Mr Jennings: If I can jump in on that, we haven't got any good basis for challenging Ontario Hydro's figures. The problem is, on the face of them, they look credible but past history has not suggested that we should automatically accept them. I think you folks have a real challenge in front of you and we'll do our best to be helpful on it.
What we're not getting is a market test. There is a request for proposals out for a two-year supply of energy, but two years isn't a long enough time for anybody to do something significant. It goes back to the issue of what kind of environment we're moving towards and in what context you evaluate it. If we knew what was going to be done around the issue of stranded assets, then you would use different strategies and different ways of testing. As Mr Edwards said, one way to do it would be to have somebody independent of Ontario Hydro calling for hard proposals to resolve some of these problems.
Mr Conway: On that subject of the private sector looking at going forward now to develop new facilities, new capacity to meet the new electricity demand, I take it, Mr Edwards and Mr Jennings, that there wouldn't be very many in the financial community or in the private power community who would be interested in developing a greenfield site, a new site, for, say, gas-fired electricity, with only the offer of a two- or three-year contract from Ontario Hydro. Would that be a fair assumption?
Mr Edwards: I think so. What that RFP will really generate is energy from capacity already available. The amount of that around the province I think is rather limited. Likely the majority of the response will be from out of the country.
Mr Conway: But most people would not be very willing to commit new capacity until they had some sense of what the new world of electricity reform is going to be like. Would that be fair?
Mr Edwards: I think it is. New capacity will not be entered into the system until there is some assurance that there will be access to the markets at least. Until the markets are opened up, I think the probability of new capacity from the private sector, without long-term, hard contracts like we saw in the past, will not materialize.
Mr Conway: In your submission on electricity reform, which I found very helpful and I have some knowledge of from our previous discussions, you indicate that from the MEA's point of view, Ontario Hydro should be vertically unbundled. it should be disaggregated in ways you talked about a moment ago. You called for a provincial electricity regulator. On the distribution side, do I understand your position to be that Ontario Hydro retail should disappear?
Mr Edwards: Absolutely.
Mr Conway: And that all distribution should be left to MEUs with clearly defined franchise areas?
Mr Edwards: Yes. I think we're very much in tune with what was recommended in the Macdonald report of shoulder-to-shoulder utility.
Mr Conway: I notice you say, therefore, that you want a provincial electricity regulator but that regulatory control over the distribution function should reside with local commissions. I find that a bit peculiar, because that appears to me to be a different and lighter variety of regulation than you contemplate for other parts of the electricity business. It appears to me that you're suggesting there be local monopolies in terms of distribution.
Mr Jennings: If I can jump in on that, I think you heard from Mr Franklin, the past-president of Ontario Hydro, something very similar to what we've proposed. The key is getting competition in generation. That's a position that's taken virtually everywhere in the world. That's where 70 cents on the dollar is. That's where there are some technology changes that --
Mr Conway: But we heard from the OEB yesterday, Mr Jennings, that there should be regulation of the monopoly parts of this business.
Mr Jennings: And we would agree with that. The provincial grid, which we believe should be a separate corporation, should be provincially regulated. We believe the regulation, as is done in the 2,000 municipal utilities in the US, should be in the hands of the local people who are served by that monopoly wire's function locally. We don't think it's different.
Mr Laughren: Welcome, gentlemen. You touched on one area that some of us are very concerned about and that's the white paper that the government is talking about bringing forward. As a matter of fact, they promised to bring it forward but some of us are quite frustrated that we haven't seen it yet. I don't know how you judge the recovery plan without knowing what's in that white paper. When you say you have serious questions about the wisdom of laying up the seven reactors all at once as you move into that recovery plan and the Andognini recommendations, I'm wondering what you see as an alternative to laying up those seven reactors.
Mr Edwards: As I said, I don't think we're in a position to say that's not the answer. We're simply sceptical of what has been said, of the level of research that's gone into that recommendation. I know it was developed under a pressure timetable. There was a tremendous amount of judgement, you can see, in the summary documents and coming to the conclusions that were reached. There were options tabled there. I think one of laying up the Bruce units only certainly had a number of things to commend it in the sense of less coal use, less money up the stack, if you like, and a higher margin of reserve. It was more challenging in the sense of resource. Maybe we have reached the point that we should take those kinds of challenges in order to maintain the prices. We're just not comfortable to say carte blanche that seven units should be shut down.
Mr Jennings: Let me take a different approach, and it relates to the two issues. We've been arguing among the staff in the last couple of days how we should be reacting. If the white paper or if this province adopts something close to Macdonald's recommendation, where the past investment stranded debt etc is moved off and placed in some form of a charge which all customers are going to bear on an equitable basis, then an option which hasn't been considered by Ontario Hydro and is allowable now under the Power Corporation Act would be to simply allow the local utilities to look at local generation options themselves. That gets over the two-year window that Mr Conway was talking about in terms of investments etc.
There is a contractual issue that, as was mentioned, we're in court around, about whether there is an exclusive supply thing, but that flows from the contracts, not from the act. So that's a discretionary decision in Ontario Hydro's mind.
If we're going to keep the current pool, then our position has been to assist Ontario Hydro to make sure the flow of money goes to them to pay down those past debts etc, but we can't make a decision on whether that's a good option to consider until we know where we're going.
The material you've been asked to review, as we read it, looks like it is an assessment on how best to fix Ontario Hydro's assets. If I were holding stock in the company, I would be comfortable with that approach because they've looked after the company. Whether that's best from the customer's standpoint is not the kind of language we see in any of the reports, and that's our concern.
Mr Laughren: Just so you know, the committee is seeking independent advice in that regard as well. We don't have it yet, but we are seeking that.
Mr Jennings: I appreciate that.
Mr O'Toole: Thank you very much for your presentation this morning. I'm rather anxious to meet with the MEUs. I'm quite familiar with their role and function. Just in a very simple mode, I heard earlier on in the briefings that there's an old tradition with the formation of Ontario Hydro that the MEUs feel that they have a primary ownership role. Could I clarify that fairly simply or is it that easily dismissed?
Mr Edwards: Let me try. I don't want to get into a great debate on it.
Mr O'Toole: Is it a yes or no kind of thing?
Mr Edwards: Yes.
Mr O'Toole: Do you have an ownership?
Mr Edwards: The simple answer is yes.
Mr O'Toole: So you owe us $30 billion, then. I've finally found the owner.
Mr Jennings: And unfortunately we've been paying it.
Mr O'Toole: Where is the money? Anyway, I hope not to trivialize the argument. It's clear that's the position. It's a legal challenge. You will pursue it some time.
Mr Jennings: Mr Strong used to say we've never exercised our ownership and that has been a problem. We certainly have been paying for it.
Mr O'Toole: We've all paid, I suppose.
Mr Jennings: That's right.
Mr O'Toole: I agree entirely with much of what has been said here with respect to the fact that the role of the government is to guarantee safe, reliable and affordable power for all Ontario. Given that that's the mandate of the government, I suspect the Power Corporation Act and other kinds of legislative framework ensure that happens. Are you happy that Ontario Hydro has kind of conformed to two out of three of those things? Affordable is the question, but reliable and sustainable and safe? Is it safe and is it reliable? That's the question.
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Mr Edwards: We have no indication that the safety is compromised. Reliability, we have some concerns; sustainability, we have some significant concerns.
Mr O'Toole: Affordable is one we all have a lot of --
Mr Edwards: We know that right now we would not say that the price of hydro is low enough. I think it's not affordable.
Mr O'Toole: We heard from the large consumers yesterday, who are kind of your competitors, I suppose.
Mr Edwards: Absolutely not.
Mr Jennings: No, many of them are his and our members' customers.
Mr O'Toole: They basically want about a 25% decrease to be competitive with the Windsor-Detroit kind of scenario. They think we're way out of the park on price.
I want to move along a little more quickly so I can use appropriately my whole time. With 60% of the power being generated from nuclear, do you believe that nuclear should form the base load in the system?
Mr Edwards: That's how it fits into the system.
Mr O'Toole: Yes, I know.
Mr Edwards: It is the base load and it should be.
Mr O'Toole: That's what the IIPA is really saying. It says, okay, let's get in and maybe we can do this base load with fewer actual reactors, maybe fewer than 19. That's what we're going to get to. That is your position, that it should form the base load kind of thing?
Mr Edwards: Yes. That's the way they're constructed. That's the most economical way to operate them.
Mr O'Toole: And you want that to be in public ownership.
Mr Jennings: Let's be clear on what the question is, if I may. If you've got nuclear, it is a base load operation. Whether it is the right way to do base load is a different issue.
Mr O'Toole: That's good you clarified, because I'm asking, is it the most reliable, environmentally friendly, all those reasons we made the choices 20 years ago that we made to form the base load?
Mr Jennings: As you may recall, one of the reasons you made the choice in the past was the data that were given which suggested that it was going to be so cheap you wouldn't bother metering it. It hasn't proven out that way and that's where our scepticism is. We share your concern about how you evaluate that without relying on the people whose forecasting has not been accurate in terms of costs etc in the past.
Mr O'Toole: The Macdonald competitive framework really suggested much of what you've endorsed this morning, that the nuclear should be held in public ownership, such that there is a more open, accountable process.
Mr Jennings: With several competing nuclear plants.
Mr O'Toole: Yes.
Mr Jennings: If you had a board of directors over Bruce, for instance, in Ms Fisher's riding, or over Darlington or over Pickering, closer to the operation, I doubt you would have seen what has developed. You wouldn't have the distance between senior management and the board that would allow a business plan which they are now finding themselves is unattainable.
Mr O'Toole: Mr Andognini said exactly the reverse. He said under Mr Strong's direction he had set up competing forces which led to no standards and regulations with respect to overall controls. So which is it? Is it the large centralized control or is the plant competing on control?
Mr Jennings: With respect, Mr O'Toole, what he was talking about was decentralizing within a large organization with a single board of directors at the top and a single senior management at the top. That's quite different from having a number of smaller corporations, such as Macdonald recommended, for competing entities, where senior management and the board of directors, the people who are theoretically standing back from the operation, are going to be closer to the ground and more able to assess what is being reported to them.
Mr O'Toole: I think I understand your point. I have limited time. One more question on MEU amalgamations.
The Chair: Thank you, Mr O'Toole. We're going around one more time, but very quickly. There will be time for one question for each caucus.
Mr Conway: My last question will be, you know this committee has a limited time in which to do its work and it's been given a specific frame of reference. Considering that, from your perspective and from the perspective of the millions of electricity customers you represent, what, in the public interest, should this committee be recommending against the terms of reference that have been provided? What one or two things could and should this committee do that in your view would give some comfort to your customers?
Mr Edwards: I think the recommendations we tabled with you really addressed that question. We want a more thorough review of the options selected. We think it was presented too quickly and judged too quickly. Further, we think that the nuclear, which is the base load, which is going to be the must-run power if it's going to continue to supply the province, should be under its own governance and separated out.
Mr Laughren: One question: If Hydro was seeking a legitimate way of resolving the problems of the A units at Bruce and Pickering and it was a serious request for an alternative source of power, what length of contract would you expect a supplier would demand in order to make a major commitment on the capital side?
Mr Edwards: You have to put that in the context of the industry. If we're looking at the industry as it's presently structured --
Mr Laughren: The gas turbines.
Mr Edwards: Yes, but still, with the industry as it's presently structured, you would be looking for 15-year, 20-year contracts. If access to the transmission system and access to customers is assured, I think that diminishes considerably. In New Zealand certainly they're getting into fewer and fewer long-term contracts. Two or three years are the longest types of contracts they're getting into.
Mr Laughren: The lines are there.
Mr Edwards: The transmission lines? There is access to the transmission lines.
Mr Galt: Thank you for your presentation. Recently we had British Energy here presenting to us. A great story they had for us. I'm sure there are downsides but we couldn't seem to pry it out of them at the time. They were telling us how all the services have improved, how safety is improved in all respects, particularly how the rates have gone down 14% to 18%, in that range. How would you see the MEUs faring if we had a similar thing in Ontario to what British Energy is telling us about with their competition and, to some extent, privatization?
Mr Edwards: We've done studies on that and we project the same level of savings, in the 15% to 20% range, out of introducing competition at the generation level. That is not the North American competition that is projected by Ontario Hydro; that's competition within Ontario. I think that British Nuclear also gets into a great deal of privatization. That's an issue that, in order for a market to work, has to be introduced at some point.
Mr Galt: But you see safety being improved as well, do you? That's not the feeling the general public of Ontario have.
Mr Edwards: Things like safety and the environment are matters that can be regulated, independent of the entire industry. We do that all the time in a number of industrial contexts. It's quite possible to do it in the generation field. Yes, I kind of think that in order to secure the reliability of supply, which in the competitive scene is reliability of income, they're going to adhere to the safety regulations.
Mr Jennings: You have in that case British Nuclear separated out as a separate company. The only thing we've heard from the British we've talked to who were involved in the restructuring over there is that they didn't break the generation up into enough competing. They only had three. The cabinet had to step in and stop some further amalgamations in other areas since then. But in nuclear you have a third party assessing the safety.
I think we've got a reasonable comfort level, as much as you can have, given what Mr Andognini and his team have found in terms of all the plants being safe, and the AECB, although they've put Hydro on a very short leash, which has been a signal that's been very clear for a couple of years. We're not experts. If you read through the energy board material we've provided, we were able to flag some issues several years ago about the lack of maintenance in the nuclear area. The safety seems to be there, and you have a third-party opinion on that. We're saying you should have third-party opinions on the other things too.
The Chair: Thank you, Mr Edwards, Mr Jennings. I appreciate your attending upon the committee and your deputation and your forthright responses to the questions. I hope if we require further information you may respond in writing.
Mr Jennings: We'd be happy to, or to come back for further discussion if that can be useful.
Mr O'Toole: Mr Chair, on a point of order: I would request that the consultants or the Chair take under advisement to secure a copy of the television program shown last night on CBC National news with Peter Mansbridge and Brian Stewart, the report on the fire report. Because it featured some reference to Darlington, but more importantly to the Pickering plant in Durham, I think it would be appropriate if that report and the videotape were made available and presented to this committee for our complete understanding.
The Chair: Thank you, Mr O'Toole. In fact, the subcommittee dealt with that and is giving exactly the same instructions. We're proceeding in that regard as part of our briefings. Hopefully we'll have it available for Monday.
Mr O'Toole: Thank you very much, Mr Chair.
The Chair: I appreciate your bringing that to my attention.
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JOHN MURPHY
The Chair: The next witness is Mr John Murphy, a board member of Ontario Hydro. Mr Murphy, we welcome you back to the witness stand. Are there any opening comments you wish to make?
Mr John Murphy: No, I don't really have any opening comments other than sort of anticipating a question. I said at my last presentation I would go back and check in response to Mr Conway's questioning around the letter from the minister to the board. I have gone back, checked my notes, and I do have that information if you wish me to clarify that up front.
The Chair: Please.
Mr Murphy: Having gone back and checked my notes on that issue, the August 12 board meeting, when the decision was over with respect to the direction the board was taking, at approximately 4 o'clock in the afternoon the letter was distributed to the board members in the in camera session. So it did occur in the in camera session, it did occur after the decision was made and, as I said, it was around 4 o'clock in the afternoon.
The Chair: As a result of that, Mr Murphy, and I'm sure members will want to seek further clarification, was there any movement on your part or on the part of any other member of the board to revisit the decision that had been made prior to that letter?
Mr Murphy: No, and maybe I can clarify, from my perspective sitting as a board member, my views on this issue. In the minister's letter, which I think is quite appropriate in terms of what he is outlining as expectations of the board in reviewing the issue and the factors that they should consider -- even in the absence of that letter, that's precisely the approach that I had taken to the issue and the sort of approach I would expect people should take to such an important issue.
We had a lengthy debate. I rejected the issue after the lengthy debate based on a number of reasons that I would be glad to share with the committee, but when this was distributed as an information piece at the end of the day in the in camera session, it didn't seem to me that there was anything new that could be added based on the discussion we had had earlier on. All of the items the minister was identifying in there had been discussed, had been raised, and obviously not everybody was of the same viewpoint that I was around those issues.
The Chair: We'll go to questioning. Just as we begin, you are prepared to respond to any questions, including issues around the Chestnut Park accord and so forth, are you?
Mr Murphy: Sure.
The Chair: We will begin the questioning this time with Mr Laughren.
Mr Laughren: Welcome, Mr Murphy. The other day there were a couple of board members here and someone made a passing reference to the fact that you had voted against the recovery plan, and there was a look of incredulity on their faces -- I don't know whether other members picked that up or not -- and really questioned whether you had. I just want to have the record clarified as to whether or not you did indeed vote against the recovery plan.
Mr Murphy: Yes, I did, and in fact the minutes from that board meeting, which I think members of the committee have, also reflect that point.
Mr Laughren: I want to go back to the issue of that letter again, because I found your explanation a bit strange. After the presentation of the recovery plan and the decision on whether to support it, and the board generally supported it, although, as you say, you voted against it, when that letter was tabled, first of all, I find it very strange that it wasn't tabled before you had the debate on the recovery plan. I find that really weird, because it lays out the request by the minister very specifically. You have reviewed the letter, and I don't think I need to read it to you again, but it very clearly asks the board to consider all options, not just the ones that were laid before the board. I'm wondering why no one on the board, including you, picked up on that and said: "Hold the phone. We've got a request from the minister here" -- who is, technically speaking, the owner -- why there was no attempt to revisit that point.
Mr Murphy: I guess from my perspective, that letter probably should have been handed out at the beginning as opposed to at the end. I don't disagree with that. The fact that it was given out at the end, as I said, it seemed a moot point to me to be raising it once again.
What might put it into context is if I quickly review with members of the committee the types of issues I raised in that board meeting and the reasons that led me to voting as a board member against the recommendation that was brought forward.
First of all, I should say that when the board agendas are put together, it is clearly identified in the board agendas whether issues are going to be dealt with at the board for information purposes or whether they are going to be dealt with for approval. The agenda that was sent out to me as a board member, which I received on the Friday prior, indicated that the whole issue with respect to the nuclear was an information item. That's what was clearly indicated on the agenda, that it was an information item, and I took it that was the way it was going to be dealt with at the board. In fact, that made sense to me, that this was a huge issue being brought to the board and the identification of the problems and looking at alternative solutions would be dealt with for information purposes for the board, and then proceed on from that in terms of action.
When we got into the debate at the board further on on that Tuesday, it changed from an information item to a specific recommendation. There were a number of reasons that I identified in being opposed to the direction that was taken, and I just jotted down some of the issues that I raised.
From the discussion we had at the board, this seemed to be a very expensive solution to solve what was being identified as a management problem. That's what was clearly explained to the board, that the majority of this problem was a management problem, that 80% was a management problem. If I remember correctly, the expression I used at the board was that maybe I come from an old-fashioned school, but to solve a management problem is a lot more direct and straightforward than shutting down seven reactors for three years and spending a lot of money, that there's a more direct way of making the problem management -- and I don't think they're all problems -- more accountable, giving them more training or replacing them if they're not up to the job.
I was really concerned that this decision to announce the shutdown of seven reactors would do a lot of damage to Ontario Hydro's brand, its reputation -- Hydro had been spending a lot of effort and time, as it rightfully should, trying to build up its reputation, protect its reputation, enhance its reputation as we moved forward towards a competitive environment -- and that this announcement of such a dramatic event would have a negative impact on that, which it subsequently did.
I was also concerned about a side issue, I guess, but none the less an important one for a utility that's heavily reliant upon nuclear power. I was concerned about potential damage it might do to the Candu reputation. The Bruce heavy water plant coming out as a result would lead to further disruption around approximately 500 people being moved out of that community, which would cause further aggravation among the workforce and make nuclear recovery that much more difficult. I was concerned about that, the fact that it would result in the termination of the contract Hydro had negotiated with AECL to supply heavy water. The Bruce energy park and the Bruce community impacts were concerns I had. Shifting from a reliance on the seven nuclear plants that supply our base load to using more fossil and purchased power, I had concerns around the reliability aspects of that.
Overall, the major concern I had was that there was not enough consideration of alternatives around us -- not just alternatives of options within nuclear, from shutdown of seven units to shutdown of no units, the shutdown of some variety in between, but also all of the other options and alternatives. That did not seem to be there.
They were the major concerns.
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Mr Laughren: It seems to me you were the only one to read the minister's letter.
Mr Murphy: As I said, prior to the minister's letter these were the issues that I raised and discussed in the context of the board. They are the reasons I voted against this decision at the end. Having done that and then having seen the minister's letter, as a board member I didn't see anything different in the minister's letter in terms of what I had done as a director and what I should be doing as a director in making my decision around that issue.
Mr Laughren: Do I have time for another?
The Chair: Yes. I'm letting this go to 10.
Mr Laughren: Okay, thank you.
This is switching gears a bit, but I wonder if you saw the National Magazine report last night on CBC.
Mr Murphy: I didn't see the article. However, I did some checking this morning because we were asked by quite a number of people about that. As best I can gather at the moment, this is not a new report; this is the old August IIPA report information that the CBC was referring back to, which did identify those fire safety problems. Again, I have somebody working on this at the moment, but as I understand, corrective action has been taken around most of those issues. That's just the verbal information I have around it for you at the moment.
Mrs Helen Johns (Huron): Good morning, Mr Murphy. I want to follow through. The first thing I'm asking you is as a board member because of the last meeting. You talked a little bit about your appointment to the board. I'm just wondering if there are any other employees of Hydro, besides the representatives from the two associations, the society and the PW, on the board.
Mr Murphy: Yes, there are. Eleanor Clitheroe is an employee of Ontario Hydro and a member of the board; Al Kupcis, the past president, was an employee and a member of the board; and myself. We were the only employees of Ontario Hydro who were also members of the board.
Mrs Johns: So the three of you, now two of you.
Mr Murphy: Yes.
Mrs Johns: You voted against the recovery plan in August 1997. Can you tell us why? I know you went through a number of the reasons today. Is there one fundamental concern you had, or was it a wide range? You've talked about some of them already. I don't want you to go through all of them again, but was there one that was the premier issue to you?
Mr Murphy: Yes. The major issue to me was that this was a major, expensive decision that was being made to solve what the team itself was saying was essentially a management problem. I didn't buy then and I don't buy now that that's the only way you can solve a management problem. I just don't buy that. They themselves have continued to express the opinion that the major issue here, 80% of the problem, is a management problem. That was the driving factor behind me. I wasn't convinced that this was the only option to solve that management problem.
Mrs Johns: I want to explore due diligence. Can you tell me what committees you're on with the board?
Mr Murphy: I'm on the nuclear review committee of the board.
Mrs Johns: Just the nuclear review committee?
Mr Murphy: Yes.
Mrs Johns: Have you been on the --
Mr Murphy: And the audit committee. Both.
Mrs Johns: All right. I thought I was reading things. With the audit committee, can you tell me if you have had a series of meetings with respect to the IIPA report and the recovery plan? Have you over the last year heard about this report coming through the process, heard about the numbers? And since August, have you been involved in more discussions about the recovery plan?
Mr Murphy: Yes, the audit committee has been involved right through. There was no advance detailed discussion with the audit committee in terms of the detail around the solution being proposed for the reactors other than that the major role the audit committee has been doing is the due diligence work around making sure there's adequate disclosure to the external community around any major financial factors affecting Ontario Hydro. Obviously, the issue around nuclear recovery has been a major issue for them. It's why the audit committee has consistently made sure there were the appropriate alerts going out into the external community around potentials for problems in the nuclear side of the business.
Mrs Johns: On the nuclear review committee, can you answer the same question for me there? Were there discussions along the line, for the year before or however long Andognini was at Hydro, at most of your meetings about what he was finding and that kind of information?
Mr Murphy: Not in any detail per se. What Carl Andognini requested of the board, the nuclear review committee and the audit committee was that he not be required to give any kind of detailed updates on progress as they were going through, the reason being, he said, that in the process they were going to go through, they wanted to evaluate all of the options and come back with a comprehensive finding along with options that the board could then consider. So the types of updates were very basic. There were no specifics in terms of content in any of the reports that were given by Andognini to any of the committees or the board.
Mrs Johns: I have in my hand the IIPA report to the management which is dated July 21. Did you see that in July?
Mr Murphy: No. This is the -- can I just check?
Mrs Johns: Sure.
Mr Murphy: Absolutely not, no.
Mrs Johns: Can you tell me since August your attitude towards this in the board meetings? We haven't got all of the board minutes yet for me to be able to ask you this question. I'm going to have to rely on you telling me exactly what you've said here for at least another week or two till I get them out of Hydro. Can you tell me the position you've been taking on this? Are you adamant? Are you seeing the wisdom of the board's ways? Where have you been going on this since August?
Mr Murphy: As with any board, there's a democratic process for making a decision. Once that decision is made, then fulfilling the role of being a board member, life has to go on. You don't keep revisiting or trying to revisit that issue. However, what I have been attempting to do is make sure the financial analyses around the issue are fleshed out sufficiently, that the elements of the recovery program, because there are quite a number of elements in the nuclear recovery program that are quite right and quite adequate and quite appropriate, are being acted upon. That's generally the approach I have been taking around the issue.
Mrs Johns: I've been a member of boards, but I have to say that the ones I've been a member of are really little companies. They don't have near the kind of money or near the kind of responsibility you have as a member of Hydro, the heart of Ontario's assets or something, as we call it. I think all of us who have been board members consider the relationship you have with the shareholders, with the employees, with the whole corporation and the direction of the corporation as absolutely important. In fact, you have a responsibility that could lead to some legal ramifications if you chose not to follow in that line.
I have to ask you, if you felt you had an alternative plan that you presented to us, why did you think you didn't have to present that to the board?
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Mr Murphy: Because the board had made its decision. As I mentioned when I delivered our alternative plan to this committee last week, we didn't have any advance opportunity to be consulted and say: "Do you have an alternative plan? Can you present an alternative plan to us?" We didn't have that opportunity.
Once the decision was made back in August, we have worked since August up to now, up to this point in time, in trying to come up with what we think would be a realistic, an achievable, a defensible and a responsible alternative plan. That's what we attempted to try and do. In fact, we finalized that plan a couple of days before I came before this committee.
The day before coming to this committee, I took the opportunity of sending that plan also to Ontario Hydro management for them to review and look at. I felt that was the appropriate thing to do. From Ontario Hydro management, forwarding it on to the board would also be our intention, to do that.
Mrs Johns: My concern with that is, and maybe I'm just listening to other people, but the chairman of the board, definitely Mr Bullock, but I think all three board members besides you who have been here have told us that this is not a static plan, that there are going to be key decisions made at every turn. I think Mr Bullock talked about meetings every month from now on to decide on where we should go and the financial implications of each of these decisions. As we all know, we can't make a plan out five years and expect those decisions to be the key decisions. Mr Farlinger came in here and said, "If there's a better solution, I want to hear about it."
Do you think, since you've seen him and the board in August, September and October, maybe you should have said something to them?
Mr Murphy: There is virtually nothing new in the plan that I presented before this committee that I haven't discussed at the board as part of these deliberations, as part of these discussions; there is absolutely nothing new in that plan. In fact, as I said when I was before this committee, that plan is really not our plan; it's one of the options that Ontario Hydro looked at and rejected. It was scenario two, if I remember correctly, from the Hydro options that were looked at. So really there is nothing new and, as I said, I have also forwarded that plan to Ontario Hydro.
Mrs Johns: Have they had any votes on the plan since August?
Mr Murphy: Votes on the plan at the board level?
Mrs Johns: Or at the audit or the review committee, wherever you sit in your capacity as a board member.
Mr Murphy: I'm trying to recall if there was any specific element of the plan that was discussed that required voting on. I can't recall that there has been a vote on any particular element of it right now off the top of my head without checking, but I could certainly check on that and get back. I don't think there was on any aspect of it.
Mr Kwinter: Mr Murphy, you're now here in your hat as a member of the board. I know that the last time you were here we had a little bit of difficulty because you had a perceived conflict in the two hats that you wear. Do you sit on the board as the president of the Power Workers or do you sit on the board in spite of the fact that you're the president of the Power Workers?
Mr Murphy: The latter.
Mr Kwinter: You can't separate it, but you're not there to bring the labour perspective per se.
Mr Murphy: I think, given the diversity of Ontario Hydro, the thinking was that there should be a mixture of people with diverse backgrounds on the board. I presume that's one of the reasons why I was selected, but the selection process was very clear, that I would not be there because I'm president of the Power Workers.
Mr Kwinter: If you were to cease to be the president, you wouldn't automatically be succeeded by the president?
Mr Murphy: No.
Mr Kwinter: I'd like to get into something that I found almost startling. As Mrs Johns says, I sit on several boards, and some of them have been fairly large public boards. When I get my agenda, if I get an information item, I glance at it and I say: "I'll get to that. It's just information. I don't have to make a decision on it." If I get an item that is an agenda action item, that I'm going to be called upon at that meeting to vote on, then of course I go into great detail and try to find out as much as I can because I'm going to have to make a decision.
When was that item changed? When was its status changed from being an information item to being an action item?
Mr Murphy: During the board itself.
Mr Kwinter: During that meeting?
Mr Murphy: During the meeting itself, because I had raised a concern at the meeting exactly along those lines. My preparation was along the lines that this was going to be an information item; we were not making decisions. I was informed that no, there would be a decision made, that that was incorrect.
Mr Kwinter: I don't want to put words in your mouth, but I can tell you what my experience has been. If I had received the agenda a week prior to the meeting and I saw items that were for information only, I would not give them the same attention that I would give items I'm going to have to make a decision on. Is that a fair analysis?
Mr Murphy: That's a fair analysis. However, I must admit in this case that because of the magnitude of the issue, in terms of attention, I gave it a fair degree of attention, looking into it. However, I certainly was not expecting or prepared going into that board that I was going to be dealing with a decision at that particular board of the magnitude that we ended up dealing with.
Mr Kwinter: In the minutes of that meeting we had Mr Bullock, a recent addition to the board, questioning how this decision was being made, what kind of financial analysis, what were the implications. Now that you tell me, he didn't know until he got to the meeting that a decision was going to have to be made. We had Ms Clitheroe saying exactly the same thing. We had you voting against it. Who was driving this decision to suddenly change it from an information item to an action item?
Mr Murphy: It's difficult to pick out one individual who really was driving it to being a decision. There were a number of people who felt that they were satisfied sufficiently with the information that was presented before them to get on and make a decision. That came from a number of sources, and towards the end of the day the chairman introduced the motion and said, "We are going to go forward with the resolution," and introduced it before the board.
Mr Kwinter: When the other two members of the board were here, I asked them their interpretation of the minister's letter. Their interpretation -- again, I don't want to put words in your mouth -- seemed to be a little different than yours.
When he said, "You can appreciate that the government expects all options will be thoroughly evaluated," their interpretation was that the minister had been told of the report, had been told that Mr Andognini had put forward six options, and that their mandate and their direction from the minister was to examine all of those options before the decision was made, which means it was only the nuclear option. Again, I don't want to put words in your mouth. Others felt that meant all options -- "Maybe we shouldn't be spending this much money to rehabilitate the nuclear facility; maybe we should" -- to say we should examine all of those options.
What was your perception, although I understand the decision was made before you even saw the letter?
Mr Murphy: My position was, prior to seeing the letter, during the board debate, and upon seeing the letter, that the responsibility on me as a director was to make sure that we looked at all options, that all options were explored. That's the expectation that would be upon us in terms of any major decisions we make, to be sure that we satisfied ourselves of all options.
Mr Kwinter: We've heard from the AECB, we've heard from experts that safety was not at risk at any of the facilities. The potential for safety problems was there because of poor maintenance, poor management direction, but as far as they were concerned, notwithstanding that they were on a short leash as far as their licence, that was not a problem.
We had Dr Jeffrey saying that at British Energy the number one concern is safety. They didn't seem to be able to implement it, but that seemed to be the same concern at Ontario Hydro.
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The reason I'm saying that and what I want to ask you is, if safety was not a concern, notwithstanding that there were problems with management, problems with maintenance that have been long known to Ontario Hydro and long known to everybody who has an interest in it -- everybody who came forward told us that -- why was there this sudden urgency on August 12 to take an information item and convert it to an action item, an item that's going to require the expenditure of $5 billion to $8-plus billion, that's going to bring on fossil fuels, with their problems, that's going to lay up facilities, disrupt the baseline source?
Why would that all happen with such urgency? We have the president resign, all of these things happening as if there is a crisis or the implication that we've got to create a crisis. I just don't understand the timing of all this.
Mr Murphy: That was precisely my concern at the board when we had the debate and discussion around this. I too didn't really understand the crisis; I really didn't understand the urgency. As an example, regarding the fact that we were scheduling a press conference the next day to announce this, I was concerned about the impact it would have on Hydro's brand, on Hydro's reputation, when in fact it wasn't a safety issue we were dealing with concerning the reactors; really what we were dealing with was a performance issue. We wouldn't be shutting down those reactors till beginning in January anyway. The Pickering reactors would have been coming down in January regardless, because they were going to be shut down to do the additional safety system installation. Those are the concerns about what the need was for the urgency of making the decision then and announcing it the way we did.
Mr Conway: Mr Murphy, I want to pursue this perhaps in a somewhat more pointed fashion, because you yourself said you were a member of the nuclear review committee of the board.
Mr Murphy: Yes.
Mr Conway: The committee has several board minutes from, among other things, the nuclear review committee. I have the one here from January 22, 1997, which is about six months before this fateful day in August 1997. It is very clear that on that date, on January 22, 1997, your committee was being told by, among others on that day, the recently hired Mr Andognini that there's a culture problem. Let me read from the minutes.
"In discussing cultural problems at the nuclear stations, Mr Andognini stated the cause for concern is the nuclear culture, one which is neither American nor Canadian." He went on to detail that.
Then you hear at that meeting that the 1996 year-end operating results from the nuclear stations are not meeting the targets that you as a board have set. At this point you know the AECB is rattling sabres about Pickering. What I want to know is, as a board member you are on this committee that was hearing this stuff, why didn't something happen?
Mr Murphy: I think something did happen. Obviously things happened. If it wasn't for the nuclear review committee, I don't think Carl Andognini and his team would have been hired and brought in to investigate the extent of the problems. The type of things you're referring to in those minutes were the same kinds of reports that were made to the board repeatedly, that what we were primarily dealing with was a cultural problem. I never anticipated in my mind that the way you solve a cultural problem is by shutting down seven reactors. A cultural problem, a management problem, a people problem: There are more direct, immediate, much cheaper solutions to those kinds of issues.
The performance deficiencies you're identifying, the peer evaluations, the way they were addressed, the way they were discussed and certainly the way I, as a board member on those committees and at the board when we discussed those issues, pushed them was that the problem we had was with these peer evaluations that were done. These are evaluations where you come in and apply a very critical eye to find out what things are not being done right; not to find out what things you are doing right, but really to focus on what things are not being done right. Yes, they were negative. The problem, Sean -- and I agree with this and I certainly stressed this in the committee meetings and at the board -- was that there was no accountable tracking system in place.
In other words, if you were the director in charge of plant A and you had a peer evaluation that said you had done five things not very well, there wasn't a follow-up mechanism that said, "These are the corrective actions I'm taking. We've addressed these." We were seeing repeat findings which confirmed the original issue, which was the cultural problem, the management accountability problem.
Mr Conway: I'm running out of time, but I would like, just if I can --
The Chair: Mr Conway, I really do --
Mr Conway: How many minister's letters would you have received in the time you were on the board?
Mr Murphy: Not very many.
The Chair: I will allow everybody to ask one additional question after I cut you off, with the exception of Mr Conway; he has used up his treasury of merit. Mr Laughren, we're into three minutes.
Mr Laughren: Mr Murphy, I ask you this question as a member of the board; I know you're president of the Power Workers' Union as well. Mr Andognini's report has a section called "Labour Relations," and on page 32 they say:
"Certain provisions of the union contracts limit the effectiveness of management. Major issues include the following:
"Collective agreement restraints;
"Purchased services agreement restrictions;
"Strike threat;
"Fitness for duty;
"Chestnut Park accord;
"Personnel and vehicular searches;
"Too many union officials on full-time release."
Does the board in general share those concerns? I'm not asking if you do. It would be very difficult for you to say that. Do you think the board in general shares that concern about the collective agreement with Hydro?
Mr Murphy: I'm not sure, because there has never really been a debate or discussion at the board on that, where you could sort of sense where different people were coming from. What I can say is that back at the August 12 board meeting, when the report was presented to the board, I asked a question of Carl Andognini. I asked if there was discussion with the union around that whole section to see if any of these problems could be resolved. He said at that board meeting that there had been no discussion with the union around it and that he wouldn't be discussing it with the union until such time as he had dealt with it at the board. The follow-up response I had back was, "How do you know there's really a problem unless you've gone through that step first? You go through that step and then you determine whether there's a problem." That was the extent of the discussion we had. But I don't really know. I'm sure there are probably people on the board who would share that view, as I suspect there may be others who do not.
Mr Laughren: He told us that while he didn't discuss these matters with the union, he did discuss them with workers.
Mr Murphy: I'm not sure what that means. If you take the issue of too many union people on release time, I asked Mr Andognini a simple question that he didn't have an answer for. I asked: "Has your investigation concluded that has created a less-safe work environment? Having more union people on release time, are they out there trying to cover things up or are they actually making the workplace safer? Is that leading to a less safe environment or a more safe environment?" He didn't have an answer. I asked: "Can you give me an answer whether or not the other issues that are in there that we identified, Chestnut Park accord and purchased services agreements, are costing the company money or are saving the company money? Has that analysis been done?" He didn't have an answer on that either.
The Chair: Thank you, Mr Laughren. I paused for just a moment to see if he would slip another one in, but nevertheless he did not, so we'll go by. Ms Fisher.
Mr Murphy: Hi, Barb
Mrs Fisher: Hello again. I want to dwell a little bit on a presentation that was made to this committee yesterday with regard to the British power restructuring in total. My understanding is you've seen that presentation in the past.
Mr Murphy: Yes.
Mrs Fisher: Has the board ever received that presentation?
Mr Murphy: I don't believe so, Barb, no.
Mrs Fisher: Do you think that would be a good idea?
Mr Murphy: I think it would be. I think it would certainly be something that would be useful for the board members.
Mrs Fisher: I saw it yesterday for the first time. Of course, there are always two sides to every story. We've seen the one side, at minimum, so far.
Having said that, if I was to be inspired by anything that came out of that in terms of our potential recovery in the nuclear realm at least, which I think we're working towards, given the reduced rates for power consumers, given the higher safety performance, given that I quizzed him in detail, quite frankly, with regard to how the employees were treated, given that they retained their levels of pay, their benefits and in fact have even benefited again from that with these two other merit award systems -- I think they were called gainshare and share options; share options is the newest introduced package -- I would like you to help me understand how we, that is, Ontario Hydro management and the workforce, can achieve those same levels of recovery.
Mr Murphy: I think the way that happens is understanding the extent of the problems you have. I know Hydro's been getting a lot of criticism. To give credit to Ontario Hydro and particularly Dr Kupcis, where credit is really due I think was in hiring Carl Andognini and his team to come in and investigate what was wrong, to tell us a brutally honest assessment of what was wrong. That part made sense. The part where I come apart as a board member is in terms of then coming up with the one and only type solution to the problem, as opposed to other solutions to solve those problems that were identified.
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To go back to your question, Barbara, which is a little bit broader I guess, the single most important thing is we need effective leadership within Ontario Hydro. There's a search on right now to find a replacement for Dr Kupcis. The sooner that happens and we get somebody who can really lead the organization better -- with that sort of void of leadership there, it's very difficult to have a pulling together of the management in terms of moving forward around direction. That's one thing that's important.
The second thing that's really critically important is that a lot of Hydro's activities have been consumed with trying to imagine, to guess, to second-guess what might be future structures under which we would be operating, and what's needed is getting back to basics where we say, "The government may decide that a different structure is going to come down in the form of the white paper," but currently we have a structure that's defined under the Power Corporation Act -- responsibilities for directors, responsibilities for management who report to them --
Mrs Fisher: Can I just interrupt for one second. The issue is the culture and I think it's a double culture, to be honest with you. Not only does management have to manage and make good decisions -- I totally agree with you and I understand the errors in the past and what they've caused -- but it has to be a full buy-in by everybody. If we don't get that culture redeemed to where it used to be 20 years ago when I was a proud Hydro employee, I don't know how we're going to recover the situation. I know it's not an easy answer and it's not an easy question either. I just wish if I could convey anything, it is that's something we have to work together towards.
Mr Murphy: Absolutely, Barbara, that's really important. People who work in Ontario Hydro, the vast majority, are still proud of what they do; they want to do a good job and they want to feel good about their industry. The sooner that happens, the better, where they're given that opportunity to have a sense of pride restored in their company and their work.
Mr Kwinter: I want to pick up on a couple of concerns I have and that I've been asked about. I used to be the Minister of Industry, Trade and Technology and I'm the critic for that area, and people who have been watching what has been going on have said, "What do you think this whole discussion is going to do to the reputation of the Candu reactor?" That really isn't the purview, but you raised it. What do you think?
Mr Murphy: It's unfortunately had a negative impact on the Candu reputation. Despite the efforts to be clear that there isn't a criticism of the technology in the finding from the team, the perceptions none the less are that you have a Canadian technology that Canadians are having difficulty in managing. In terms of AECL's ability to sell Candu reactors abroad, that has to have a negative impact on that. I don't know if it really is having a negative impact, but I suspect it is. That's been my concern about it and my view on it.
Mr Kwinter: In my role as the minister, I have helped to try to sell them in India and a few other places as part of trade missions, and I can tell you, if I were the competition I would be carrying reports of this committee everywhere I went, to say, "These guys are trying to sell you technology they are shutting down in their own jurisdiction and they're having problems with it." That would be very effective. I really feel that is a concern and an issue someone's going to have to address.
Mr Murphy: It certainly is a concern for a lot of people, for sure.
Mr Kwinter: The whole other area Hydro is looking at and, as I say, the question was raised by other members, is the ability to finance this recovery plan. What are your feelings on that? I'm sure there's the ability, because they've got this asset that they've got to do, but what is the impact of that?
Mr Murphy: Going in the direction Ontario Hydro is choosing with their plan to shut down the seven reactors and incur the additional high costs of replacement energy for the three-year period I think is really going to challenge Ontario Hydro's ability in terms of the finances around it. It is going to be very tough. Trying to be everything to everybody, trying to fulfil the obligation of no rate increases through that period while being in this kind of predicament, is going to be make it very tough. The other obvious impact is that at the end of the three years, we will not have had the ability to pay down our debt through that period of time. The money we would have been using for debt reduction, in other words, will be used to pay primarily the replacement energy costs and the costs associated with the nuclear recovery.
The Chair: Mr Murphy, I thank you. I have a couple of very quick questions to ask of you before you're excused, to clarify my information here from your testimony.
It would be reasonable to assume that prior to August 12 you, as a board member, were at least aware there was a development of a recovery plan under way.
Mr Murphy: Yes.
The Chair: How long had you been aware that recovery plan was being formulated?
Mr Murphy: Right from the start, shortly after Carl Andognini and his team were brought in, I was aware from that point that they were being brought in to do that full assessment and lay out to the board of directors what their findings were. Also, where information changed was that I was under the understanding, based on the earlier information from Carl Andognini and his team, that a list of options would also be presented for the board to consider at that time.
The Chair: Would it be reasonable to assume that, with that knowledge you had as a director of the board, that knowledge was also then understood at least by the Power Workers?
Mr Murphy: Certainly, and with our members as well. Carl had made an effort to go out into the workplaces and had face-to-face meetings and told people exactly what they were doing.
The Chair: You've indicated in your testimony to the committee today that in your mind at least the problem was at least 80% management. That would mean by the time you got to August 12 you had a sense of what should be done to deal with Hydro. So as you arrived for that meeting on August 12 you had a sense of where, at least in your mind, you thought Hydro should go, and certainly by that day you had a sense of the recovery plan that was being recommended, at least for information. You had a sense that there may be differences of opinion at that point.
Had you by that time made any introduction of your thoughts to the board? Did you present to the board at that time even the nucleus of the study that you later presented to this committee to represent the Power Workers?
Mr Murphy: All through the process, I guess even prior to Carl Andognini and his team coming in, on every opportunity I could get I had stressed the point of management accountability being the single most important thing we could do. If you check with the chairman and with other members of the board, they'll confirm that's in fact the case. What I had said was that the old mentality that had evolved within Ontario Hydro, where you had a job for life if you were in management, that kind of thinking, was no longer relevant.
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The Chair: I understand that, Mr Murphy. The only point I'm trying to raise was you presented this committee with a reasonably fleshed-out position. Clearly that didn't just happen; it is something that had taken some time to evolve. Are we able to find evidence through the meetings of that position having been placed? You were a director of the board, and did you place that position on record prior to August 12?
Mr Murphy: No, I didn't place it prior to August 12 because I had absolutely no knowledge in my mind as a director that the recommendation coming forward would be to shut down --
The Chair: Can I just finish off the final point because your evidence today has caused me to at least now place into some question an evaluation I was beginning to make about the process. I want to go back to that meeting on August 12 because what has troubled me, I think along with other members, was the spectre that suddenly a major decision was being made almost out of context.
It was almost -- it was there. We've heard your evidence that it was brought forward on an information base, and suddenly as the meeting progressed things changed and it became an action movement. In fact, your testimony when you were asked -- I think by Mr Conway, if not Mr Kwinter; it may have been Mr Kwinter, the Vice-Chairman -- who was driving this, your response was that it was very difficult to identify any one person who was driving this, that indeed the change from information to action occurred throughout the day, and the quote was that a number were satisfied with the information and felt they had enough information now to get on with a decision -- that's almost a direct quote from your evidence.
Mr Murphy: Yes.
The Chair: The vote was then finally taken and you are the only dissenting vote. There are people of remarkable experience and background. There is Mr Farlinger, there's Allan Kupcis and there's Eleanor Clitheroe. I can read a number of names down the list you would know better than I, people of distinguished experience and background, who at that point seemed to be giving the impression at least from the evidence and from the records that they are now satisfied. They have looked at all the alternatives and that is, after all, what the minister has been asking for: "Look at alternatives. Look at the options." They have in fact had laid before them a number of scenarios and they believe at this point they have now been given everything they need to have and now it seems reasonable to make a decision. Would it not be reasonable to at least make that conclusion as I read the evidence?
Mr Murphy: Just one correction: Allan Kupcis wasn't there. He resigned that morning and wasn't there for any of the discussion on this issue.
The Chair: All right. I'll insert the name of Mathur.
Mr Murphy: Yes. I can't really try and second-guess why the other board members reached the conclusion they did when it came down to the crunch. Certainly, during the discussion there was more than myself who were raising, I think, appropriate questions around the issue: Had careful analysis been given to the options? Were the options looked at? Some of the other issues we had identified earlier, some of the financial questions --
The Chair: But that could well have been a matter of saying: "Look, we might need more time. It might be nice to have more time. We'd like to look at this. We'd like to look at that." But what evidence you have given this committee today, and I just want to finalize this point, was that at a certain point in the day it seemed to become evident that the mind of the board had crystallized and it seemed to be saying as one, "While there will always be some questions that will be here and there and we realize we need to have some flexibility as we go through this, at least at this point we seem to be able to make a decision of moving in this direction," and with one exception they agreed to do that. Would you agree with that?
Mr Murphy: Yes.
The Chair: Thank you. I have no other questions. I appreciate your being before the committee today. I appreciate your time in coming back a second time. I hope, in case we require you, you will come back again.
Mr Murphy: Certainly, and I appreciate the opportunity.
The Chair: Thank you, Mr Murphy, very much. You are excused.
CANADIAN NUCLEAR ASSOCIATION
The Chair: We will turn to our next deputation. That is the Canadian Nuclear Association, Murray Stewart. Mr Stewart, please come forward to the witness stand. We are ready, and welcome to the committee.
Mr Murray Stewart: Good morning. My name is Murray Stewart. I'm president and chief executive officer of the Canadian Nuclear Association. I am joined this morning by Mr Colin Hunt, our association's director of policy and publications.
It certainly is a pleasure for me to be here today to provide this panel with information on the nuclear industry and to respond to questions I'm sure you will have for us.
The Canadian Nuclear Association has a long relationship with our legislative process and we strongly endorse the purpose of this committee. Whenever there is a rigorous, professional and factual review of any part of our industry, we welcome it and are prepared to give it our wholehearted support and assistance.
We have submitted quite a bit of background information to you. This included our nuclear yearbook, which is an annual review of our industry, some of our fact sheets relevant to your investigations, and a somewhat more formal presentation package with detailed information on the nuclear situation in Canada and around the world. I do not intend to go through any of that material, but give them to you as backup information that you can study or that may prove useful in any queries you may have for us later on.
As many of you may be aware, the Canadian Nuclear Association was formed in 1960 and is a non-profit, voluntary group which promotes the peaceful uses of nuclear energy and technology. It's comprised of nearly 100 corporate members, including electric utilities, universities, engineering consultants, banks, labour unions, professional associations, federal and provincial government departments, reactor component manufacturers, isotope suppliers and uranium producers. It pretty well covers the whole spectre of the nuclear industry.
Our association's scope covers the three legs of our Canadian nuclear industry: the uranium mining industry in which Canada is the world's leading supplier; the medical isotope industry, again in which Canada is the world's leading supplier; and of course the power generation industry, which includes both power generation and our Candu technology industry. Today I'm pretty well going to be focusing on the power generation side of that industry.
Let me state right up front that we support, and indeed endorse, the excellent piece of work recently completed by Ontario Hydro; that is, the IIPA study and the subsequently developed recovery plan and all its options. There have been many starts to this process over the past several years, as this committee has heard over the past several weeks, but we believe that with strong leadership at all levels of the organization, the full support of the Canadian nuclear industry, the continued strong leadership from our nuclear regulator and support from the host communities, it can and will be successful.
Equally important, we must all have both the patience and the dedication to ensure this time we are successful through a continuity of efforts by all involved. Milestones, I believe, are set, they must be met, but they also must be achievable so that we can all benefit.
There's a lot riding on this challenge. Our association is dedicated to helping this happen, such that all Canadians will once again be confident in this electricity generation option and be comfortable in receiving the benefits nuclear energy gives. Some of these benefits are being the most environmentally benign, large-scale, proven power generation technology, the spinoff economic benefits for Canada in terms of jobs and economic gains, the safety benefits, the unique waste management benefits and of course low-cost electricity for our homes and factories.
Before I open it up to specific questions from you, let me just close by giving you some facts about our industry, noting that these may be somewhat in conflict with some of the previous presentations you've heard over the last several weeks.
First, nuclear power generation is not a sunset industry and is not shrinking. Currently around the world there are 36 nuclear reactors under construction with another 15 in the final planning stages. This is actually more than there were one year ago. The industry is expanding. Just to put it in perspective, this represents, under construction around the world, more than the total of two Ontario Hydro nuclears. I could take you around the world and show you all those tomorrow morning, if you wish.
Second, during the last 12 months there has been a net increase in nuclear power generation installed capacity of almost 7,000 megawatts. This is in spite of the shutdown of several units in North America and Europe. What is happening is that smaller, older, less efficient units are being replaced by large, modern and more efficient units, not unlike many other industries and other sectors around the world. It also illustrates the commitment to nuclear power generation in the rapidly growing developing nations.
Third, it is a fact that there have been no new nuclear power plants ordered in Canada and the US in over a decade, but just to realize that, there has also been no other type of large base load power generation plant started in North America either. Through deregulation, North America has not required major new power generation facilities, nor do I believe it will in the next number of years.
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Fourth, nuclear power is the only large-scale power generation option for most industrialized and developing nations that totally contains its waste in a safe and effective manner. There are no greenhouse gases or other forms of toxic emissions released into the biosphere.
Just in conclusion on my opening remarks, I believe nuclear power generation has proven itself to be safe, reliable and cost-effective in many countries around the world. Certainly, and I think through this panel, we must ensure that Canada continues to be one of those countries.
I would be most pleased to go into more detail, as much detail as you wish, on any of the information I've presented here or in my opening remarks, address any questions you have. If I cannot give you the information now, I'd be pleased to get it to you. If I can't do that, I'd be pleased to recommend who should come before you to give the information directly to you. I'm basically here as a source of information for you. You're more than welcome to ask any questions, with my colleague beside me as well to help.
The Chair: Thank you very much, Mr Stewart. We'll begin the questioning with the government caucus.
Mr Galt: Good morning. Thanks for your presentation. I think I can sum it up by, you're telling me the status quo is okay.
Mr Stewart: Not in Ontario.
Mr Galt: That was my interpretation of your presentation. I won't take you to quite the task that I did the society the other day, but I can't agree that the status quo is satisfactory.
Mr Stewart: I don't think I said that.
Mr Galt: What did you tell me?
Mr Stewart: I think I said I endorsed the recovery plan and the actions that Ontario Hydro is now taking. I think probably for the first time they've gone into the most rigorous program they've ever done. There are fundamental changes to the way they've approached it. I think they've brought in the right kind of folks both to put the plan in place and also to implement the plan.
Mr Galt: I think we have to take our hat off to the present chair in having the intestinal fortitude to have a real serious look at their operation and what's going on. Surely to goodness, you can see some alternative ideas to the recovery plan. Have you bought in 100% to this recovery plan or are there other choices that you see that might be more viable? Do we have to shut down all seven at once, for example? Should there be a rotation? Should they all come back? Should a few come back at a time? Have you bought 100% into this recommendation?
Mr Stewart: I think it's a viable option. I'm sure we can fine-tune, we can tweak a lot of these options. From what I see in the plan, it looks doable. From my view, what we need at this point is a doable plan. That's something you should all be very serious about considering. We don't need an overly optimistic plan, we don't need an overly pessimistic plan. We need a doable plan.
Whether we're shutting down seven or six or five or nine, time will tell a little bit on that. Some are already down. There's not a lot of flexibility in some of the units at Bruce. Let's face it; those units have to be reworked. The effect of what's happened at Hydro over the last number of years, we call it the management plan, the cultural plan, but the net result of that is that these plants need work.
Mr Galt: Your comments about some of them being shut down, some would look at this committee as, the horse is already out and we're trying to close the barn door. It's kind of difficult to retract that once it's there, but yes, they do have to go ahead and we recognize that.
I'd like to explore for a few minutes with you some of the things that have come up here. We've heard from the three chairs. Franklin told us how he improved the conditions back in the 1980s. Strong said it was much better after he left than when he arrived; there was a crisis when he started. He more recently talked about a nuclear culture. Our present chair is talking about a cult, that it's a nuclear cult that's running this operation. We've also been told that this cult is at all levels. We've also had various levels in from Ontario Hydro and they've all said, "Not me; it's the other people."
We had a Candu reactor. We were the leaders in the world once upon a time. What happened?
Mr Stewart: You've heard from many folks. It is an Ontario Hydro issue. There are other Candus around the world, there are other nuclear utilities around the world that have never experienced these problems at all, and that includes people with Candus, both in Korea and other places around the world. So I think you do have to focus to a large degree on Ontario Hydro when you look at this and the total package.
We can go through and rehash a lot of the management, the culture, changing from a construction mentality culture to, you might say, a more mundane -- watching the kilowatt-hour metres just churning out electricity.
One other point I think you should be looking at that maybe you haven't focused on quite as much is just the list of names you went through. Even on a personal basis, I've been through corporate turnarounds in my own companies and other companies I've been involved in. The continuity is one thing that's lacking. That is something that I think is the change in this process, as I mentioned. We've got the people who came in. I think Al Kupcis did the right thing by also making Carl the chief operating officer as well as the consultant to find the solution. To use an old GE term, he's got his hand in the fire. He's got to perform. He's not only developed a plan, he's there to implement it and make it happen. If you want to say the one concern I have, I hope they're all around long enough that we live and give them the opportunity to produce this.
Maybe a little more specific to your point, I think there's been, no question, a lack of continuity so that we haven't had chief executives, we haven't had presidents who have been through ups and downs of all these structures. That's leadership.
Mr Galt: You've talked about different places in the world, some of them like British Energy, that has gone to competition and, to some extent, privatization. We have had a monopoly, a power unto itself, no pun intended, at arm's length from the government, totally at arm's length from the consumer. We found out recently that the rural customers' rates don't even come before the energy board. It's only the big customers' rates. Is our problem that it's been a monopoly for too long?
Mr Stewart: I'm not sure monopoly is the problem. I'm not sure of that.
Mr Galt: Would we have been in this trouble had we broken it up 10 years ago or five years ago and had some competition within the organization, like GM and Ford and some of the car plants have within their companies? Would we be in this position today? British Nuclear tells us it's much safer now that they've gone that route. Both in slips and falls as well as nuclear safety, they've improved tremendously. We still hear about all the leaks and problems we have here.
Mr Colin Hunt: Mr Galt, if I could deal with that question, when you look at, for example, the turnaround that happened in the British electrical system with respect to the breakup of the CEGB, what you see on the surface is the breakup of the monopoly into the various operating companies and into the transmission system, the grid, and the various regional distributions.
What was most important there, and I'm looking specifically at nuclear electric, was that nuclear electric was not privatized. It remained in the public sector. One can't say that public ownership as opposed to private ownership had anything to do with the recovery of this system, and the recovery of the British nuclear system is frankly astonishing. They took a nuclear technology which was averaging 20% or 30% capacity a year and brought it up to above 70% capacity a year. They also did that in a situation where they were chronically overstaffed, far beyond anything Ontario Hydro ever imagined. This turnaround happened despite the fact that they remained in the public sector as the sole operator of all nuclear facilities in Britain.
The important point here is that originally the CEGB was a government agency similar to Ontario Hydro, with a very large and complicated mandate. Part of its mandate was to make electricity, perhaps the largest part, but it also has all kinds of other responsibilities attached to it at various times and places, specifically regional job creation and regional development. When nuclear electric was split off, suddenly it no longer had a complex mandate any more as part of a large, monopolistic government utility run as an agency; it had a very simple one and a very straightforward one: Make electricity out of its nuclear power plants. Make as much as it could as safely as it could.
Mr Galt: I think your comments are kind of interesting. We're seeing a similar thing, particularly in the LCBO stores in Toronto. Just because there's a threat of privatization, the customer service has improved tremendously, I'm told. It's just almost overnight, just because of this particular threat.
You're talking about continuing with nuclear energy and you're highly recommending it, from what I am hearing. Most of our debt in Ontario Hydro, as I understand it, 80% or thereabouts, relates to nuclear. We're now being asked to lay on more either debt or some sort of arrangement of this. Yes, I know a lot of it relates to firing up the fossil fuel plants.
Try to convince me that's a good idea. Why should we continue with something that looks like it hasn't performed? There was supposed to be a 40-year life expectancy in these plants. Poor management, they tell us. We've ended up with plants that haven't been properly serviced. You've got to convince me this is a good idea, to continue spending, maybe, good money after bad, if I might put it that way. You're going to have to work really hard.
Mr Hunt: All right, Mr Galt. Let me deal with this question this way. When you look at the cost of Ontario Hydro's recovery plan, the largest component in it is replacement fossil fuel. This replacement fossil fuel will go on until such time as, if you go through the recovery plan, the nuclear units have recovered and this additional fossil fuel is no longer needed. If you don't do the recovery plan, then you will be paying that extra premium for fossil fuel indefinitely because it represents the margin of difference between the cost of nuclear power and the additional, more expensive cost of the least most expensive fossil fuels.
In that sense then, you may say the recovery plan is expensive. What I'm suggesting to you is, by neglecting the nuclear power plants and relying on fossil fuel, you are looking at something far more expensive indefinitely. Notice that I don't refer to the environmental consequences of relying on these fossil fuels.
The second thing this touches on is the reliability of nuclear power plants over the long term. It seems to have become something of a vogue statement here: "If it's old, it's unreliable." Let me give you just a few examples. I could pull out dozens, but I'll give you just a few examples of utilities and old reactors.
I'm only going to deal with the reactors in the top 5% of the reactors around the world, the best-performing 5%, which is about two dozen reactors. For example, Switzerland has five nuclear reactors. Their second-oldest reactor is Beznau 2. It was commissioned in 1971. That makes it almost 30 years old. It had a lifetime capacity factor over all those years of in excess of 86%, and it's an old reactor. It's as old as Pickering unit 1.
Mr Galt: We're running about 50% in some.
The Chair: Thank you, Mr Galt. We'll proceed now, Mr Kwinter.
Mr Kwinter: Mr Stewart, you state that the Canadian Nuclear Association is a voluntary group of people who are interested in the nuclear industry, who have an interest in it, as opposed to interests in it. You state that it's a three-pronged effort: One is uranium, of which we are the world's largest supplier; medical isotopes -- we're the world leader; and energy production through the Candu which was at one time, or maybe still is, the leading technology in the world. But you also say that you think with this recovery plan and with the attention, Canadians will be once again confident.
So we have a situation I don't understand where you, as an industry -- which has your lifeblood really relying on putting forward the fact that this is the best technology, the most benign, the most cost-effective and everything else -- could be sitting by watching what has been happening at Ontario Hydro. Maybe you've done something about it but haven't been terribly effective.
Let me give you an example. Just recently I've had to question the minister in the House about the fact that the TTC will not buy a bus that is manufactured in Mississauga. They've gone to New Mexico to buy it. That makes it virtually impossible for the company in Mississauga to sell buses because all a competitor has to say is, "Their own municipality isn't buying them; why would you possibly buy them?"
It would seem to me, as an association that is made up of all of those who derive their very livelihood and their very business potential out of this industry, that you would be supercritical and be a watchdog to make sure this is the model for the world, so that when you're selling these to all these other countries around the world, you say, "You come to Ontario and we'll show you facilities that are not exceeded by anything in the world." Why would that not happen?
Mr Stewart: I'm not sure what the question is.
Mr Kwinter: The purpose of your organization is to promote nuclear activity.
Mr Stewart: That's right.
Mr Kwinter: We have Ontario Hydro, which for years has had a record of poor maintenance, poor life expectancy of these facilities. We've just heard from your colleague where he's quoting what's happening in Switzerland. You can't quote that in Ontario. When Dr Hare was here yesterday I asked him, "Is it a problem of maintenance and is it design?" He said, "It's a bit of both," that the alloys in the tubes weren't proper because it was new and they hadn't got into this thing.
What I'm saying is that you, almost of anyone, other than the citizens of Ontario who are looking for cheap electricity, have the greatest interest in making sure this is successful, that it is the absolute epitome of nuclear generation. Why has that not happened from your organization?
Mr Stewart: I think from the organization, in effect we have supported Ontario Hydro and really the member companies. Certainly even as part of the recovery plan, many, many of our members are going to be intimately related with Ontario Hydro in maintenance and on a contract basis, on a consultant basis and all of this in that recovery program. It's in our interests, absolutely, the whole Candu supplier network and right through the piece, that Ontario Hydro is a showpiece around the world in terms of nuclear performance.
Mr Kwinter: Yes, but you said "but not in Ontario."
Mr Stewart: No. I mean, it's in our interests that those reactors are of world-class performance in Ontario, no question.
Mr Kwinter: But when you started you said that the Candu reactor is a showcase, other than in Ontario, and Ontario has a problem.
Mr Stewart: Ontario has a problem in terms of its utilization right now, no question.
Mr Kwinter: And my question was, why did you as an organization not use whatever your lobbying influences are, whatever it is, to make sure that's corrected, because that reflects on your ability to market this particular facility?
Mr Stewart: I appreciate your comment, but I'm not sure it's really a question in the sense of what -- we obviously do everything we can to support Ontario Hydro in terms of services and everything else, in terms of our member companies. They know the problems and they've tried in many ways, shall we say, as you've heard ad infinitum in these hearings, on various recovery programs.
Mr Hunt: The way I would express it, Mr Kwinter, is this: The performance-related issues to which you're referring, which have been acknowledged to have been going on for some time -- if the regulatory authority, the Atomic Energy Control Board, as was made manifest through the correspondence that was placed before you some weeks back, wasn't sufficient to get Ontario Hydro's attention, then I'm not sure what an industrial trade association could have achieved, particularly given the fact that Ontario Hydro was not a member of ours for a period of a year. You have to have some contact with the industry for the industry to have any influence over you.
Mr Kwinter: Could I just go on to another topic, because my colleague wants to say something as well. In your comments you said "there has not been any other type of large base load power generation plants started...either."
One of the things I have been informed of and what people who are saying there's got to be an alternative are saying is, it's a mistake to have these large base load facilities because when you have a problem with them, the whole thing shuts down. What is happening in North America, particularly in the United States, is people are building these smaller gas-generated turbines that are turning out power and you really spread your risk. If one of these things goes down, you can buy quite easily from some other area. The trend is to get away from that large facility because of the problems. Do you have comments on that?
Mr Stewart: Actually, I don't think I agree with that in terms of large base load, in terms of scale. Really, when you go back, there have been very few, even on a distributed basis. There have been a number of small gas turbine cogen and that will continue to be done on an isolated basis, on pulp mills and some of the other municipal levels. But when you look at the large base load of the scale you need to drive the North American economy, you still need significant base load capacity. The point I was trying to make there is, there has really been no significant need for new power generation because of deregulation.
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Maybe just to illustrate that a little bit, for instance, if Ontario Hydro were restructured such that it had open access to the US market, just for the sake of argument, we know Ontario Hydro has about 5,000 MW of excess capacity. So when they do solve these nuclear issues and everything, we're back to the issue of excess capacity in Ontario. But if you change the regulation and allow Ontario Hydro or whatever entity we end up with to go into the US to compete in an open market, you've in effect brought, just through deregulation, 5,000 MW of capacity into the US market.
That's happened throughout the US. When you go back 10 years in the US, there were a number of power plants planned and almost started to be constructed in the southeast US where the industrial development really was advancing, in Arkansas and Alabama and these places. When you look at a lot of the plants that have not been built, including a lot of nuclear, in effect that power demand has been taken up by wheeling power from northern states where they've closed factories and don't have the base load any more. They've actually solved that problem through wheeling the power throughout North America. That's clearly what's happened in the industry.
Mr Laughren: I'm puzzled by your presentation, I must say. You indicate you're funded by basically people in the nuclear industry.
Mr Stewart: Yes.
Mr Laughren: What is your budget for your association?
Mr Stewart: The overall association budget would be probably just under a million dollars.
Mr Laughren: Are you registered as a lobbyist?
Mr Stewart: Yes.
Mr Laughren: In Ottawa?
Mr Stewart: Yes.
Mr Laughren: Anywhere else?
Mr Stewart: I think in other provinces as well.
Mr Laughren: I'm taken aback by your presentation, which is really a cheerleading presentation. Given the problems this committee is wrestling with, I'm surprised at your presentation. If I was a member of your organization, I think I'd withdraw my funding -- I'm serious -- because here you are as an association, a lobbyist, and yet when this committee is trying to wrestle with a very serious problem in this province, there doesn't seem to be an acknowledgement on your part that there's a very serious problem here for your industry.
There's no comment in here about safety issues at Ontario Hydro or in the nuclear industry. I don't know whether you talk to AECB or whether you appreciate the severity of the problems. I mean, there was CBC last night doing a -- okay, you can say that flowed from the Andognini report and so forth, that's fine, but as a public relations exercise it's a disaster for you and there doesn't seem to be an acknowledgement of any of this. I don't find that very helpful to this committee, quite frankly. I apologize for speaking so directly, but I don't think you'd want it otherwise, would you?
Mr Stewart: Absolutely not. I have an equal concern as you do that we get this problem resolved, obviously.
Mr Laughren: But there doesn't seem to be an acknowledgement of it in your presentation to this committee. We're not interested in simply knowing that the Canadian Nuclear Association is cheerleading for the nuclear industry. We want to know what you're doing about helping to resolve some of these problems, because as Mr Kwinter said, there's a lot at stake here for this province, a great deal at stake. It's not just health and safety, it's economic as well.
Mr Stewart: That's right. I think what I'm trying to do is just advise you on making sure you look at all the facts and you look at nuclear energy and what's happening around the world and what other constituencies have done with nuclear power. I think it illustrates to you, I hope, that it is the problems that have been put before you by Carl Andognini and his team. It is a long-standing, long-time-developing cultural management which at the end of the day has caused maintenance issues, which has hardware problems.
Mr Laughren: But we shouldn't expect, should we, that you're going to look at Ontario Hydro's recovery plan with any kind of objective view?
Mr Stewart: Oh, on the contrary, I don't agree with you. If this does not get recovered, shall we say, I think it has a profound impact on our industry.
Mr Laughren: No, I don't mean that. I meant in terms of the options. The recovery plan is a nuclear option only. We can't expect you to say that recovery plan is not a particularly good one because it doesn't consider non-nuclear options. We can't expect you to come to us and say that, can we?
Mr Stewart: There are milestones in this plan. For instance, Bruce A is not going to be opened without a financial business case to reopen. That's right in the recovery plan. Ontario Hydro is going to have to justify the investment in that plan and the reopening of that plant. I have no problem with the nuclear option being put to any test, financial or safety and this sort of thing, as it will have to be, to do the work. I think that's in the plan. I think it's based on a business case to do the work on that plant, so I'm not sure I agree with your comment that we're sitting back. We're helping them, obviously. I think we've got to mobilize everything to help them.
Mr Laughren: Why was Ontario Hydro not a member of your organization for, what did you say, a year or two years?
Mr Stewart: That was during the period when the NDP government had a policy of non-nuclear.
Mr Laughren: Of no nuclear expansion.
Mr Stewart: No nuclear expansion.
Mr Laughren: Hydro withdrew because of that?
Mr Stewart: That was the information we were told by Ontario Hydro, that they could not belong to an association that, in your words, promoted nuclear energy.
Mr Conway: Those were the days when minister's letters were really responded to.
Mr Stewart: There probably was a minister's letter somewhere.
Mr Laughren: That I find very strange.
Mr Stewart: That was a fact.
Mr Laughren: That was what they told you.
Mr Stewart: Yes.
Mr Laughren: It was only for one year?
Mr Stewart: I think it was a couple of years.
The Chair: We have time to go around for about three minutes each caucus and we'll start with Mr O'Toole.
Mr O'Toole: Thank you very much. I appreciate your presentation. I've a couple of quick questions, since I have two or three minutes. You support nuclear; that's obvious. Should nuclear be in public or private ownership?
Mr Stewart: I can give you examples. We can talk about Ontario, but on a global basis --
Mr O'Toole: British Energy is a good example of one.
Mr Stewart: There are perfectly well-managed and performing nuclear reactors in both forums. In France it's government-owned; it's world-class.
Mr O'Toole: World-class. That's good.
Mr Stewart: In other countries, it's --
Mr O'Toole: Since I've only got a short time, that's kind of the answer there.
The other one is culture. We've heard a lot about it and we've used different words meaning roughly the same thing. I'm reading your report. Actually, I must compliment you. It's a very nice document. I have to learn how to read it; there's a lot of technical stuff in here. I am impressed because under culture -- it covers it on page 26. I'll just read it: "Over the years workarounds became a norm." "Workaround" is kind of a term of avoiding being fixed. "Staff worked around the problem by closing a manual valve that would allow operations to continue." Of course, they would turn the valves on when a test was being done. "It became standard practice simply to work around the procedures." It goes on to make specific references.
But you endorsed the safety -- you sort of brought it in here -- which I have some serious problems with. You said, "The nuclear power generation industry is the only large-scale power generation option for most industrialized and developing nations that totally contains its waste in a safe and effective manner." I think safety is a primary issue here and I think it must be addressed very technically, very specifically.
I bring to your attention that even Dr Jeffrey from BE just sort of skated around the ultimate disposition of waste, whether it's the fuel or the site, or it's the whole decommissioning process. Could you give me some assurance that there is proven technology for dealing with the waste? In nuclear, we don't have the particulates and the greenhouse gases to deal with, but we have not dealt with the byproduct. I'm not convinced -- I've heard of the ceramic encasement. He said: "We just take the plant, we take down all the concrete, we chop up the boilers into little bits." I thought, "Yeah, sure."
Mr Stewart: I'm sorry, I missed his presentation. I was in Ottawa meeting with the AECB.
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Mr O'Toole: You should read it. Get the Hansard, read it. Really, he said, "You just chop it up into little bits, encapsulate it and you bury it." Well, there isn't anybody burying it anywhere. They're talking about it, we're looking at it, the deep core stuff in the Shield. Sweden's the only country that's doing anything and they're at medium activity storage underground. Just give me some assurances, for the record, that safety -- that's the longer-term issue of the output of nuclear -- is resolved.
Mr Stewart: Certainly. Actually, when you go to the sites I would stress that you do look at that back-end fuel cycle.
Mr O'Toole: Bruce has the above-ground storage.
Mr Stewart: As the fuel comes out of the reactor it goes into the so-called swimming pools. It sits there for anywhere from a few years up to 10 years. It is now decayed down to some extent. It is now in Canada, and actually around the world the norm now is to put it into what is called dry storage. You will see those dry storage facilities on your tour at Ontario Hydro. You will see a slightly different version at Gentilly. I was standing beside them in Korea three weeks ago. You can stand beside them. You can go up and touch them.
Mr O'Toole: That's high-level storage.
Mr Stewart: This is the high-level storage of the waste. They go into this so-called dry storage, which is a totally satisfactory technology that is, in effect, valid for hundreds of years.
Mr O'Toole: What is the radioactive life --
The Chair: Thank you, Mr O'Toole.
Mr O'Toole: A thousand years?
Mr Stewart: Longer than that.
The Chair: Thank you, Mr O'Toole. That was your slip-in and that's the end of that one. Mr Conway.
Mr Conway: It's an Irish problem, Mr Chair.
The Chair: It is indeed, Mr Conway.
Mr Conway: I will proceed with a great deal of trepidation.
The Chair: It's genetic.
Mr Conway: I want to thank you for your presentation, Mr Stewart and Mr Hunt. I'm sorry I was out for part of it. I want to really deal with one issue. I have been one of those people around this place who has always supported the nuclear option. But I must say, on August 12 or 13, to see the chairperson of Ontario Hydro, a big nuclear player, stand up in public and say the things he said about the problems at Ontario Hydro Nuclear; to hear Al Kupcis, a very fine fellow who has long associated with the industry, come before the committee a few weeks ago and say -- my words, not his -- "Yes, I agree with Andognini that it's robust technology." He said, in effect, it was a technology that we couldn't manage. To hear Ken Hare yesterday make the point that there were design problems that weren't anticipated or perhaps weren't properly recognized -- when I take all of that together, as someone who has been a supporter, and who still is, for reasons that are not always popular, even I recognize there is a very serious credibility problem facing your association.
I understand Mr Laughren's point. What Hydro has done to you, it seems to me, is akin to Air Canada saying in public, "We have grave concerns about the Airbus," or about the Boeing product line. "We're laying up most of our Boeing fleet or our Lockheed fleet because it's cult-ridden and a variety of other things." To the average person looking at that, that's pretty disturbing. I wonder if you have any advice to the committee as to how that credibility problem might be dealt with.
Mr Stewart: Could I answer that in a little anecdote?
Mr Conway: I always like anecdotes.
Mr Stewart: In a slightly different way -- you remember August 13 was the date.
Mr Conway: Yes.
Mr Stewart: I just happened to be at Gentilly 2, which is Hydro-Québec's Candu reactor. I gave a presentation to a lot of the staff there on the 15th, two days later. In the presentation I was asked I don't know how many times as I walked around the plant, by workers and what not, "Do we have the problem here?" They'd read all the sort of -- "What's so difficult about managing and running a nuclear plant?" This is a plant that runs extremely well. They don't have the problems. But they were quizzing: "What's wrong? How could this happen?" It's sort of the old, "Tell me it ain't so, Joe," kind of thing.
I think it illustrates that it is a management issue. It's a cultural issue that's developed in Ontario Hydro in the total package of Ontario Hydro, and this has to be addressed. I urge you to understand that, to understand all aspects of Ontario Hydro, from the Power Corporation Act right down to every aspect of Ontario Hydro, so you actually end up coming away with a visceral understanding of what really did go wrong; even again to suggest maybe you have to go and visit some other places where Candus --
Mr Conway: We're not allowed to do that.
Mr Stewart: Oh, you can't do that.
Mr Conway: Bill Morison and some of those very fine people at Ontario Hydro came before an earlier version of this committee 15 or 20 years ago, and again, my words not theirs, but they left the very distinct impression that these plants in Ontario could no more have these kinds of problems than I could have a baby.
Mr Stewart: It has been said as well, if this had been known, Candu technology would have been here five years ago.
The Chair: Thank you, Mr Conway. The imagery is beyond words.
Mr Conway: I was calling upon my favourite mayor of Montreal. I was trying to be cosmopolitan.
The Chair: Thank you very much, Mr Stewart and Mr Hunt. We appreciate your attendance upon the committee and we appreciate your testimony. If we have cause for any further information, I hope you'll respond as forthrightly as you have today.
Mr Stewart: I'm always at your disposal. I came back from Ottawa to meet you today and I can come back any other time.
The Chair: I appreciate your timeliness and your presentation. Your testimony is concluded for today. You're excused. Thank you very much.
Members of the committee, that will conclude the testimony for this morning. The committee will adjourn until 1400 hours and it will meet again in this room. That's at 2 pm, for Mr Conway.
The committee recessed from 1156 to 1405.
The Chair: We will now begin the committee for the afternoon session. To remind those who are watching us on the legislative channel, at 2 o'clock the witnesses are from the Ontario Natural Gas Association, at 3 o'clock the Independent Power Producers' Society of Ontario, and that will conclude the deputations for this day.
On Monday we will resume deliberations and briefings with witnesses here in room 151 at 2 pm. Then we'll update everybody on the agenda at that point.
ONTARIO NATURAL GAS ASSOCIATION
The Chair: I have before me the Ontario Natural Gas Association, Bernie Jones, a consultant, and I have a number of other names before me. Perhaps, Mr Jones, you will introduce yourself for the purpose of Hansard and we'll then identify everybody else at the witness table.
Mr Bernie Jones: Perhaps I could have Mr Pinnington make the introductions, please.
Mr Paul Pinnington: My name is Paul Pinnington. Good afternoon to you, Mr Chairman, and to the members of the panel. I'm the president of the Ontario Natural Gas Association. My fellow panelists are Bernie Jones; Mr Juri Otsason, from the Consumers' Gas organization, and his expertise is in transportation and development; and Mr Bruce Rogers, who is responsible for major industrial markets, from the Union Gas organization.
I understand it's the committee desire that we limit our opening statement and have most of the hour for questions and answers. As you know, we are here on rather short notice. We plan to provide you with a formal statement of our position in the near future and we will be pleased to include in this document more detailed information relative to today's session, should it be required.
It is our submission that there are viable electricity supply-and-demand alternatives to those proposed in Ontario Hydro's August 1997 nuclear recovery strategy. The restructuring of electricity markets in Ontario will have a very significant impact in this regard. Among the alternatives, natural gas options represent the largest potential. They are economically viable and environmentally preferable to increased coal- and oil-fired generation and could be competitive with nuclear refurbishing, depending on cost assumptions.
Natural gas technologies offer substantially greater energy efficiencies than coal- and oil-fired central generation. They can be put in place in a relatively short time. They can also be sized to meet specific demand and located where the power is required. The substantial environmental advantages of natural gas versus coal and oil are widely acknowledged.
Natural gas technologies are safe and reliable, with proven performance. They include the use of gas at existing Hydro thermal stations, gas turbines, combined cycle and cogeneration. In a competitive electricity system, all competing alternatives would be considered and the marketplace would determine supply, demand and price.
With respect, we submit that it will be difficult for this committee to complete its assigned task, including the assessment of demand and alternative energy electric supply options, without direction from the now long-overdue government white paper on electricity restructuring. Premier Harris has promised to provide this document and we urge this committee to press for its release on an urgent basis.
These are our opening remarks. We are now in your hands.
The Chair: We will begin the questioning by caucus in rotation.
Mr Galt: It's -- I've lost track.
The Chair: I appreciate that, Dr Galt, but we are actually beginning this round with the opposition party. I appreciate the advance notice that Mrs Johns will be the first speaker. We'll begin with Mr Kwinter.
Mr Kwinter: Mr Pinnington, one of the things we have been wrestling with since we began this is a confusion as to what direction the board took on their recovery program. We had a letter from the minister saying they should examine all options, and we have had members from the board -- not all members; three members of the board have been here -- and two of them have said their interpretation of that, and I think the perception of most of the board, was that the letter really directed them to look at the six options Mr Andognini put forward, which were all nuclear.
We had another member of the board, who also happens to be the president of the Power Workers' Union, who said his perception was that had he got that letter in time, it really meant they should be examining all options. Within that context, I get the impression from what I've heard to date -- notwithstanding protestations by members of Hydro, "We will monitor this on a monthly basis and make adjustments accordingly but only within the confines of nuclear" -- that the decision has already been taken and that the request for proposals is only for the replacement energy. I'm just giving you that as a bit of the background of my perception of what is happening.
What I'd like to know, because I have also heard that if we were to go an alternative route, that is to go to gas, there would not be sufficient capacity in the pipeline to get the gas here to replace the nuclear if you went all nuclear replacement, which I don't think is going to happen, what is the whole issue of security of supply, availability, time frames and things of that nature?
Mr Pinnington: I would first say that we are not familiar with the detail of that letter, so any comment we would make is not in reference to the letter. Certainly it's our very strong opinion that the alternatives to nuclear must be considered by this panel.
With respect to the question of long-term secure supplies of natural gas, there is abundant documentation, and I would cite in particular Natural Gas Market Assessment, produced in June of this year by the National Energy Board. I would be prepared to leave a copy of this with your counsel. It indicates that there is a secure long-term supply of gas, and the question of getting the gas from the western sedimentary basin, primarily the province of Alberta, to Ontario is really a mechanical question related to the length of time for acquisition of pipe and compression. The information we have at this point in time is that for significant additional large volumes of gas a two-year period, in round numbers, would be appropriate. So from the time you indicate a need for a very substantial increase in gas, it would take approximately two years to put the facilities in place.
I would like to ask Juri Otsason to elaborate. This is his area of expertise.
Mr Juri Otsason: If I may add to that, certainly in terms of gas availability in North America, and in western Canada in particular, there should be no concern about supply. The industry has gone through a number of cycles as supply and demand get out of sync. The producing sector is able to adjust to that very readily, particularly as a result of a lot of advances in technology. In fact finding costs for gas if anything are coming down, so an increase in demand doesn't necessarily mean an increase in cost of the commodity itself.
From the Ontario perspective, there is also going to be a new supply source off the east coast that will potentially be available. There is the Sable Island gas that is proposed to be brought on stream in 1999, and if the pipeline route that is used to bring that to market ends up being -- there are two proposals on the table -- the Canadian route, that would provide another source of gas for Ontario. In addition, the whole North American gas market is very integrated, so we're not really limited just to Canadian supply. There's also the ability to source gas from the US, from the Gulf Coast or mid-continent areas in the US. Again, there's been some great success in terms of finding additional supply there. So bottom line: Commodity supply is not an issue.
In terms of transportation, Mr Pinnington mentioned a two-year lead time for adding large amounts of incremental capacity. There are a number of large pipeline projects in progress to bring additional gas from western Canada towards the east, in particular towards the Chicago area. Those projects will proceed. A lot of that capacity is not necessarily dedicated to an end-use market at this point in time, so there is an ability to access some of that transportation capacity, which will be available in late 1999 to bring gas potentially to Ontario for power generation. In the interim, there is an ability for smaller quantities of gas to be made available for power generation, but large amounts would need roughly a two-year lead time.
Mr Kwinter: In the presentation this morning by the Canadian Nuclear Association, one of the points they made was, "There have been no new nuclear plants ordered in Canada or the USA in a decade, but there has not been any other type of large base load power generation plant started either." The implication was that the only real alternative was the nuclear. Do you have any comments on that? Are you aware if that is a true statement or if there are some large base load, gas-fired energy plants?
Mr Bruce Rogers: What I'd like to describe there is that over the last 20 years in Canada, right in Ontario, there have been about 1,600 megawatts of independent power brought on line. Most of that has been brought on since about 1989 and 1990. Those are large gas-turbine-based, combined cycle plants. What they represent in total at 1,600 megawatts is about three quarters of what you would see at one of the large coal-fired plants, say, at Lambton, which is 2,000 megawatts. Over the last period of time, gas-fired combined cycle cogeneration has been the incremental power produced. That produces, as I understand, about 10% of the electricity used in Ontario today.
Citing how far back that goes, 20 years ago Dow Chemical put the first 150-megawatt plant into the Sarnia area, so the technology has been around for a number of years. It's grown over the last decade, and certainly if you look at North America, there is in the order of 100 times that amount of gas-fired technology in place and is growing throughout the world. Gas technologies, particularly those that would relate to turbines, are well-known. The companies that provide the equipment are Westinghouse, General Electric, Asea Brown Boveri, very large, well-known companies. The technology is proven. In fact, the efficiencies have improved dramatically over the last five years, which makes it more economical to use to make natural gas. I would say there's proof-positive. We could certainly follow up, if you need it, with documentation on that.
Mr Pinnington: Could Mr Otsason just add one additional comment?
The Chair: Just very briefly, please.
Mr Otsason: You made reference to large-scale power generation. There's one example in New York state. There's a 1,000-megawatt gas-fired cogeneration facility or turbine cycle plant that went into place about two or three years ago owned by Sithe Energies. It's a very large-scale plant and it's in operation and functioning well.
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Mr Laughren: When we talk about the gas-fired turbines, are they basically like a large jet engine? Is that what they are?
Mr Rogers: Yes, that's correct.
Mr Laughren: Are they available off the shelf? That may be a strange way of putting it, but can you buy them off the shelf?
Mr Rogers: Yes, the lead time is about 12 months.
Mr Laughren: It's that long.
Mr Rogers: The reason they're so available off the shelf is that they are widely used in North America. Certainly over the last five years gas-fired cogeneration has been on hold in Ontario and in North America, but in the emerging Third World countries that's the quickest and the easiest way to generate electricity where gas is indigenous to that area. That's why the efficiencies have come up so high. So many machines have been purchased that a lot of R&D money is being poured into these gas turbines. They're very well known and widely used, very reliable.
Mr Laughren: Forgive me if I use a hypothetical situation here. If, for example, it was determined that the nuclear option at Bruce at the end of the day was seen to be uneconomical or too difficult, or whatever reason, for the Bruce A. The transmission lines are already in place, right? How long would it take the suppliers, people like you, I guess, to drop into place those turbines to make up the shortfall from Bruce A?
Mr Rogers: We tossed around the number of two years as being certainly the technological lead time and probably the lead time to get gas transportation and transmission capabilities there and, as Mr Otsason said, get the capacity all the way back to Alberta or wherever the gas would be sourced.
It's not really inconceivable, particularly when you have an infrastructure there that's set up and ready to be what we call repowered. You already have a boiler that could receive the steam from the combustion gas turbine. The question would be siting. There would be some complexities, but two years is, in my mind, the fastest you'd be able to do something like that.
Mr Laughren: What length of contract would a supplier need to be interested in that?
Mr Rogers: That's a very interesting question. A gas-regulated utility would simply have to look at that on a cost-to-service basis, and we would determine, based on the needs, what the capital costs were and then put that back into place. Depending on the term, whoever the owner was, whether it was Ontario Hydro or an independent owner, whatever the terms and conditions and the annual gas volumes they would sign up for, that would be applied in the normal way and come out to an economic decision. At the end of that there are two ways you could go. Someone can sign a contract that covers the costs and there are no incremental charges. The other way you could do that is by paying what we call in the industry an aid to construct. That's a capital investment that makes up the difference so that the project is deemed economical.
So there are two ways. You can either take a long-term contract with a certain level of volumes or you can take a shorter-term contract but provide backstopping to the capital that's not covered by that deal.
Mr Laughren: You mean somebody else pays for it?
Mr Rogers: Whoever the owner is would in fact --
Mr Laughren: Right. But if that wasn't the case, what would be the minimum length of contract you could imagine if there was no aid to construct?
Mr Rogers: It really would depend. We could undertake some scenarios for you, but you'd really have to look at the --
Mr Otsason: Maybe I can try to answer. First of all in terms of one significant component, which is getting the gas from the supply base into Ontario, you would typically look for a 10- to 15-year commitment, and it will depend on how the electric industry is ultimately regulated in Ontario.
What is happening in many jurisdictions in the US is that there are investors or parties that are willing to build merchant plants that are not necessarily relying on any long-term contractual arrangement with the electric utility. They are relying on being able to produce power at a competitive price and sell it on the open market. If we get to a fully open electricity market in Ontario, that is something that is very much a possibility.
Mr Laughren: Should we be fearful about the potential increase in the price of natural gas?
Mr Otsason: As I indicated before, I don't think that is really an area of concern. There will be fluctuations in price. Gas is traded as a commodity in an unregulated market now in North America, so supply and demand drive it. But I think the key factor is that the finding costs and development costs for additional supply are flat, or declining slightly in the case of western Canada, so there are no fundamentals that would suggest there should be an ongoing upward trend in price. I think the price for gas in western Canada right now is artificially depressed because there are limitations on pipeline capacity out of the western supply basin. So there will be an increase in the price of gas in western Canada once the pipelines go in place, but it will level out, and I don't expect a long-term trend of increasing prices.
Mr Laughren: Hydro has already put out some requests for proposals for interim supply of energy, have they not?
Mr Rogers: Yes, that's our understanding. My understanding is that it is not for incremental capacity but for incremental energy deliveries. That is the electricity itself as opposed to incremental plants to generate the electricity. What I'm saying is, they're not putting out RFPs for more plants or for incremental generation. They're asking for people to come forward and offer up alternative energy sources. Whether those are imports or generated or from whatever --
Mr Laughren: Fossil or whatever.
Mr Rogers: Exactly, from whatever.
Mr Laughren: I wondered whether or not your association or members of your association had looked at those proposals with an eye to responding.
Mr Rogers: Again I would say that those are basically up to the independent commercial players in that field or the industrial companies, for instance, that presently have independent power production on their sites. That's one area that certainly could potentially increase the capacity.
If we look at that 1,600 megawatts of independent power, it has been used on average in probably 50% to 60% of what its total capacity is. Now that the nuclear stations are potentially going to have to be refurbished, those stations, for instance, those gas-fired independent power plants, could be used to a much higher degree. The capacity is there. The long-term transportation to get gas to Ontario is there. It's simply a matter of ramping up and using more energy and increasing the load factor at those plants. That to me seems a logical place for part of the response to that RFP.
Mrs Johns: I just have to go back a few minutes to understand, I think. Do all of you represent pipeline people here as opposed to people who would actually put the turbines together and move forward to produce the end product, which I would call electricity?
Mr Pinnington: We're primarily on the transmission and distribution side of the business, although we have manufacturing members who produce some of this equipment. The next group, the independent power people, are involved more.
Mrs Johns: Right. You're transmission and distribution and the independent power produces are generators.
Mr Pinnington: They'd put the facility in place.
Mrs Johns: I just want to ask you some questions. Basically they're pretty much yes/no answers. Do we have any natural gas resources in Ontario?
Mr Pinnington: Very little. About 1% of the total consumption in Ontario is from the province.
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Mrs Johns: Do we have the pipeline capacity to be able to bring more natural gas into the province at this particular time?
Mr Otsason: Not for large incremental amounts, but as I indicated, there is already activity under way, in other words, in terms of seeking regulatory approvals, doing all the design and so on, to add additional capacity.
Mrs Johns: Got that. How much capacity comes in from outside of Ontario right now? How do you measure that? Pipelines full, buckets?
Mr Otsason: In terms of capacity, the way you measure it is per volume of gas per day that can be transported.
Mrs Johns: How much volume of gas comes in from outside the province right now in a day?
Mr Otsason: Into Ontario, peak capacity would be something in the order of two billion cubic feet per day.
Mrs Johns: With the pipeline capacity we have right now, how much could we go up to?
Mr Otsason: There isn't a simple yes or no answer to that.
Mrs Johns: I need that.
Mr Otsason: There are markets that are using that capacity right now that potentially have other options. They can source gas from the US, out of storage or they can burn alternative fuels like oil. There are a number of gas users that have the ability to switch back and forth.
Mrs Johns: But that shouldn't affect the answer to my question. I want the capacity that can come in through those lines, so I don't care who uses it. You tell me that the capacity coming right now is X. I want to know what Y is, and Y, to me, is how much more you can shoot through those lines to bring into Ontario.
Mr Otsason: That capacity is essentially fully utilized right now, but not necessarily to serve end-use markets in Ontario. It might be moving through Ontario.
Mrs Johns: Got you on that issue.
Mr Pinnington: You should recognize that during the peak demand period in the winter, about half the gas used in Ontario comes out of storage in the province. So we basically run the pipeline full out as much as possible and any gas that isn't being used goes into storage for the peak winter season.
Mr Rogers: The other point is that it is a seasonal pipeline operation to the extent that during the summer, while two bcf, for instance, come in from out of the province, the total capacity from the Union Gas system, which is down near Sarnia, through to Toronto is basically twice that. So during the summer months, essentially through brokers and marketers and commercial arrangements, you may be able to access gas that otherwise would not be available. It isn't quite as simple as the pipeline capacity itself. You'd have to look at the commercial arrangements.
Mrs Johns: You've managed to really confuse me, but that's okay, I'll read over Hansard and I'll see if I can figure it out.
Obviously, I think you've told me, that if I was going to try and do more to look at alternative fuels here and to look at gas generation, I would have to put some more pipelines in the ground.
Mr Otsason: That's right. For large-scale additional volumes, yes.
Mrs Johns: I have heard that it's a horrendous dollar value for us to put electricity lines in from the US and from everywhere else. Can you tell me the price of putting in a pipeline per square foot, mile, however you do it?
Mr Otsason: The cost of incremental pipeline capacity to move gas from western Canada to Ontario would be something in the order of $1.10 per 1,000 cubic feet of incremental capacity.
Mrs Johns: Okay. I could work that out. All right.
Mr Rogers: But was your question how much per mile?
Mrs Johns: I really wanted to know per mile.
Mr Otsason: A large-diameter pipe, about $1 million per mile.
Mr Rogers: Yes. A million a mile is a good --
Mrs Johns: Whew. Okay.
Mr Rogers: With the ability to place that, probably, in the ground in two years.
Mrs Johns: I got that.
Mr Rogers: The question would be, if you tried to move electrical transmission, you may have a much more difficult time.
Mrs Johns: Cost of a gas turbine itself?
Mr Rogers: Roughly $1 million per megawatt.
Mrs Johns: Cost per megawatt of gas-produced power, capital cost and installation included?
Mr Rogers: That's what I'm saying --
Mrs Johns: No, I mean per kilowatt-hour, however I'd get it on my electricity bill.
Mr Rogers: A very large-scale 200-megawatt plant, what we call a merchant plant, probably between three to three and a half cents per kilowatt-hour.
Mrs Johns: All costs in?
Mr Rogers: Everything in. That's based on $3 per mcf, delivered price for gas, and that's what Juri is saying should stay flat for the reasons he described.
Mrs Johns: Is the futures market in natural gas right now stable or fluctuating?
Mr Otsason: It's fluctuating in the near term. If one looks at the futures market, the near-term pricing is volatile but you can go out and lock in long-term pricing, if you desire, through the futures market, and the further-out pricing tends to be relatively stable.
Mrs Johns: If the province were desperate to have this and we did a better job of reducing red tape, not eliminating all environmental concerns but eliminating the red tape that may be associated with this, is two years still the answer to your time frame?
Mr Rogers: You could probably shorten that by six months. Perhaps the Independent Power Producers could comment on that when they come up as well.
Mr Otsason: I think on the transportation side, though, since transportation would be under federal jurisdiction or in some cases US jurisdiction --
Mrs Johns: The red tape would still be there.
Mr Otsason: Yes.
Mr O'Toole: Storage capacity. Is there any chance of increasing storage capacity in Ontario?
Mr Otsason: Yes. Consumers' Gas is expanding its storage capacity, Union Gas I believe is expanding its storage capability and there is also some very significant potential for incremental storage just across the St Clair River in Michigan. So there's lots of potential to expand storage.
Mr O'Toole: Would that help the seasonal offsets for volume controls?
Mr Otsason: That would help, although I think one comment I would have on that is that the gas demand we have right now in Ontario and in eastern Canada tends to be very much winter-peaking. The electricity demand has a summer peak as well as a winter peak, so I think there are a lot of opportunities for some synergy to realize some efficiencies if you get more gas use for electricity generation.
Mr O'Toole: Summer.
Mr Otsason: Yes.
Mr Galt: I wanted some clarification. This is not steam production, this is a direct-driven generator, a turbine --
Mr Rogers: What the turbine does, the turbine is driven with natural gas. The turbine then puts out high-pressure, high-temperature steam as one of the products. The other product is to direct-drive a generator and make electricity. So you get two energy outputs for the price of the one energy input. That's what makes it so highly efficient.
Mr Galt: Being concerned about the environment -- the efficiency of gas you told me has improved considerably. What kinds of pollutants are you putting out or controlling with your current, up-to-date turbines?
Mr Rogers: If you look at the efficiency of that combined cycle, large efficiency turbine, it's about 80%, if you indeed use the steam as what we call an industrial steam host. Also, from a NOx point of view, the turbines today are designed to come in well below the 25-parts-per-million NOx standard. That is dramatically lower than you would get with coal or oil. If you compare it to coal, it also reduces SO2 emissions, CO2 emissions, and there are other technologies that you can actually apply at coal-fired plants today.
Mr Galt: This is without scrubbers. This is just straight burning.
Mr Rogers: This is just straight burning. If you take a coal plant today, for instance -- take Nanticoke as an example -- you could apply what we call coal firing, 20% natural gas, 80% coal, that will dramatically reduce NOx, SOx and CO2 emissions.
Mr Galt: So the VOCs is down, and the particulate matter?
Mr Rogers: Sure. Whenever you put gas in, there are absolutely no particulates associated with it.
Mr Galt: So it is clean.
Mr Rogers: Yes.
Mr Pinnington: We have some detailed information in that regard which we can leave with you, Dr Galt.
Mr Galt: Thanks very much.
The Chair: Mrs Johns, just by way of my notes here: Your new measurement function of pipelines full, do you want that in metric or imperial?
Mrs Johns: Metric --
The Chair: You can just send me a note and I'll have the staff working immediately on that.
Mrs Johns: I'm a newly trained person.
The Chair: I'm teasing you, of course.
I've been passed a note. The visitors from across the world are now attending upon the committee. I have the great pleasure, and Mr Laughren has reminded me, and happily he has, of a visit by Mary Ann Mihychuk, who is a member of the Legislative Assembly from our sister province of Manitoba. We welcome her to the committee meetings today. Welcome.
We turn now to the opposition caucus.
Mr Conway: If Manitoba is halfway across the world, I hate to think what we'll tell the Saudi royal family when they arrive here.
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I have only one question, gentlemen, and it goes back to a discussion I remember having with, I think, some of your association members a couple of years ago. That had to do with the pricing of natural gas in the marketplace and the market share of gas vis-à-vis oil, particularly in the American context. I remember somebody from the gas association, I think, telling me that one of the disciplines in the American marketplace was that gas and oil were linked in some way. Do I remember that conversation?
Mr Pinnington: I expect you and I may have had that discussion and it may have been back around 1985, because prior to then the government fixed the price of natural gas. There was a direct linkage between gas and oil at that time, and had been since 1974, I think.
Mr Conway: Is there any relationship now?
Mr Pinnington: Not but in the competitive market, I don't think.
Mr Rogers: In the competitive marketplace, what you'll see are posted rack prices for oil and posted prices for gas, but when you get into the very large industrials, you'll get into spot pricing, you'll get into lower-priced, large volume commercial discounts.
Mr Conway: One of the reasons I raise this is that I think you people, not just today but on other occasions, have made a very strong presentation. You're obviously going to play an ever more important role in the energy future of this jurisdiction and others across North America, but you, yourselves, indicated a while ago that in a sense, certainly in terms of gas, it's a continental market.
I've had an interest in the energy business for some time, and looking back over 20 years, the one thing about the energy world that I've always enjoyed is that the future has never developed the way it was supposed to. That's not a surprise, I suppose.
We've got a situation today where a lot of people, a lot of very smart people, seem to be basically saying the same thing, that most new capacity or a good bit of the new capacity, certainly in the eastern half of North America, is going to be gas-fired. That seems to make sense. My question then is, that is obviously going to put additional stress on the supply, but you say supply is not going to be a problem and you know the situation better than I. I'm a natural gas consumer and I've just been noticing that the price is starting to reflect this, if my bills over the last eight to 10 years are any indication, but they may not be.
But we're going to get ourselves into a continental situation, particularly in this gas business. When I see the Californians and the people in Nevada, they are very interested in that British Columbian and western Canadian gas, and getting more interested all the time. So there's going to be a very strong continental pressure. I'm just wondering, particularly on the price side, what's going to happen when a lot of utilities start to march in the same direction, at roughly the same time, from Nova Scotia to New Mexico, to commit new capacity, much of which is going to be gas-fired. You don't think there's going to be a problem, certainly not in supply. Where are you on the price issue?
Mr Pinnington: Just in a general way, just historically again, to go back, probably in the last 10 years exports of gas from Canada to the United States have gone from something in the order of 700 bcf or 800 bcf a year to about three trillion cubic feet a year, so we're looking at a factor of four, and we haven't seen any drastic change in the price. I don't know what your exact home circumstance is, but I think the price of natural gas at the residential level has been basically flat for at least 10 years or more. So we don't have an expectation of any very serious increase in price.
Mr Conway: But there are a lot of utilities that are going to be looking at not only new capacity but replacing old capacity, and there are presumably tens of thousands of megawatts there.
Mr Rogers: There are two things from a market point of view. First of all, as Mr Otsason said, the costs of finding gas have dropped dramatically over the last five years or so. The technology improvements have driven those costs down. In addition, there is the ability to draw from wells that were previously left partially emptied; the technology now allows producers to go back and pull out the rest of the gas. So the costs of producing the product are lower.
If you then move to the next biggest cost, transportation, as Mr Otsason said, there are a number of new pipelines being considered and in fact before boards right now to bring Canadian natural gas over and into the Chicago area. That's the cost side.
On the other thing that's going to drive it, the price side, I guess we believe there's convergence that's going to happen in the North American market, particularly not so much oil and gas -- that's always been there -- but electricity and gas. The deregulation of the electricity industry is likely to end up in electricity prices being contained. That is one of the major factors, from a market point of view, that is going to dictate what the cost of gas can be. So there will be pressures on our business, as a group of players, all the way from the west to Ontario, to compete in that.
Mr Conway: I don't mean to be as dubious as I sound, because this is very comforting. I will keep this testimony and I will sleep on it knowing that it's going to be bright. On the energy sector, when I get this kind of comfort level and this kind of unanimity and this kind of certainty, if I've learned anything from the past, that's when I should get a little bit worried.
Mr Laughren: I have a question too. I want to go back to the recovery plan Hydro has put forward, which is basically to lay up seven reactors and use temporary power, largely from fossil, presumably, the coal-fired places, with the assumption that at the end of the day the A units at Bruce and Pickering will be brought back into the system, into the grid. You can see why Hydro, particularly its nuclear division, would want to do that. I'm wondering whether you have had a chance to look at that recovery plan, and second whether you have the expertise -- it's amazing what you can get when you hire good consultants -- to help you figure out whether there is an alternative to that recovery plan and what your role in it would be.
Mr Pinnington: Are you asking us if there's a role for the natural gas industry? As far as the specifics of the nuclear facilities themselves are concerned, we're certainly not skilled. When you look at numbers such as $5 billion to $8 billion, the data Hydro has produced, I guess in a broad, general way we feel quite confident that there is plenty of room for natural gas to be competitive with those costs.
Mr Laughren: I should have been a little more direct in my question. When I look at that $5 billion to eight point something billion dollars, which basically would leave us -- part of that is replacement fuel, I appreciate that, but still those are incremental costs to the system. What I'm wondering is what that kind of money would buy you out there, or buy us as ratepayers, on a permanent basis.
Mr Pinnington: In terms of replacement by natural gas?
Mr Laughren: In terms of supplying power on a long-term basis to the grid.
Mr Rogers: Just to put it in context, if you look at the technical potential that still remains in Ontario, and we talked about high-efficiency cogeneration, there's about 1,500 or 1,600 megawatts that is on site, and there is at least another 3,000 megawatts of what I would call large cogeneration potential.
Mr Laughren: That would replace all of the seven units, wouldn't it?
Mr Rogers: That's technical potential in terms of merchant plants which would not have to consider providing any steam to any industrial steam host or any other application. The number goes up from there. From the nuclear point of view, certainly refurbishing the nuclear plants for $5 billion to $8 billion is an option. The other option we would like to see at least considered as an alternative is, what would be a strategic option for gas to play in some or all of that arena?
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Mr Pinnington: Maybe I can help you with a ballpark number. Over the past number of years, Hydro has been marketing power to the United States at a "marginal" price that we understand is somewhere around two and a half cents a kilowatt-hour. If in fact they're going to spend, say, in big, round numbers, $5 billion fixing those facilities, we don't know exactly how much that's going to add per kilowatt-hour. But for half a cent more than two and a half cents, namely, three cents, we're in the cogen business. If their prices go up more than half a cent on a marginal basis, we're very much in business. That's why we're pretty confident that cogen has a role to play.
Mr Laughren: Maybe you missed the other part of their commitment, which was that rates would not go up as a result of this $5 billion to $8 billion. If you think that's magic, you're wrong, because what they would do, they tell us, is put it off into the future and capitalize it and repay it over a longer term. I'm just telling you what their position is. What I was trying to get at was -- some of us are very sceptical, and we don't know enough either. At least I don't; I shouldn't speak for my colleagues.
Mr Pinnington: The debt-equity ratio is already such that may be difficult.
Mr O'Toole: If I may ask one or two small questions, are there any reasons to be alarmed or concerned with respect to the capability or technical features of the pipelines themselves? I've read recently of some stress fracturing and other issues that may be a concern from an environmental and safety perspective. Could you comment on what's going on right now with the industry.
Mr Otsason: Yes, I think I can do that. I think you're referring to something called stress corrosion cracking. That is an issue with some old vintage pipelines built back in, I'd say, the early 1970s with a particular type of pipe and coating. It's limited to that. The National Energy Board had a very thorough review of it. There have been some mitigation measures implemented with respect to that vintage, that type of pipe in particular. With respect to any other gas transmission pipelines, I think their safety record is excellent. With the new materials and new coatings, corrosion problems are not an issue. From a safety and reliability standpoint, I think there's a lot of evidence that the gas transmission is very reliable.
Mr O'Toole: I'm going to share the rest of my time, but I have one small question here. We've kind of all agreed that for the base load we need to have nuclear. There's a lot of investment, but we've got some peaks to take care of. I'm interested in your views on two issues. First, is nuclear a major player in this? It's 60% now. What's your expectation? Should Ontario Hydro be held in public or private ownership?
Mr Pinnington: Let me answer the last question first. We've not taken a position on public versus private ownership. Our major concern is that we get on with the process of restructuring. I think the marketplace will ultimately determine whether it's best being publicly or privately owned. I don't think that's an item of immediate concern; it's restructuring that must be done.
I just want to pick up on one thing you said. You sort of inferred that the alternatives were peaking and that nuclear was base load. Assuming the white paper, and that the title is An Open Market for Electricity, I think you very much count on natural gas to be base load, because people are going to put in electric generating facilities within the confines of their own plants. We look very much to a base load situation.
Mrs Fisher: I have two quick questions, and one leads back to Mr Laughren's idea with regard to cogeneration in a different way at a nuclear site. I imagine you would agree that a 200-megawatt unit is a significant gas turbine unit, right?
Mr Rogers: Yes.
Mrs Fisher: Are you familiar with the proposal that was put before the Ontario Hydro board of directors in 1996 proposing a 200-megawatt gas-fired generator at the Bruce site which would bypass the reactor core to produce steam to continue producing electricity at the Bruce site? You're in the industry. It's a big proposal. Are you aware of this?
Mr Rogers: We've heard of the proposal. We're not part of that proposition.
Mrs Fisher: If you thought that might be an answer, would you have an interest?
Mr Otsason: Yes, there's no question that repowering of an existing nuclear facility is something that certainly makes a lot of sense.
Mrs Fisher: That proposal has been made. I don't think many are aware of that. It was made and it was declined. I never can really figure out why. Maybe it should be brought back to the table now that we get the opportunity to talk about it.
Mr Pinnington: My understanding was that it was the result of a consultant's study. I don't know that we ever had the opportunity to --
Mrs Fisher: There's a full financial plan attached to it, I promise you. It's all there, done, ready to be looked at.
The other question I would like to ask you is this: As we move forward in our energy production technologies, as you can see with Ballard in BC, there's an opportunity there for fuel-cell technology. Are you familiar with a private sector individual at the Bruce Energy Centre who has put a proposal to produce hydrogen and fuel-cell technologies by using gas-fired generation?
Mr Rogers: I've heard of such a project. I haven't been deeply involved and haven't read the proposal.
Mrs Fisher: Can I ask you to do me a favour? As an association representing the gas industry, whether you're the manufacturer of the generator or the pipeline carrier, could somebody please inquire about that and maybe bring it to the forefront?
Mr Pinnington: I will undertake to respond to your question personally.
Mrs Fisher: Thank you very much.
The Chair: That completes the questioning. I want to thank the witnesses for being present and attending upon the committee today. There may be some follow-up questions that will either require the committee to ask you to reappear or you might be able to handle it in writing, if necessary. Our consultants will certainly deal with that. We appreciate your evidence today and the time you've taken to attend upon the committee. We thank you very much for being here. You're excused for now.
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INDEPENDENT POWER PRODUCERS' SOCIETY OF ONTARIO
The Chair: We now turn our attention to the next witness, which is the Independent Power Producers' Society of Ontario, if they'd be good enough to take their place at the witness table. For purposes of the committee, we have up to two hours for questioning with the Independent Power Producers' Society of Ontario.
Mr Tom Brett: My name is Tom Brett. I'm the president of the Independent Power Producers' Society of Ontario and an energy lawyer with the law firm of Johnston and Buchan. I'm going to ask my colleagues to introduce themselves before we start off.
The Chair: For the purposes of Hansard, that would be very helpful.
Mr Bill Taylor: My name is Bill Taylor. I'm here today as part of the IPPSO panel, representing my employer, which is TransCanada Power.
Mr John Brace: My name is John Brace. I'm here today as part of the IPPSO panel, representing Northland Power.
Mr Al Barnstable: I'm Al Barnstable. I'm a director of IPPSO, and I'm here today representing Sithe Energies.
Mr Bruce Ander: I'm Bruce Ander. I'm an IPPSO director. I'm representing Toromont Industries.
Mr Stephen Probyn: My name is Stephen Probyn. I'm representing Probyn and Co.
Mr Brett: What we'd like to do is start off with a brief presentation to you and then make ourselves available for questions.
First of all, the Independent Power Producers' Society of Ontario, IPPSO, represents the independent power industry in Ontario. You have a handout that we circulated. We have corporate and individual members, a total of 437 members and some of those members are listed in the attachment to your handout. We have been an active member of the Stakeholders' Alliance for Competition and Customer Choice, which is a group of business associations and the Municipal Electric Association advocating a restructuring of the electricity industry in Ontario.
Since 1985 our members have developed 123 power projects in Ontario with a total of 1,850 megawatts of capacity and we've invested in those projects $2.5 billion across all regions of the province. Those are a variety of project types and sizes: natural gas cogeneration, landfill gas, biomass, energy from waste, small hydro, medium-sized hydro, and high-efficiency cogeneration. Some sample plants are shown in attachment B of our submission.
We had over 1,200 megawatts of electricity sales to Ontario Hydro in 1996, and many of our members have also been active developing projects in other provinces and internationally.
Let me just briefly touch on a few of the advantages of private power for Ontario. The first is that our plants are cost-competitive with Ontario Hydro generation. Mr Probyn and Mr Barnstable will speak to this in a little more detail in a moment. This is an important point, we feel.
Second, our plants are highly reliable. We have a high reliability of supply in the sense that we have high availability; our plants run at a very high availability rating. We have a diversity of plant size and diversity of location. Our plants are scattered across the province in the north, the east, the southwestern part of the province, Metro Toronto.
In our case, the risks of project development -- construction, financing and operation -- are with the private sector. The private sector investor is taking the risk and business success therefore depends on safe, reliable and efficient operation of our facilities. Not surprisingly, this imposes a tremendous discipline. You either are successful in the running of the operation or you fail financially. As a result, the projects are subject to rigorous technical and financial due diligence.
We have relatively short lead times for adding new capacity, and we will talk to you more about that in a moment.
We have superior environmental performance.
We have what we've called integration benefits with local industries and municipal facilities. As you know, cogeneration plants are built in association with industrial facilities and provide steam at reduced energy prices to those facilities. Cogeneration facilities can also be built in conjunction with municipal district heating systems, which can lead to efficiencies and synergies.
In summary, I would say it's a proven and efficient industry. It's used to competition. We're ready to invest in a supply of cleaner, reliable and cost-competitive electricity for the province.
Mr Probyn: I wanted to briefly discuss our views on alternative supply capacity of the industry. First of all, we've divided this into two time frames: the immediate time frame and the mid to long term.
In terms of the immediate time frame, we're obviously constrained by lack of capacity in the sense that we haven't yet built capacity to supply any deficiencies Ontario Hydro may encounter as a result of its current problems. However, we believe that the lead time for developing new capacity is relatively short. I should add, in the energy business, a year is a blink of the eye. The typical planning lead time for a new nuclear facility is 15 years, assuming one could ever get through that process. We feel our lead time for new or expanded capacity -- we would begin bringing on new capacity -- would be between one and two years. Within a two-year period, as you heard from ONGA, the development of new greenfield facilities can be accomplished.
In terms of the mid term, we wanted to divide this into two components: the smaller projects, which are under 250 megawatts, and the larger ones. In terms of the smaller projects, the largest potential source in Ontario, and it is a very large source, is natural gas cogen. We think there is at least 2,000 megawatts of supply from that source. Those would be various industrial facilities that would benefit from low-cost thermal energy, in addition to the energy that was being supplied to the grid.
There is also substantial new capacity in waste fuels. Biomass, wood waste plants, for example -- our firm owns a controlling interest in 80 megawatts of biomass across Canada -- not only provide electricity but reduce the environmental impact of particulate emissions and have a zero rating in terms of greenhouse gas emissions. In fact, one of our plants was the first plant in Canada to be awarded EcoLogo, the environmental choice award of the federal government.
Hydro-electric: We feel there are 1,200 megawatts of new capacity in Ontario in hydro-electric, again a major contributor to Canada's climate change objectives.
Solar and wind: We feel there's at least 150 megawatts of solar and wind capacity that can be brought on on a full-cycle basis that is cost-effective.
In terms of the remainder, large natural gas combined cycle plants we believe could provide 3,000 to 5,000 megawatts of new capacity. As you heard from ONGA, the limitations are very far out and the capacity supply exceeds current projected demand. That takes us to a total of 8,500 megawatts of new capacity over a 10-year period.
The new supply cost, and this reflects the diversity of options, is between 3.5 and 5.5 cents per kilowatt. Obviously some of the renewables are on the higher end of that spectrum, while large gas combined cycle plants would tend to be at the lower end. There are views, and we heard from ONGA, that feel the lower-end price could be brought even below that 3.5 cents. Ontario Hydro, I believe, has given testimony to this committee on that very matter.
I would like to now deal with the cost issues and hand over to Al Barnstable, if you could turn past the "Relevant Issues for the Select Committee" slide to the first slide on cost comparison.
Mr Barnstable: We have included two tables in our presentation to give some balance and to give you a better sense of how competitive our industry is. Over the past year we've had quite a bit of bad press, courtesy of Ontario Hydro reporting that the cost of their NUG contracts is way out of line with their own costs of supply. We thought we should put some evidence on the table for you that hopefully clarifies the situation.
The first table is the unadjusted cost comparison. That's simply numbers that can be derived from Ontario Hydro's annual reports. It shows their reported all-in costs for their hydro-electric generation, their fossil generation and their nuclear business, and it compares it to their costs on a unit basis with the contracts they have with our members. As you can see by looking at this table, the costs of NUGs in Ontario on an all-in basis are quite comparable with the costs historically of Ontario Hydro nuclear and its fossil generation businesses.
I would like to also point out the non-utility generation contracts represent a variety of sizes of projects that range all the way that range all the way from 40 kilowatts to 152 megawatts. These are very small projects, but we still, on an average basis, even with this very small range of projects, compete with Ontario Hydro and its gigantic-scale projects.
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The second table is an attempt where we feel that the numbers Ontario Hydro reports as to its all-in costs for generation need to be adjusted to be more realistic, particularly if you're comparing them with private sector generation. Table 2 makes some adjustments to Ontario Hydro's nuclear numbers for 1996 and it includes two types of adjustments: adjustments to the reported nuclear costs and some adjustments to add additional charges that they don't currently report in their annual reports on the costs of nuclear generation.
The first adjustments include higher losses. This arises from the fact that large-scale power plants like Ontario Hydro's nuclear plants are connected to the transmission system at very high voltages, either 500 kV or 230 kV. Most of our members' plants are connected at lower voltages and some at very low voltages, so that the losses between the generating source and the consumer of the power are very much less than for a large source.
The higher decommissioning charges are the result of some back-of-the-envelope calculation and we would urge you to seek additional evidence from Ontario Hydro on this particular matter. It seems that this is a very contentious area for Ontario Hydro. They, from our best guess, appear to be not booking sufficient charges for decommissioning costs. We've estimated that they should be doubling up on that charge and that would build up a fund of about $400 million per unit in today's dollars, 25 years out in the future. They tend to pile up the money for a use date very far into the future. They assume after the nuclear units have used up their useful life, they sit essentially for 30 years before they're decommissioned. If you put the expenditures off that far in the future, of course it's a very small amount of money, but we would respectfully submit that that is an area that needs to be looked at very closely by the province and it probably is something that should be looked at by somebody other than Ontario Hydro.
We've included higher depreciation charges for Ontario Hydro's nuclear simply to reflect the facts of life. These plants do not last 40 years without substantial reinvestments and, therefore, the depreciation charges that Hydro is currently booking are much too low. If you make those adjustments for those reported costs for nuclear, you can see that we add approximately another cent per kilowatt-hour to the reported costs.
There are some corporate charges that we feel also need to be included when we talk about the costs of nuclear energy in Ontario. If you assume it's still in the public sector as it is with Ontario Hydro and it falls under the current rules of the Power Corporation Act, there is a net income or interest cover ratio, which is required to be charged by Hydro into the rate base and it's simply an interest coverage ratio on their annual interest payments. If you attribute nuclear's share of that, you get a substantial adjustment of almost half a cent per kilowatt-hour or over half a cent per kilowatt-hour to nuclear charges.
With our members, we would have to book overhead costs, interest charges. We'd have to charge for our power an amount of money that gives us sufficient interest coverage to repay our debt. It's only fair, when you're comparing two types of generation, that these corporate charges to Hydro be included in their generation charges if you're going to compare it to private power generation.
We've also included, and this is an arguable item, as the last item, Ontario Hydro took significant write-offs last year in the amount of $2.5 billion. It's very easy to show that at least $2 billion of that are write-off charges related to nuclear. Those charges in effect are taken out of book to equity on Ontario Hydro's books. That equity number on Ontario Hydro's balance sheet is a result of money that's been collected from ratepayers over a great number of years and when Ontario Hydro takes a write-off, it effectively is taking money out of ratepayers' pockets that has been paid over a number of years. To our way of thinking, if you're going to look at the true costs of nuclear, you should make a charge to it to reflect the value of those write-downs. So what we've simply done here is assume that the nuclear business has to pay back that write-down over a period of 25 years at 6.5% interest.
When we make all those adjustments, we come out with a substantial cost for nuclear above Ontario Hydro's reported cost and certainly in excess of our historical costs and, as Steve has already said, as we move into the future, we expect to be able to deliver power from private power projects at less than our historical costs.
There are some significant issues here when you compare the costs. I know there are questions about comparing marginal costs to full costs, but you have to bear in mind what nuclear has cost the province so far.
Mr Taylor: As I mentioned earlier, my name is Bill Taylor. I work for TransCanada Power. Just by way of further introduction to my employer, TransCanada Power is a division of TransCanada Energy Ltd, which is a wholly owned subsidiary of TransCanada Pipelines Ltd. We are a broad-based energy processing and marketing company with assets and trading operations throughout North America involving natural gas and its byproducts, crude oil and its byproducts, as well as electricity. Through a related company, TransCanada Power Limited Partnership, we own and operate three natural gas-fired cogeneration plants located in Ontario with a total installed capacity of approximately 120 megawatts.
I'm also here today speaking to you as a large power consumer in Ontario. TransCanada Pipelines has peak electric consumption totalling approximately 85 megawatts on an ongoing basis. As such, the TransCanada group of companies has a direct and substantial interest in these proceedings as they relate to both the rates of Ontario Hydro and also surrounding the potential restructuring of the industry which we hope is imminent.
I'd like now to turn to briefly touch on a written submission that TransCanada made to this committee that was provided to you in writing earlier this week.
TransCanada respectfully submits to this committee that the recent announcements of Ontario Hydro regarding the operation of their nuclear power plants and their plan referred to as the OH recovery plan are inextricably linked to the issues currently facing the government of Ontario surrounding the future structure of the electricity marketplace, which has come to be known as the white paper.
We submit that the OH recovery plan, involving a combination of new spending and indirect costs totalling an estimated $5 billion to $8 billion of Ontario taxpayer and ratepayer money, should be determined by this committee to be flawed on the basis of its timing alone.
Further, we submit that since Ontario Hydro and others have recently testified before this committee that there is currently no concern -- I emphasize "no concern" -- for public safety related to its nuclear operations, the OH recovery plan, as it has been laid out, must be considered by this committee to be strictly a commercial matter. As a commercial matter, the OH recovery plan is directly linked to matters to be addressed and debated in the forthcoming white paper. Any decision of this committee regarding the OH recovery plan must be considered along with all other matters surrounding the white paper, lest the committee presuppose or inadvertently cause a certain commercial result that would have an adverse effect or a potential adverse effect on the ratepayers or other stakeholders in Ontario.
In conclusion, TransCanada submits that the committee should recommend that the OH recovery plan be placed in abeyance until the white paper has been released, debated and acted upon by the government of Ontario. Thank you for the opportunity to be heard.
Mr Probyn: We'll conclude with just a brief discussion of some of the issues that we believe the committee should review, and that's in your binders, which I should mention include a number of photographs and other information about independent power plants in Ontario, about halfway. Unfortunately, we forgot to notify the clerk about the need for an overhead, so I apologize for motoring you back and forth through this material.
In terms of our first point, we believe that a competitive framework is essential for this committee's continued work. In that respect, we believe it's important and we would urge the government to move on this expeditiously to issue the forthcoming white paper. We think that we, in Ontario, must move into the new world of a competitive marketplace in the electric power sector and, in order to properly evaluate options, I think the white paper is absolutely essential to this committee.
The second thing is that, as Bill pointed out, we're disturbed by the pre-emption of competitive options by the decision made by Ontario Hydro at its board meeting in August when it accepted the nuclear recovery plan. We feel that this was not an appropriate way to proceed. We believe that competitive options must be explored to the benefit of the Ontario consumer.
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The third thing I would say is that we believe the competitive market is the only realistic way to see increased electrical supply from the private sector. We don't see a return to the contracts that were issued previously and we have adapted our industry to meet the demands of the competitive market.
Finally, we think that benchmarking nuclear can only be really achieved in the context of a competitive framework. The complexity of the numbers, the issue that is before decision-makers, really demands that we have a marketplace so that consumers can choose their options based on reliability, competitive pricing and other considerations such as environmental benefit.
That concludes our presentation. We are obviously delighted to take your questions.
The Chair: Thank you very much for your presentation. It certainly has gone to the heart of one of the issues this committee has been wrestling with in the last several days, and I appreciate your presentation. We'll begin the questioning with Mr Laughren.
Mr Laughren: Welcome to the committee. You certainly struck a nerve among some of us when you talked about a couple of things. One is the white paper, because some of us feel that as a committee we're operating in a strange vacuum here and we don't know where we're headed, so it's very difficult. We are trying to put as much heat as we are able to on the minister to get the white paper to us and to make it public. Your comments are most appropriate.
The other thing has to do with the recovery plan, which is only a nuclear option. Some of us have been pressing for that. What I wanted to ask you is, when you look at that recovery plan, which I assume you have, having a vested interest in doing so, and appropriately so, and you try to put yourself in place of the nuclear recovery, what do you see there? How would the members of your organization fill in the blanks if there was no nuclear recovery plan and the A units at Pickering and Bruce were both not to come back on stream? How could you see that happening? How long would it take? How long would the contracts have to be that you would seek in order to feed into the grid? Is that too much in one question?
Mr Probyn: No, sir. I think essentially, as I've said earlier, we believe the supply is there and the way it will be brought on will be determined by market forces. That's why I've said it is so important to have the white paper, to have the structure of competition in front of us because at that point, we will start seeing a diversity of options.
One of the interesting things about the private sector is that there are a lot of ways of skinning particular cats. You'll find merchant plants, plants that are partially merchant plants, partially contracted to industrial customers. You'll find the municipal utilities as players in the market. You'll find energy aggregators. You'll find a whole range of individuals and businesses step up to service the consumer.
I was involved 10 years ago in the deregulation of natural gas. I was working in the federal government at the time in the Department of Energy, Mines and Resources as it was then known. At that time industrial consumers of natural gas didn't have a strategy for managing that cost. They simply sat there, they paid the bill. When the gas market deregulated you saw the development of a diversity of products. You also saw the price of natural gas, which is $4.40 per million BTUs, fall to today's range of around $1.20, $1.50, depending on the term of the contract.
What I'm saying is, I'm not going to plan the energy future. I think what we need to do is to bring forward a framework to allow people to plan, to purchase and to manage their own energy futures. What we're saying today is, based on the capacity that we see, there's plenty of room, there's plenty of resource and we think we can move into this new future with a minimum of disruption.
Mr Laughren: The way in which Hydro's request for proposals has come out -- I assume that some of your colleagues would have seen those and maybe all of you, I don't know -- is there enough scope in them for members of your organization to jump on those and submit proposals?
Mr Probyn: If it's all right, I'd like John Brace from Northland Power to address that question.
Mr Brace: I'd like to talk about this from the point of view of a generator of power. What we need is clarity in the situation. We need to know what the rules are, we need to know what the rules will be over a reasonably long period of time so that we can work with other parties, be they Ontario Hydro, be they municipalities or industrial concerns that would buy power from us, so we can make the long-term decisions to build power plants. Nobody in the private sector is going to build a power plant without some certainty that you're going to have a product you can sell over the long period of time.
Coming to the RFP, the RFP is not structured that way. The RFP is structured only along the lines of, what can you provide for 1998 and 1999 and maybe the year 2000? There's no commitment whatsoever there would be any purchases beyond that. I don't think there are very many people who would make investment decisions that require a fairly long period of time to pay back, who would invest in new facilities to answer that RFP.
I think each one of us has potentially options in our power plants to take advantage of some existing unused capacity that's already built, or possibly some low capital cost and, as a consequence, low quantity of power supply expansions or changes to the plants, but I don't think that RFP is going to result in anything significant. That's the way it's structured. It's structured to deal only with the short term and it presupposes that Ontario Hydro will be the supplier after that RFP period is over. To me, it's not an RFP structure to allow the private sector to contribute a meaningful solution to the situation in Ontario at this point in time.
Mr Laughren: Thank you. Could I ask a question on the cost figure? You talk about adjusted cost comparisons for Hydro nuclear and you compare Ontario Hydro with the Ontario NUGs. The Ontario Hydro nuclear costs include capital costs and also include the costs of servicing new debt presumably. If you were to be plugged into the system in a major way, would you not also have to assume part of that cumulative stranded, if you will, debt and is that built into your costs you show here for NUGs?
Mr Barnstable: Our costs here are simply historical costs. These are the costs of our products to date, compared to the 1996 costs adjusted up for Ontario's Hydro's nuclear. It doesn't get into future.
Mr Laughren: I know, but the reason I asked --
Mr Barnstable: We're part of the Stakeholder Alliance for Competition and Customer Choice, or SAC, which is a very broad-based alliance of large consumers, independent business, producers such as ourselves. What we've said is that costs that are stranded, that are really stranded debt, would be a system cost, would be addressed by a stranded asset charge, as recommended by the Macdonald committee, to ensure that debt is covered and that debt is not a burden on the taxpayer.
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Mr Laughren: Maybe I'm not putting it very well, but those costs are already built into Ontario Hydro Nuclear's costs of delivering power. Those are not built into Ontario NUGs' costs for comparative purposes in your chart. Is that realistic, is that fair?
Mr Probyn: We have debt service assumed in our costs. If you're saying, is there --
Mr Laughren: But you're going to have some of theirs too.
Mr Probyn: What I'm saying, though, and this is why I think the SAC proposal is so important, is that all the participants in the market will in fact underwrite the debt of the system. I mean, you're looking at a system debt, so the NUGs obviously will do that because they're in a competitive framework and essentially, because they're part of the system, they are part of underwriting that stranded debt.
Mr Laughren: I think you're in denial here.
Mr Taylor: I'd like to try to answer your question. If I understand you correctly, you're asking whether the independent power producers as a group are considering the fact that we may have to pay some portion of this stranded debt. I suggest to you conceptually I have a difficult time understanding why that burden would be placed upon new participants in the marketplace as a producer, as opposed to the consumers for whom that debt was, perhaps inappropriately, taken on by Ontario Hydro for consumers of Ontario. To add that additional burden to potential producers and participants in an open market, in my opinion, would not be appropriate.
Your question I think is really going to the appropriate way to address the issue of the stranded costs, which of course is a very complex question and has broad implications as to what the market may look like. Further, specific to your question, the six cents per kilowatt-hour existing costs of contracts does not include any of that stranded component.
Mr Barnstable: If I could add something, there's a balance here because the amount that gets stranded is going to be a function of what the competitive price is by private producers. Ontario Hydro gets adjusted down to a marketplace. We're the marketplace in terms of its competition. The lower we can generate power, for the more stranded charges there would have to be if it comes into play in the generation sector. But a valid alternative is you don't bring it to the generation sector. You leave it with the power consumer, but you don't encumber the competitive marketplace at the generation level.
Mr Laughren: As long as everybody's feeding into the same grid or pool, call it what you will, then I could see that. What would be unfair is that if you were selling to a large industrial user like Falconbridge, for example, and it was not part of that, nobody was paying part of that debt.
The Chair: I'm going to move on to Ms Johns.
Mrs Johns: Thank you very much for being here. I would like to talk about, first of all, your slides. Steve, you started to talk about the ability of the private power industries to increase Ontario's supply. You listed five sources of power, and one of the charges we have been given is to examine alternative power sources in the province. Can you tell me if these five sources -- natural gas cogeneration, waste fuels, hydro-electric power, solar and wind -- are the only options available to the people seeking electricity in the province?
Mr Probyn: There are other technologies. There was discussion of fuel cells, for example, and many people feel that in the future fuel cells will play a very important role in distributed generation. So these are the major technologies that are generally considered to be available currently.
Mrs Johns: With the best of your expertise -- and I refuse to let you get off this question because I think there's expertise at this table -- the cost per kilowatt, megawatt, whatever you want to give me, all of these, what does it cost me for natural gas cogeneration? What does it cost the ratepayer in Ontario for natural gas cogeneration?
Mr Probyn: What we have said is that new cogeneration -- and, again, a lot of it depends on the specific site and very differing industrial requirements -- can be in the range of 3.5 cents.
Mrs Johns: How about waste fuels?
Mr Probyn: It depends on the waste fuel. Biomass, for example, is around 5.5 cents, perhaps as low as five, but other wastes, landfill gas, maybe a little less. Again, it depends on the waste. Energy from waste can actually have a low cost depending on the amount charged for burning the garbage.
Mrs Johns: Hydro-electric.
Mr Probyn: Hydro, again, varies significantly. I would say a good representative hydro number -- and we have here Mr Clair Murdock with us, so he'll correct me if I'm wrong -- might be, depending on whether it's small hydro, large hydro -- small hydro, let's say, six cents.
Mrs Johns: Solar.
Mr Probyn: Solar, probably in the 11 cents to 15 cents range. Solar, by the way, is primarily from remote applications.
Mrs Johns: Wind.
Mr Probyn: Currently there is wind being produced in Canada for 5.75 cents. Large-scale wind farms give economy. The quality of the wind resource is very important. We finance 90% of Canada's wind power, for example, but that's mainly located in the Rockies where you have a very high quality wind resource. Up in Kincardine there's a good wind resource; Manitoulin island, another one; and Wolfe Island. They are three excellent wind resources, but they're not of the same quality as the Rockies. So that's going to make it a bit more expensive than, say, that five cents to six cents wind cost that would prevail in Alberta.
Mrs Johns: So would you say seven cents then? Tell me your best guess.
Mr Probyn: I think it depends on the resource. I would say seven to 10.
Mrs Johns: Fuel cells. I know we're not there yet. Do we have a cost for fuel cells yet?
Mr Probyn: Right now -- and, Bill, you may be more up on fuel cells than I am.
Mr Taylor: I can't help you there. Sorry.
Mr Probyn: They are not developed. But there is an expectation over the next decade that fuel cells will come down very significantly to the point where they play an important role in what's known as distributed generation.
Mrs Johns: On this chart you've conveniently left out what I think my most important question is. Tell me how many megawatts I have that I could get hold of immediately?
Mr Probyn: You mean tomorrow?
Mrs Johns: Tomorrow.
Mr Probyn: We discussed that and it's a difficult question.
Mrs Johns: I know because I think I said I'm going to ask this question with everybody who has been around me for the last six weeks.
Mr Probyn: In terms of tomorrow, there is unused capacity in a number of the plants.
Mrs Johns: Northland.
Mr Probyn: Northland, I believe TransAlta, possibly TCPL, and we think --
Mrs Johns: Dow.
Mr Probyn: If you included Dow, you'd be in a couple of hundred, 300 megawatts, if you said, "This is capacity that's newly available to the system."
If I could make one comment, I don't think our problem is tomorrow. There are existing resources within the Hydro system and also there are large-scale imports that are available to this province in Quebec and also in the northeastern United States. So it's not tomorrow but the day after tomorrow and the year after tomorrow that I think is the key.
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Mr Taylor: If I could add some comment as well, and I'm not suggesting that your question was leading in this direction, but I just wanted to add that you should not be surprised by the fact that there are not large amounts of capacity available at our existing locations due to the fact that the current commercial environment that we exist in, that being Ontario Hydro as the unregulated monopoly, does not entice us or anyone else to invest in this province.
Mrs Johns: Exactly. I understand that. Thank you for clarifying that, though.
I am now on to table 2. I want to say, first of all, that I do my own income tax return every year, and whoever did this, I'm going to get them to do it from now on. I figure I'll save thousands of dollars.
The one thing I wanted to comment on with this, which I think you have brought up, that we've been really concerned about on this committee -- let me say that I do take the point, first off, that the costs are much higher than Hydro is telling us about. I take that point. I am talking half cents here and there. It doesn't really matter one way or the other. You make a very explicit point on this form that you believe the life of the nuclear plants is not 40 years, or you believe that the assets shouldn't be amortized and depreciated over 40 years. We've heard at least one chair complain that aging was a complete surprise to him, basically, or that that was part of the problem.
Mr Brett: It surprised my wife too.
Mrs Johns: Trust me, it's a surprise to me too. How did you come up with 25 years' worth is 40?
Mr Barnstable: First, I'm an engineer. Second, I worked at Ontario Hydro for 26 years. I went to Ontario Hydro to work in the nuclear field, and I worked there for AECL when I was a student. Look at Bruce A. How old is it?
Mrs Johns: I don't know. Twenty years?
Mrs Fisher: No, 1982.
Mr Barnstable: Well, it's toast.
Mrs Fisher: It was commissioned in 1982.
Mrs Johns: That's 25 years.
Mr Barnstable: I don't think it's smart to depreciate equipment longer than it's going to last, and I don't know too many companies that do.
Mrs Johns: But we have a hard time figuring that out. I don't want to take the side of Ontario Hydro or anybody here.
Mr Barnstable: It's a real issue.
Mrs Johns: It's hard to figure out, I think.
Mr Barnstable: It's an issue because if you accept 40 years as appropriate depreciation, you've bought into the trust of having to shell out more bucks in that 30-year period to keep your investment intact. It's just not good investment sense, period. What we're saying is --
Mrs Johns: I think what we would believe around this table is that they didn't maintain, so they didn't do the normal operating things that should have happened in a year, and that's why they've shrunk their life. Would you disagree with that?
Mr Barnstable: Well, nuclear is a very technical business. When I joined Ontario Hydro, we were commissioning Douglas Point, we were building Pickering and we were designing Bruce A. We still didn't know how the hell Douglas Point was going to run and it didn't run very long.
There was a lot learned. It's a very steep learning curve. Hydro's done a wonderful job. I'm the first to applaud them. They have done an outstanding job. I think they're getting some shabby treatment right now. The fact is that it's a very highly technical endeavour.
A person who is a good friend of mine, who has worked in the nuclear business all his career with Ontario Hydro -- I put the question to him this way. I said, "Do you think there's a future for nuclear at Ontario Hydro?" His response, I think, shows as much insight as anybody's. This is somebody who has worked there for 30 years, all in the nuclear business. He said: "It's such a complicated technology, such a sophisticated technology, in need of such tender care and safety considerations, it requires an enormous bureaucracy to run it and, by definition, an enormous bureaucracy is not going to run it efficiently and cost-effectively." These are all philosophical but they all come back to, "How long do you want to bet on this investment?"
Mrs Johns: We're trying not to bet in this committee right now.
I'm going to use one of my Elinor Caplan techniques now, because I think I'm running out of time, so I'm going to ask two questions at once to get it all in before it goes.
I understand that in 1989 Hydro did an RFP, looking at alternative sources of power. Can any of you people tell me what the capacity was that they came up with in 1989? Then I would like someone to tell me how they would like the central market operator function to work to ensure that you people get your power on the grid and that the stranded debt and Ontario Hydro get their power on the grid in an equitable amount that allows the ratepayers of Ontario to get the best price for power.
Mr Barnstable: I'll try the first one.
Mr Taylor: I'll take the second one.
Mr Barnstable: I feel I can answer the first one because at the time that our fee was put out, I was running the contracting business for non-utility generation and I was essentially charged with the responsibility for that RFP. I can get a better answer for you, but my guess is, we had about 2,000 megawatts that we were prepared to deal with and had started contracting. There were some cutbacks as we got down the road a bit and found out the forecasts were wrong, but my recollection is that we had something in the order of 8,000 megawatts proposed to us. I can check that.
Mr Brace: I recall the number being 6,500 megawatts.
Mrs Johns: Was that over a long period of time?
Mr Barnstable: No, they were all set to do it whenever we could contract.
The Chair: We received your question, Ms Johns.
Mrs Johns: I agree. I just couldn't understand the answer. I apologize. Sean will ask it for me out there.
The Chair: You're pulling a Conway here now. I have to go on.
Mr Conway: And that's bad.
The Chair: It's getting infectious.
Mr Conway: Helen, you have just been insulted.
The Chair: Not at all. Let me move over now to Mr Conway.
Mr Conway: I want to pick up on Ms Johns's very good questions. Mr Probyn, some wag in the Financial Post recently wrote about this as a lame duck committee. I think his name was Probyn. I just wondered if you were related to that fellow. If I remember correctly, could you perhaps elaborate on the lame duck quality of this committee?
Mr Probyn: It's obviously hobbling around at great speed. I will say this, Mr Conway. You're right. I am related to that Stephen Probyn; in fact I am that Stephen Probyn and I will explain the context of my remarks in the Post.
What I was concerned about was the sense that under the Power Corporation Act a decision had been made by Ontario Hydro which essentially pre-empted the policy functions of this committee. With all due respect to the members of the committee, I said that I wasn't really prepared to accept your technical expertise in advising me that the nuclear reactors were safe. What I wanted was your policy expertise in telling me how the nuclear system was going to fit into the context of Ontario's energy future.
I apologize if my language was colourful. I don't think I used the words "lame duck," because they are overused.
Mr Conway: You need not apologize. I think it was quite a good analysis. I used to get glossy brochures in the spring over at my apartment at Bay and Bloor. It was another fellow named Probyn on those brochures, but I don't know whether he was related to you.
Mr Probyn: I hope I got your vote.
Mr Conway: Probyn is a very popular name in my neighbourhood.
Seriously, on the white paper, I think I heard you very clearly say that it's absolutely essential that that document be tabled as early as possible. Have you any information as to when you expect it to be released?
Mr Probyn: I think you'll have to ask your other witnesses.
Mr Conway: If you and Diane Francis don't know, how would anybody in this room know?
Mr Probyn: I'm not equipped to answer that, Mr Conway.
Mrs Johns: Oh, give him an answer.
Mr Probyn: We told him two weeks.
Mr Conway: I also want to come back to two questions, one that Ms Johns raised but also the one Mr Laughren raised. Let me start with the Laughren point initially.
There is no question that in this new framework -- and clearly we are going to go to a rather different electricity market than we've experienced in the post-Second World War period. There was a day when the independent power producers were big news in this province. The dusty annals of the legislative library have some of the most lurid tales of private power. I won't bore anybody with them but, boy, they make for very interesting reading. But in the post-Second World War period we've had one kind of market and it's going to change.
One of the real issues that taxpayers are going to want some comfort around is this business of stranded debt. I was listening carefully to what you were saying to Mr Laughren and I want to just understand that. It's your position that any charge to retire stranded debt should be a charge on the system, probably attached to transmission, and in no way encumbering new generation.
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Mr Probyn: I think that's the logical place to put it. I think we feel we need the discipline in the marketplace of the system paying its own way. As you may be aware, SAC has indicated that it's its strong view that the system and not the taxpayer should deal with the stranded debt that has been incurred by the system.
Mr Conway: But some people would argue that that's a very disingenuous distinction in this sense that, who is the system? Yes, we want to protect the taxpayer, but there are those who are very concerned that this is going to be organized. We don't expect the forces of big-league capital to volunteer for any more of this cost than they might have imposed on them. I've been around politics long enough to know that one of the most powerful and endless games at work is the transferring of cost. You're going to have a very positive future in this province, make no mistake about that. I'm deadly serious. It's going to be much better next generation than it has been the last 15 or 20 years. But the public has been burnt in recent times.
I was using the example just the other day that the Auditor General of Canada pointed out, that we've privatized NavCan and we got about $1 billion less than it was worth. That's according to the Auditor General of Canada. That's exactly what the taxpayer expects. They can just imagine in this new world order that when you get to stranded debt -- I would suspect seven out of 10 taxpayers would fully expect that the Provincial Auditor will show up when none of us is around in five or 10 or 15 years time to tell the tale about how the poor old taxpayer got hosed, that the stranded debt was disproportionately loaded on the taxpayer.
Mr Probyn: Let's look at the so-called stranded debt. Essentially it's an obligation on the people of Ontario to service the debt of Ontario Hydro if Ontario Hydro itself is not able to provide that debt service. What we are really talking about is two ways to deal with it. One is through a monopoly corporation which uses its monopoly to keep prices high and to try to service the debt it has incurred in these decisions.
Mr Conway: But Mr Probyn, there will be a lot of people who won't agree with that assessment. There are those people who are going to say that a stranded debt might very well be that which was organized with a particular prejudice. For example, there are those who look at the Hydro recovery plan and say, "This is a very clever plan; this is all about stranded debt," not ever admitted as such. Now they may be wrong, but I'll tell you, we've had some people in this room telling us: "Well, isn't this a pretty picture? The utilities are telling you that it's all about recovering their nuclear fleet when it has much less to do with that and much more to do with positioning the utility for the new world order."
When I come back to the point, I think stranded debt may be viewed by many people as something other than your definition. I don't disagree they're relevant issues for the committee. I think you've highlighted those quite appropriately. The devil is going to be in the details and the design, because clearly all of the political parties in this province for 10 years have said Hydro's monopoly on generation will end. We've had a very strange kind of decade, with a sharp drop in electricity demand and a variety of other things, but that appears now to be changing. We had this incredible spectacle this summer of the chairman of the public utility standing up and saying: "All the things you've ever said about us are true, and things are really bad. We're going to take seven reactors out of operation for a period of some years, and we may or may not bring them back, depending on the economic analysis," and other things, but the economic analysis is clearly going to be really important.
That then gets you right back to assumptions. I thought Mr Brace made a very good point. He has made the point to me in other circumstances, so I was not unfamiliar with it. Nobody is going to commit private power, particularly greenfield private power, without the very things he mentioned: in what context, for what period of time? That gets you into a whole series of assumptions.
I still come back to Mr Laughren's point, then: How do we let private power in, as we clearly have and will have more of, and yet ensure that we don't, in doing that, really leave the provincial taxpayer, who is guaranteeing $29 billion worth of debt already, even more exposed?
Mr Probyn: I'd like to just make one brief comment.
The Chair: Very, very quickly, please, Mr Probyn. I have to go to Mr Laughren.
Mr Probyn: The way to deal with it is to make the market transparent. The problem that everybody has had, ranging from yourselves in the Legislature, including the decision-makers in the bureaucracy, is that Hydro is not transparent. You need a transparent market; you don't need a black box. That's what we're advocating.
Mr Taylor: May I comment?
The Chair: Yes, please, very briefly.
Mr Taylor: Sure. I think Mr Conway has hit on, in my opinion, the issue here, which is the stranded debt issue that needs to be wrestled to the ground, which, I might add, takes us right back to the issues before the government in the form of the white paper.
That being said, I think this is not a new issue in other industries and it's not a new issue in the electric industry in terms of the fact that this government has a number of different sources that can be viewed in other markets in other jurisdictions in Canada -- Alberta for one -- the United Kingdom, New Zealand, Australia and the United States, which can tell you how you deal with this monster called stranded debt and how you make the market work effectively so that private power will have the incentive to invest in the business and to move the market forward in a reasonable way.
I would suggest to you that there are other sources of data that we as a company at TransCanada, and if I can speak for the association, would be prepared to make available to you.
Mr Laughren: For many years I was always opposed to breaking up Hydro. I always saw it as the old line: It's my party and I'll cry if I want to. That's how I regarded Hydro, as being part of my family in the province. Now I come at it from a social democratic viewpoint as well. The only time I felt it would be appropriate to start changing the field out there was when Hydro used up its surplus. When they had reached a point where they used up their surplus, then I was prepared to say, "Come on in, folks, and help us," because I'm not a huge fan of nuclear power. "Come on in, folks, and let's get on with supplying power into the grid." So I welcome the thought of particularly the gas industry coming into it. I think that's very good.
But -- not that I am a decision-maker any more, if I ever was -- I would oppose the bringing in of folks like you if you didn't assume your share of that stranded debt. The reason I say that is that that debt was incurred on behalf of all of us. We may have some questions as to how it was done. I would not have built Darlington in the first place, but nevertheless we did, it's ours, it's us, and we've got it, and it's yours too. You may not like that, but it is.
I think it's appropriate that if you want to get in on the action now, after all the agony of the years gone by, if you want to get in now when it's a lot easier sailing than it was then over those years as a struggle went on to build the nuclear plants and how the costs went way out of whack from $4.5 billion to $14 billion for Darlington alone, if you want in now, then damn it, in my view, you're going to have to assume part of that responsibility, just as I do as a taxpayer. Indirectly, that's where it all goes anyway. We know that. I would not support you folks coming into the grid to supply power unless you're prepared to see that stranded debt as part of your problem too. That's why I feel so strongly about it.
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Mr Probyn: We've actually accepted that.
Mr Laughren: It doesn't sound like it to me.
Mr Probyn: What we've said is that the electrical supply system, which includes everybody in it, suppliers and consumers, must deal with that. If we were saying the taxpayer should deal with it, then we wouldn't be accepting it, because what this does, what the acceptance by the electric supply industry of the debt does, is it narrows our market and it makes essentially the business of supply more costly.
Essentially, that's all one can do. You either put the burden on the electrical supply industry, which is ultimately reflected in costs -- you try to wring as much efficiency out of the electrical supply industry as you can so as to reduce those costs, but there's no free lunch, there are no easy answers -- or you put it on the backs of the people of Ontario as taxpayers. But the fact is they're going to get it, as taxpayers or consumers, but we're saying the electrical supply industry is where it belongs unless somebody can come up with some other considerations.
Mr Laughren: But that's too cute by half. It seems to me -- you don't have to agree with me. That's all right.
Mr Probyn: Okay.
Mr Laughren: It seems to me that when you have to price your product, it's not at a level playing field if you don't have to absorb some of that stranded debt cost too. Otherwise, the charts that you've got in here are what will be fed to the public out there and they'll believe you, and I don't think that's fair.
Mr Probyn: Let's just look at how this is going to work in practice. You're going to have a pool marketplace where there are prices. You've already got this in Alberta. The price to the pool will be driven by competitive forces and there will be a variety of participants. There will be public sector participants, such as some of the hydro generators, and there will be private sector participants. All of those generators will be price-takers. They're not monopoly so they can't enforce prices. If the overall price of power doesn't support the coverage of the debt, it becomes stranded debt, at which point the regulators, say the Ontario Energy Board, will say, "We're going to put a charge on the system which will be reflected in prices." We will also likely see, quite frankly, attempts to ensure that people don't escape that obligation. We're not here to say that we should escape it.
Mr Laughren: I know you're not. At least I don't think you are. That's fine, and I said that the last time we went around. If there's a pool there that everybody's feeding into and then distributing it to all the consumers and the charge is put there on the pool before it's distributed to all the consumers, I've got no problem with that. Then it's not put on you directly, it's put on the pool, which everybody feeds into.
Mr Probyn: Precisely.
Mr Laughren: I've got no problem with that. But what I said was I would be opposed to a system in which if you're supplying directly to Falconbridge, to use that example again, or General Motors, I think it would be wrong for General Motors to be buying power from you without being subjected to that same charge. That's where we differ.
Mr Probyn: One of the reasons that SAC has recommended a transition agency is to deal with these kinds of issues to ensure that the stranded asset charge is levied fairly and that there isn't a wholesale movement away from it.
What we've said is, yes, it's very complex. The principles are clear, and I think we've tried to enunciate them over the past year and a half. But the question is, "The devil is the details," to quote Mr Conway, and in that regard, we have advocated a transition agency which would be headed up by somebody who is independent of government and has a strong mandate and technically expert staff to develop the legislation, the regulatory framework, all the things that need to happen to move us into the transition towards this new era.
Mr Barnstable: Can I get one more word in?
Mr Laughren: As far as I'm concerned you can.
Mr Barnstable: From the committee's perspective, you have to look at two types of stranded debt: stranded debt that arises from debt that already exists and stranded debt that could arise from additional debt that's taken on by Ontario Hydro. I'd respectfully submit that the first type of debt is already on the table. It's more subject to the white paper and whatever transition things, and we're quite prepared as an industry to involve ourselves to see that that's done in an equitable manner. From your perspective as a committee dealing with Ontario Hydro and its nuclear situation, it's the second type of stranded debt that you should be really concerned with.
Mr Laughren: I don't disagree with you there. I would be very concerned about that too, because if Hydro now launches into an $8-billion refurbishing of the nuclear plant -- and that adds on to their debt, there's no question about that -- is that fair?
Mr Barnstable: One point we're trying to get across very strongly is we feel we have a very efficient industry that can deliver the goods, it can deliver a reliable product, but if you load the whole marketplace up with too much stranded debt, even with our help you're not going to see lower electricity prices in this province. Ontario Hydro's debt could put off for a long time the day when Ontario consumers see lower electricity prices as a result of competition. Stranded debt is a very key item, or more spending by Hydro, I guess.
Mr Galt: I'll just start off with a couple of clarifications, if I may. One has to do with the RFP put out by Ontario Hydro. They're asking for 5,000 GWhs. I've been asking around. Does that stand for megawatts or does that have some other connotation?
Mr Probyn: Gigawatt-hours.
Mr Galt: That's a gigawatt? How does a gigawatt compare to a megawatt? Is that a thousandth of a megawatt?
Mr Brace: A gigawatt is 1,000 megawatts.
Mr Galt: So they're suggesting some of these plants could get down to two gigawatts in any month? I think I can turn a crank and get that much out then.
Mr Brace: That's about two and half megawatts, if I recall, if you calculate it.
Mr Galt: It says two gigawatts.
Mr Brace: Right, but if you divide that by the hours in a month, I think you get somewhere around two and a half megawatts.
Mr Galt: That works out to two and half megawatts?
Mr Brace: Right.
Mr Galt: I thought you said a gigawatt was a thousandth of a megawatt.
Mr Brace: No. It's got the word "hour" in there. A gigawatt-hour means you produce a certain number of kilowatts every hour in the month and that adds up to a giga worth of them, which is a billion.
Mr Galt: Just to add to the confusion of understanding how you measure something you can't store.
Mr Brace: Right.
Mr Galt: The other problem I have, this booklet that you shared with us, very kindly, I don't think Mrs Johns was trying to set a trap for you, but I have some problems with the figures Mr Probyn gave. Having to do with hydraulic in northern Ontario, it's indicating it cost 13.338 cents, and you suggested 5.6, if I remember correctly. Your wind farm, you were pretty good there; you were seven to 10 and this is 9.9. On waste wood, 9.5.
Mr Brett: Excuse me, what page are you on there, Mr Galt?
Mr Galt: It doesn't have a number, but it's second from the last. There's a chart, "The Economic Cost of New Generation," right up at the top. When it comes to waste wood, it's 9.5 and Mr Probyn suggested 5.5; when it comes to cogeneration, it ranges from 9.2, and the other one's 6.6 and I believe he suggested 3.5. Can you clarify these differences?
Mr Probyn: Sure. What I would like to say is that with a number of these, as is the case with any numbers, there are numbers that are on different bases. Some of them are levellized costs, some of them are initial costs with certain escalation assumed.
I can tell you, in terms of things like wood costs, as I say, we are the owners of 80 megawatts of biomass generation capacity across Canada and I know what I get for my power. That's the number that I'm relating to as a kind of businessman's number: Here's the product I make and this is how much I sell it for.
In terms of some of these other numbers, as you can see, there are environmental costs that are associated with those numbers, and so those are in many cases what we refer to as full-cycle costing.
When I was responding to Ms Johns I was really responding from my own experience as somebody who has financed roughly $1 billion worth of plant in this sector and also owns a great deal of it.
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Mr Galt: Having figures that do not have everything all-inclusive and broken down really is not very helpful to us -- I may not have said that right -- unless we have all those figures broken down. Just having it fragmented and here and there adds to our confusion because our level is policy, as you said earlier. Talking about it being a lame duck or a duck with arthritis, I see our committee more like trying to close the barn door after the horse got out. That might be a better description of what we're trying to do. But we do need the figures so we can think in terms of policy, not how you repair a nuclear generator. That is where we're struggling from.
You mentioned having all costs in there. I'd like to talk a little bit about this level playing field. I have heard real concerns from your group with having grants in lieu of taxes that Ontario Hydro pays, which are about a thirtieth of what you people would have to pay in taxes on a hydraulic generating station. On the other hand, when we come to nuclear, as we look at the decommissioning exercise with these plants, they're having to pay all the environmental costs of decommissioning and getting the spent fuel safely away. In your prices do you include the emission costs to society that go out the stack?
Mr Probyn: Sure.
Mr Galt: Where does that appear in here, the cost of NOx and VOCs and SO2 etc?
Mr Probyn: Those are related to the environmental costs you'll see in that table. We deal with the decommissioning costs. I've got biomass plants and quite frankly the decommissioning costs are salvage. We are monitored in terms of strict environmental regulations. If we spill a litre of oil on the ground, that's reported to the Ministry of Environment, so we are very strictly monitored from an environmental perspective. We account for our costs. We have to account for our costs. They're a liability.
Mr Galt: I'm taking these costs one step further than the regulations require. I'm talking about the NOx that's allowed out in the atmosphere, the CO2 that's allowed out that causes a greenhouse effect. I'm talking about the total cost. There is a cost, even beyond regulation.
Mr Probyn: I couldn't agree more.
Mr Galt: Are those included?
Mr Probyn: I'm involved in the first demand-driven green power program in Canada, which is actually taking place in the deregulated Alberta environment. Our company is selling to consumers, some of whom we believe will actually be in the oil and gas industry in that province, who are trying to deal with those costs. I believe the best way to deal with those costs is through market-driven incentives, through things such as tradeable emission caps that enable the ultimate decider, the individual or individual firm, to make decisions about how they allocate resources and how they use all our resources, including the so-called externality resources of our air and our water supply.
Mr Galt: We have a fair amount of water that's still running downhill. We need a certain amount to be aesthetic, going over falls etc. Water running downhill has a tremendous amount of power. Have we captured all that's out there, without damming up and having great flooded areas? How much more power could we produce if we were to capture all the water, without messing it up aesthetically?
Mr Barnstable: I can answer that. I think in our numbers here we show --
Mr Galt: I'm looking for something very ballpark.
Mr Barnstable: Ontario Hydro used to have a hydro-electric development program. In there it included some new development at Niagara, some new developments on northern rivers and some upgrades to existing plants. I think it totalled just under 2,000 megawatts additional capacity. On top of that there's probably another 300 or 400 megawatts of small hydro projects that could be developed on smaller sites than Ontario Hydro would bother with.
Mr Galt: We heard earlier, and I didn't get to ask the question of ONGA when they were here, that apparently the combustion turbine units in North America are on hold. They have them on the shelf ready to go to Third World countries and be used there. Why are they currently on hold in North America?
Mr Barnstable: I'm here today representing Sithe Energies from the US. We have about 2,000 megawatts of generation in the US and Canada. One of the colour photographs in the handout, the 152-megawatt Cardinal facility, is owned by us. We are the builder, owner and operator of the 1,000-megawatt plant in upper New York State at Oswego that was talked about when ONGA was on. Contrary to what the CNA has advised you, there has been a substantial amount of gas-fired development going on in North America. The economy, as you well know, has slowed down, so the demand for additional supplies has not been great, but there has been a substantial amount of development and it's beginning to accelerate. Right now we have about 1,000 megawatts of gas-fired projects under development around the world.
Mr Galt: It hasn't been stopped for regulation or environmental concerns or anything like that.
Mr Barnstable: No, if it was stopped in North America, it was because the economy had slowed down and the growth in demand for electricity had stopped.
Mr Galt: That makes sense. We had people in from British Energy talking about competition. I don't know if you've been following these hearings and some of the information we're bringing forth. You've probably been reading where they are at, the competition and privatization. Is that something you would welcome in this country?
Mr Barnstable: Certainly Sithe's business strategy is to be an active participant in the restructured power industry and to proceed on the basis of how the industry is going to be restructured. It will probably be restructured fairly similarly across all of North America. We intend to invest. We don't see that we will have long-term contracts. We'll invest in the same way most industry invests, and we count on ourselves to compete in a competitive industry.
Mr Galt: Ontario is very different geographically, considering northern Ontario, rural southern Ontario, than England. How would you propose we ensure that people in remote northern communities and rural communities in southern Ontario would be provided with reasonably priced electricity in an open competitive market?
Mr Barnstable: I think the marketplace will ensure that happens. If you look at what's happened so far with the private power industry, this 1,850 megawatts that's been installed, much of that is in northern Ontario, much of it is in small communities. In many cases it's integrated into municipal facilities. Our plant at Cardinal, our pumphouse that supplies cooling water for our steam turbine, also pumps water into the town's water distribution system.
Mr Galt: What about the grid? It is so extensive in northern Ontario. Yes, you may have it in one community. You may have it in Dryden. What happens in Sioux Lookout? What happens in some of these other communities?
Mr Barnstable: The grid already exists in the province to distribute electricity, so you don't have to be exactly --
Mr Galt: How would you ensure they have reasonable rates?
Mr Probyn: That's done through regulation. We've advocated the transmission company be disaggregated from Ontario Hydro. We haven't advocated, by the way, just to put it on the record, privatization. We feel a competitive framework can be established in the public sector if it's desired. That can be taken out and that will be a regulated monopoly. If it's regulated on the basis of postage stamp rates, then that will ensure rural and northern areas are not affected by the increased costs they experience.
Mr Galt: Everybody gets the same cost of having a wire to the door, like I pay $800 to get a car delivered from Oshawa to my home about 80 kilometres down the road.
Mr Barnstable: It's called postage stamp rate.
Mr Galt: That's not a postage stamp rate.
The Chair: Thank you, Mr Galt.
Mr Probyn: They're not putting postage stamps on cars.
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Mr Kwinter: I'd like to pursue a couple of areas you touched on, Mr Probyn. One, to talk about your lame duck, I feel and I've felt this from day one, that this committee is like the Ontario Energy Board. We're going to listen to deputants and we are going to make recommendations, but there is no effective mechanism for any of it to happen under the present structure. Ontario Hydro will say: "Thank you very much. We'll see you in another five years when the Legislature strikes another select committee because there's another perceived problem." Do you agree with that?
Mr Probyn: I never used the expression "lame duck," I don't believe. I'm subject to correction but I don't think I used that expression. I would hope that this committee is the catalyst for the appearance of a framework to deal with our nuclear problems, and I've got enormous faith in you, Mr Kwinter, and your colleagues in achieving that objective.
Mr Kwinter: But it can only be done in the context of reforms that will be outlined in the white paper. The point I am making is that in the present regime there is no ability for this to happen.
Mr Brett: You're absolutely right about that. Hydro is effectively unregulated at the moment, as you say. It's not regulated by the Ontario Energy Board. The Ontario Energy Board has no power over Hydro. It's not regulated by the government in any conventional sense. It's owned by the government and it's subject to general policy direction, as you know, but that doesn't begin to get into any kind of overall competent supervision of the running of the company in a normal sense. So it's basically on its own, accountable to itself and accountable to no outside third-party regulation. Until that changes, you won't get changes, no. We agree with you in that sense.
Mr Kwinter: That's why it's so important that we have this white paper so that at least we know in what kind of an environment these recommendations we will make can be implemented, if at all.
There are two areas, one that's sort of beneficial to your interests and one that may be contrary to your interests. I hope you will set aside your particular personal interests and just comment on them.
One, there is no question in my mind, and certainly I gather from the people who have appeared before us, that whatever this white paper is, there will be competition in generation. I think that's almost a given. I can't imagine any government saying, "No, we're not going to do that." As a result, when that happens the marketplace will work and you will either succeed or not succeed, but it will have nothing to do with anything other than market forces and your ability to react to them. That is the one area.
The other area we have to contend with as a committee is this whole area of the recovery plan. You have said and Mr Taylor has said that, in his opinion, the timing in itself is a problem, because how can you do this without knowing what kind of regime you're going to be in? Plus, there is the idea, and I don't want to put words into your mouth or use words, but it seems to me, Mr Taylor, you're sort of endorsing the conspiracy theory, conspiracy in the sense that what is happening is there seems to be a perception that the reason this committee was struck was that the Andognini report indicated there are severe problems at Ontario nuclear and that these problems verge on dangerous because of the short time frame of the licences from AECB, when in fact every witness who has appeared before us who has some competence, in commenting on that, has said safety is not a problem. There is a potential problem if the maintenance doesn't straighten out, but at the present time there is no problem with safety.
I asked this question earlier today of one of the members of the board. What was the drive, what was the impetus on August 12 to make all these decisions, to take it from an information item and automatically convert it at the meeting to an action item, commit basically to a potentially $8-billion plus expenditure, and yet safety was not a problem?
Not only that, if you're going to spend that money -- this is where I say it's against your interests -- if a lot of that is for replacement power, why not leave the system intact and do an orderly retrofit as you go along without requiring the massive investment in the replacement power and also the massive expenditure at one time by shutting down the number of reactors they have suggested? Could you comment on that?
Mr Taylor: I sure can. I want to start by saying that I have not made a judgement on the conspiracy theory, if we can call it that.
Mr Kwinter: No, I didn't say you said a conspiracy.
Mr Taylor: Let me clarify. I just want to say that I think, in our opinion, the issues before the committee, being the OH recovery plan, to repeat what I said earlier, are absolutely and inextricably linked to the white paper issues. In our company's opinion they cannot be considered independent of one another for some of the reasons you have outlined. The fact that the additional $5 billion to $8 billion is really what Ontario Hydro's board was faced with to consider as a result of this will have a dramatic impact on obtaining and opening a competitive market. As we have discussed, it has implications on stranded costs. All of these things point to the same fact, that these issues are commercial in nature and need to be considered in the context of a restructured market and how that can work to the advantage of Ontarians.
The other comment I might have, which perhaps contradicts what I just said about the conspiracy theory, is that I haven't read all the testimony you folks have heard at this committee, but what I have read has certainly indicated that these are not new problems. The earliest reference I recall in the reading I've done about what's been presented to you was that Ontario Hydro was first aware of concerns with regard to their nuclear plants as early as 1989. I think that confirms the view that the question of timing and urgency as we currently see it really has to be put to question by this committee.
Mr Brace: May I add to that? I find it interesting from my point of view that up until August 12 or so, there were years and years of discussions about technical problems at the nuclear power plants, and all of a sudden those have disappeared. I'm sitting here wondering, once we solve this problem, what are the other problems we're not addressing going to be, and how much will that cost and how long will that take? Are we heading now down a slippery slope of incremental investment after incremental investment, each one of which looks justified, but if you knew the totality of it all, you wouldn't do that at the beginning? I don't have the expertise to make any judgement on the nuclear recovery program from a technical point of view, but I am very curious why that issue has disappeared.
Mr Laughren: I don't have much more to ask. I think Mr Probyn and I have almost come to a meeting of the minds, and that probably scares him more than it scares me.
Mr Probyn: I'm honoured.
Mr Laughren: I bet.
In the absence of the white paper, I do feel somewhat like a lame duck on a wild goose chase, so I think I'll pass.
Mr O'Toole: I just have a couple of questions. There has been a pretty broad discussion. I think the background of this committee and the credentialing of this committee is more or less kind of called an election. We're supposed to represent not your particular expertise but ask the questions the people of Ontario need answers to, namely, safety and some confidence in the costing and accounting principles involved in the recovery plan, safety being the primary concern, I guess. Everyone seems to throw it out at the beginning, so I think it's appropriate we do that as well, but I'm quite serious about that since in my riding, basically in Durham there are two nuclear plants.
We've met with some fairly formidable people much like yourselves. Mr Bullock and Mr Kerr are in themselves successful assessors of investment and initiatives, and I think they're competent people, at least their boards of directors think they are, so with all respect to your expertise, I take some confidence that they should be respected. I heard from some technical people on the board, for whom I have some regard as well, but I'm not completely blindsided by all the luxury of their credentials themselves. I still have to be humble and ask the questions.
I'm also impressed with the Ontario Energy Board. I thought Dr Bishop was formidable, with quite a lot of integrity and forthrightness, and she clearly stated many of the observations you have made: the inability to access the armour around Ontario Hydro, whether it's in rate hearings -- if you read the annual statements of Ontario Hydro, they just disregard them. That's basically what they say in their summary statement number 1, "Just ignore them." We spend millions, about $1 million per hearing or more -- some of them are around $2 million -- plus your own costs as intervenors.
But the most important thing I brought up was that I'm not sure I'm satisfied with the accounting principles in their own statements and with Ms Clitheroe's responses to some of the questions. You brought it up in decommissioning charges. There's absolutely no formula I've seen that has any sense. Their ability to not have the up-front charges in the rate is evident everywhere. They can just push it off to debt, they can bring it in, they can declare it. They've written off $7.1 billion over the last five or six years. It's troubling. The whole financial confidence as a citizen -- it's troubling.
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We've heard, and everyone suggests, that there will be some example of defraying this stranded debt everyone talks about, some $28 billion or $30 billion, on the rate somehow, that it's spread so there's no advantage for you as independent producers or the gas group or whatever group. I still think we're all going to pay. It doesn't matter if you assume the assets and liabilities and take your hits in the market, the shareholder, as a taxpayer, will somehow end up being the end loser in the equity position. I say a subsidy, a tariff, it's all a tax. I don't even care if it's a shareholder equity problem. It's distributing all this liability we've accumulated from approximately 1985 when the first evidence came in, from what we've heard. I haven't been here as long as Mr Conway and others, but certainly it doesn't give me a great deal of confidence in the plan.
If I look at the plan, the very first question I have is on a couple of issues around the statutory debt retirement issue. That's in there as one of the concerns for the cost. That's a significant amount of money. It's really not even in there technically.
There were other things besides the SDR. There was also the negative returned earnings, which is a really interesting one. That's just future debt. That's debt planning. Floyd would know all about it, because you have no choice when you have no revenue. You've got to run and they have to run. They haven't got the revenue. It's just debt. I don't care if you hold it in bonds or how you hold it.
There were the recovery plan numbers I'm trying to bring up, which I think would interest you, which are the alternative sources, the short-term solution, if you will. It runs in the range of between $2.5 billion and $3 billion. That's the market where your generation ability, your excess capacity could be utilized. Your industries are prepared to step up to that and be part of that process of feeding into the grid. What is the time frame? How soon can you replace what Ontario Hydro can't, or is it going to have to be Michigan or Quebec?
Mr Brace: As we alluded to earlier, there are probably three time horizons relevant to this question. The first time horizon is, what can be done tomorrow? That comes to the question of what capacity is there that is unutilized, that already exists. I think we talked potentially of a 100-megawatt range, that kind of thing. It's not a great quantity because the way we've contracted with Ontario Hydro has not encouraged us to build excess capacity.
Mr O'Toole: I'm going to move away from even Hydro itself. This is kind of related. Is there any excess capacity at Hydro? You, as outsiders, may look at the water generation side that has just been neglected really. As an asset, they've neglected it in my view. They focus entirely on the nuclear recovery and they fire up Lennox when they need it. It's just an unutilized asset. I don't know how it's not considered stranded. Even the water-powered plants themselves are small, but they are probably equal. Are those assets in good enough shape to sell?
Mr Probyn: One of the things that is quite interesting is that if you turn back to the first part, in terms of the number of projects there are 123 projects identified. Many of those projects are in fact water-powered projects and many of them are dams on existing rivers that Hydro abandoned. Essentially, the private sector has been doing just that for over a decade: going in, taking over some small plants, making a go of them and then moving on to the next. I think you've already seen that process and I think you'll continue to see it.
Mr O'Toole: Is there much more capacity in refurbishing those existing plants? There may be some undercapacitized resource there which is environmentally friendly, in my view. I don't know how many megawatts are available in those small water-powereds, but is that a significant thing? Would this industry be prepared to put those kinds of investments in if there were some assurances in the pool?
Mr Taylor: The short answer is yes. The structure of the market that is required to entice private equity to make investments in the province is something that has been discussed at great length in previous deliberations, including the Macdonald report, I believe.
In the submission TransCanada has made before this committee, we talk about a three-pronged approach to what we see as the necessities to an effective marketplace.
The first one of those is that you need many market players -- many buyers and many sellers -- to in effect create a market.
The second issue is fair and open access to the transmission system or the delivery system so that buyers and sellers can be assured they can get their product to their customers on a fair and equitable basis. That's what we talk about with respect to an open transmission system.
The third is a need to turn your mind to the question of market power concerns or mitigation of market power. One thing that this committee needs to be concerned about in any move towards opening the market is that Ontario Hydro is the single largest electric utility -- I may be wrong in saying in the world, but I know for a fact they are the largest in North America. Any move that is made to open up this marketplace needs to be concerned about market power.
Our company, as a private, investor-owned company that would be investing in the power industry in Ontario would be concerned about abuses of market power at the hands of Ontario Hydro. What I'm pointing to in that third leg of the tripod to an effective market is the need for a regulator that can oversee this business to ensure those dislocations are not evident in the marketplace.
Mr O'Toole: When we started, I think there was some harmony or agreement with respect to the regulatory function that exists today. I think we all looked at the management and then the regulatory aspect as being an important part of the solution, which is softer than the technical solutions. Maybe we'll have a role in that, hopefully.
I'll just move away from that. We talked a lot about all the rates. Ms Johns asked all these different rate things. I'm not that well informed. Is Ontario Hydro competitive with their neighbours today -- it's my understanding they're not -- Quebec, Manitoba and Michigan?
Mr Probyn: It depends which neighbour. They're not competitive with Quebec and Manitoba. They're roughly in the mid-range of industrial states. If you look at our competitors in Ohio and Michigan, I think we're somewhat below. There are a number of tables. I think you already heard from AMPCO. The problem they have of course is the dramatic loss in our competitive standing. Going from number one to the mid-range has hurt Ontario's industry.
Mr O'Toole: That's where I was getting to, is technically. The large consumer groups say they want a 25% or 30% rate reduction. That's what they told us. They want and expect a 25% to 30% rate decrease because of the competition and the eventual framework of competition aspect. Provided you get the volume to offset your investments, if you've got part of the volume, could you deliver at lower rates than we have today?
Mr Probyn: Absolutely. We've already demonstrated that. In fact I spent this morning in a meeting concerning an industrial cogeneration plant we're looking at in Alberta where we have to compete with very low rates indeed. They are around three cents a kilowatt hour. I should add, by the way, that Alberta is a cheaper environment because the gas is cheaper.
Mr Kwinter: I don't know who can respond to this. I'm sure you can. I wanted to ask this question of the Ontario Natural Gas Association. It's just a matter of information. When they were talking about the bringing of gas from the west, they said the capacity of the existing pipelines is such that they don't use all of the capacity right off-line; they store it. I think they store it in the salt mines or somewhere, wherever they do it.
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What I'd like to know is what percentage of the daily, weekly, monthly, yearly use comes out of the storage capacity? What I'm trying to find out is, with the existing infrastructure, if there wasn't the storage facility, but just coming right off-line all the time, which would mean you'd get more -- I assume; I don't know. I don't know how it works. Is there someone there who could tell me about that?
Mr Brett: We would have to get that number for you. If we did not have the storage that we do in Ontario, we would have to have more pipeline capacity built, because we would have to be able to handle the peak day volumes coming through the pipeline. The function of the storage, as you know, broadly is to reduce the amount of pipeline space you need to build because you can draw the gas in over the year, throughout the year, put it in the storage and then in the winter when you hit your peaks you take some directly from the pipeline, but you take the balance out of storage. So there would be a lot more pipeline infrastructure that would have to be put in place if we didn't have the storage capacity that we do.
Mr Kwinter: What kind of capacity? Do you have any idea how much capacity there is in that storage facility?
Mr Brett: We don't have that number. We could get that for you.
Mr Conway: I just had a couple of other questions. I noticed in your brief -- it's "Ability of Private Power Industry to Increase Ontario Supply" -- it's early in the brief, that chart, "New Supply Capability," and I'm looking at the category, "Mid Term to Long Term (Beyond two years)." You may have dealt with this -- excuse me if you have -- but I was struck by the 1,200 megawatts of new hydro-electric.
Mr Barnstable: Yes, that 1,200 megawatts includes -- I mentioned previously, I guess you were out of the room, that Ontario Hydro has a hydraulic development program, or had one a few years ago, and it had about 1,800 megawatts of new capacity they could build.
Mr Conway: I'm quite familiar with it.
Mr Barnstable: This 1,200 megawatts represents small hydro developments that Hydro wouldn't normally touch plus what I feel the private sector could manage quite easily out of Ontario Hydro's sites that they identified --
Mr Conway: Give me a couple of examples. The reason I mention that is, you know, I represent a constituency where we have a half-dozen fairly large power dams and I look at them with great marvel because, I'll tell you, as a politician I don't think we'd be building any of them today. I might be wrong, but I don't think we would be building the great dam at Rapides-des-Joachims or the one at Arnprior or the one at Stewartville easily today. Those are big projects and I presume you're not looking at anything that large.
I remember talking to Hydro about this and being quite impressed by their numbers and then the government -- I guess our government and then the NDP government. There were a couple. What was it, the Magpie development? Was that the Magpie River? That was done.
Mr Barnstable: That was developed by Great Lakes.
Mr Conway: That was Great Lakes. These things are not easy.
Mr Barnstable: No, most of it is northern rivers, and you're absolutely right. I'm familiar with the dams you're talking about in your constituency. They're essentially peaking plants and they have a lot of reservoir. If you ever go down the Madawaska River in a canoe, you've got to pick the right time or there's no water.
Mr Conway: I presume the aboriginal community has no objections to any of these projects north of 50 or north of 25.
Mr Barnstable: Well, no. Ontario Hydro's plan, as you know, is they have to follow the Environmental Assessment Act, and I believe on the Moose River the Environmental Assessment Act is still in play. But a lot of this potential that is Ontario Hydro sites are in northern flowing rivers. There are some that flow into the top end of Georgian Bay, but the more economic sites tend to be in the northern flowing rivers plus development that Hydro had proposed at Niagara.
Mr Conway: So it's largely that Hydro plan --
Mr Barnstable: Plus 200 megawatts or 300 megawatts of very small -- the type of stuff our members have developed over the last 10 years.
Mr Conway: On that, I've been involved with some of your members who have done yeoman's service bringing those small hydro plants into production. Just in general terms, looking back over the last 10 years, how would you characterize and summarize the experience of those small hydro-electric projects that dotted the landscape?
Mr Barnstable: My first experience with those was when I was given responsibility to begin contracting with some of these. In fact, it was one of your constituents who showed up on Hydro's doorstep and said he was going to be ready to operate in two weeks and when were we going to connect them to the power system.
Mr Conway: My constituents are very interesting.
Mr Barnstable: I kind of looked at some of these people as slightly off the wall, but I'll tell you, my opinion has changed very much since I worked with them. These were very much small business men who dug in. They found ways of doing things at much lower costs than Ontario Hydro could have ever done them and they ended up with quite reliable plant, and in many cases those plants have changed hands at quite substantial sums and are invested in by fairly big holdings today.
Mr Conway: A final question comes back to one of my favourite bugbears, and this is this whole issue of local or regional power. Imagining a world now where Ontario Hydro is going to be much less of a player than it has been, and we were once there, a long time ago. It's hard I think for people today to imagine a world where Hydro isn't the backup. Let's be realistic. In the last number of years Hydro, for all its problems, and there were many problems, one of the values that Ontario politicians were told about on the energy equation for many decades was reliability.
I live on the Quebec border. One of the things my constituents in eastern Ontario have generally observed is our system has had a higher level of reliability than the system in western Quebec, though the reliability of the western Quebec system seems to be getting better. If you lived in the Ottawa Valley, certainly the reliability of Ontario Hydro was thought to be, and I believe it was, substantially better than the system in western Quebec.
If you imagine a situation where Ontario Hydro as a monolith recedes and we've got a much more competitive marketplace and the world, which I gather most people agree, is going to see more local, smaller facilities closer to load, because of technology and some of the problems of transmission and whatever. I look, for example, back at some of the power that the Hydro-Electric Power Commission of Ontario got, it never built and it didn't want. But in a locale often in northern or rural Ontario, a very good project hit some very rough weather, and because the commodity that was being delivered was electricity, a more political commodity it is hard to imagine in a country this large, this empty and this cold five months of the year -- I continue to be amazed at the number of people in this debate who think that Ontario is really kind of Connecticut tucked in the bottom end of California; that's the operating assumption. It's big, it's empty and it's cold, and electricity is a very important commodity in that connection.
Should the politicians, particularly those of us from rural and northern Ontario, worry at all about a brave new world wherein we might have a situation where Laughren Light, Heat and Power got off to a really good start up some place in the Nickel Belt, and then something happened in the capital markets, in management, in supply or whatever that sent poor old Laughren Electric to the canvas and the local member was besieged by a lot of people who suddenly had a problem. Is that a possibility at all?
Mr Probyn: I was thinking about your remarks, Mr Conway, in terms of the early years of power. It's a fascinating historical study and probably not one that we should be discussing here, but I think there are a lot of lessons: the development of power, the hydro-electric commission, Sir Adam Beck's role in really distancing Hydro and insulating it from the influence of the government of the day. I think those are important things that shaped a lot of the perceptions of power and there's a lot of idealism that went into those years.
Mr Conway: On that, let me be specific.
The Chair: Let him finish off this answer.
Mr Conway: The Beauharnois project, fascinating engineering --
The Chair: Let him finish it off, Mr Conway.
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Mr Probyn: My point is simply that we have a large integrated grid that has been built on the backs of the ratepayers of this country; it's very sophisticated, and what we are saying is it's time to move that into a new era. We're not even saying here, "Move that into the public sector," but we're saying you've got to introduce transparency. The system has become kludged up with bureaucratization and we have to move towards change because it has not been serving the people well.
The Chair: Thank you for your answer. I think, given the hour, I'll begin to wind down the questions now. I think we have exhausted the testimony for today, and I appreciate it.
I do have one question to ask of you before you go, Mr Probyn, or any member of the panel. In this document with the charts -- if you turn to table 1 just for a moment -- I was intrigued with the figure that's given for nuclear at 5.508 and NUGs at 6.08. I wonder if, in dollars, you could indicate how much the cost overruns would have to be to increase the cost by that 0.5.
Mr Barnstable: It would be about $400 million a year at the 1996 production level for nuclear. According to the recovery plan that's going to drop even further than it was in 1996, so the result is it would carry less money with the same rate increase.
The Chair: I wonder if you can identify the circumstances, realistically, under which that cost could be incurred, the circumstances under which that nuclear cost would increase?
Mr Barnstable: Would decrease?
The Chair: Increase. You can do it later if --
Mr Barnstable: I'm not sure I understand your question. Give me a couple more clues.
The Chair: Your position is that you are very close to the Ontario Hydro figure.
Mr Barnstable: We think we're quite a bit lower, actually, if they counted all their costs.
The Chair: There are some assumptions lying in there and I'd like to see them spelled out. I wonder if you could just take the testimony and pick up the Hansard and perhaps, instead of taking the time now, take a look at that. I'd like to see how realistic those costs are.
Mr Brace: Could I make one point?
The Chair: If you could speak with our consultants before you leave, I'd appreciate having that information tabled with us, if you wouldn't mind.
Mr Brace: Mr Shea, may I make one point?
The Chair: You may, indeed.
Mr Brace: It's important to note that that cost table looks at the historical costs. It's not talking about the future, and the future is what we're here about. The future is I think -- private power can build new facilities in this province given the right circumstances. Private power will take the risk and the responsibility for those investments and suffer if we fail. We can compete with new facilities and the new pricing world and the new competitive world.
The Chair: I understand that, but the afternoon has been built on a number of assumptions and some negotiated positions, whether it's stranded assets or whatever. I want to see your figures --
Mr Probyn: Mr Chair, if I could make one final comment on that? The nuclear assumptions are very subject to factors such as availability. Availability is critical. If you look at Ontario Hydro's numbers over the past 15 or 20 years, they've always assumed an 80% availability factor of their plant. As we know, even prior to the problems that we've experienced in August and which you're reviewing, that availability seldom nudged much above 60. The differential is a billion-dollar issue. It's one of the reasons why nuclear has not succeeded in this province. Availability is critical.
The life of the assets, and we made reference to that, is also critical. One of the problems we've seen with nuclear is every day is a new day. People thought zirc alloy tubes were going to last for 40 years, and 15 years later they're replacing them at enormous cost. The problem with the technology is that it is not predictable. We have seen assumptions that seem -- when you say 60% or 80%, so what? It's the difference between solvency and insolvency of our generation system.
These are the things that are critical and obviously the agenda, in part, that's before you is to really deal with these. We can supply more information on how the variability of these assumptions impacts on the costs but, as I say, there are technical factors that are really making the whole future of the technology in doubt.
The Chair: I appreciate that, Mr Probyn, and you'll appreciate that for the last few days this committee has in fact been plumbing some of those depths and has been going through those waters with some speed. I would still nevertheless appreciate the assistance of your group to provide that information, if you can speak with the consultant before you go.
Mr O'Toole: Mr Chair, on a point of order: I'm looking at this small brochure. I gather you're one of the sponsors of this conference. I'm asking, through the Chair, if there would be value in members of this committee availing themselves of this?
The Chair: Mr O'Toole, that is not a point of order. It is a very interesting piece of information. You may wish to speak with Mr Probyn.
Mr Probyn: We'd be delighted to have you.
The Chair: Thank you very much. I appreciate your attending upon the committee. We appreciate the evidence provided and we look forward to receiving more information from you later.
Mr Probyn: Thank you very much indeed.
The Chair: Members of the committee, before you go, there are still several items yet to meet about. I want to remind the subcommittee members, if they could wait for a moment, I'd like to be guided by subcommittee on one piece of information that we will deal with shortly.
For the minutes, let me remind members that there has been a response to my letter to the chairman of Ontario Hydro that went out two days ago. It has come back in a timely fashion, and I would ask members to read that.
In this room, I remind members this meeting is still proceeding and I'd like your courtesy. Please, if you'll make note of the letter that's tabled with us by Mr Farlinger.
There is a letter that has been circulated from Mr Gilles Pouliot, which is to be taken in the spirit in which it is forwarded. We appreciate his thoughtfulness. I am a little surprised to see members of the House fighting to be members of this committee, and indeed standing in a row. I appreciated his comments.
Mr Galt: I do hope that it's recorded in Hansard.
The Chair: We will try to keep it out if we possibly can, but we appreciate his thoughtfulness.
The final matter before us is the agenda for next week. This essentially deals with the subcommittee, but since we're all together, I would welcome your input, please. Monday, you will see, is very clearly delineated and I think that's probably agreeable to us all. Tuesday there is still some fine-tuning to work out following Marc Eliesen, and I welcome your thoughts. Then we go to Kincardine for the hearings.
Mrs Fisher: Mr Chair, can we go back to Tuesday?
The Chair: No, I want to get on to Kincardine for a moment; that becomes more important for just a moment. Let me get on to Kincardine and deal with an issue that concerns the timing. We have a request for a number of deputants and we have a request for the amount of time various groups will be meeting. I'm going to ask Donna to very quickly walk us through the recommendation at this point. There may be need for some fine-tuning. If we can deal with that quickly, we can get on to the question of Tuesday.
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Clerk of the Committee (Ms Donna Bryce): The subcommittee members have in front of them a list of the groups that have requested to appear before the committee in Bruce. I've divided it up into three different areas: municipalities, organizations and industry, and there are also employees or individuals who want to appear. What I need the committee to do is decide how much time they want to allocate to the various types of groups.
Mr Laughren: How many hours do we have?
Clerk of the Committee: The committee anticipates meeting Wednesday evening -- it's up to you how many hours you want to meet for -- and Thursday morning, and the committee is planning on heading back to Toronto early afternoon.
Mr Laughren: If I may, that imposes a particular discipline upon us if we're going to hear from the number of people who want to be heard from. It would seem to me, if I were thinking out loud on it, it would be to give communities such as the town of Kincardine and Port Elgin an hour as a lot, given the problems, and give everybody else a half-hour, including the organizations. I don't know how else you're going to get everybody in.
Clerk of the Committee: So you're saying to have the municipalities come together as a group for one hour?
Mr Laughren: For one hour, and then everyone else, since they can't come as a group, by and large, for half an hour.
Clerk of the Committee: What about individuals?
Mr Laughren: It's hard to go less than half an hour, unless you want 20 minutes.
The Chair: I don't think we have enough time. I think we can work in shifts for the night, but we may want to --
Mr Conway: We've done that before around here.
The Chair: We have indeed, and other jurisdictions too, Mr Conway.
Mr Conway: I want Bob Wood on my shift.
Mr Kwinter: Can I suggest that we work it backwards, that we figure out the amount of time we have and know that we have waiting -- I don't mean waiting to do something, but strength -- that the largest amount of time be given to the municipalities, the next to the groups and the least to individuals, and then work out what is a realistic number that gets them all accommodated within the time frame we have available to us.
The Chair: We had been looking at things in the order of, certainly for each individual, at least 10 minutes to make a presentation and have questioning. We've been looking at the employee packages as something in the order of 20 minutes, the mayors 20 each, which is not far off what Mr Laughren is suggesting, and there was a suggestion from Mrs Fisher that we give each group a half-hour. That may be a little more than we want to do for each group, but certainly if we were to say 20 minutes for that group and blend it out from there, it may work out, subject to Donna and I sorting out the final time capacity so that the committee is still very bright-eyed and bushy-tailed throughout the entire hearing.
Mrs Fisher: What's the number of hours we have if we do that for seven hours, if we go with half an hour for each of the municipalities and the organizations, and then put together those at the bottom?
The Chair: We have a total of about six hours.
Mrs Fisher: If we can work a little bit harder and go from, say, 6 to 9:30 and start the next morning at 8:30 and end at noon, we'll pick up the extra hour. That would give each of the municipalities half an hour, that would give each of the organizations half an hour and that would give the group at the bottom an hour to share between them, because they're somewhat represented by the others as well.
We had a special request to have Harold Hergott as a representative --
The Chair: Mr Laughren.
Mr Laughren: My concern is, and I know it's important for people in the local community and I appreciate that, but to have an individual company come forward -- for example, we've tried very hard to have associations come before us in order to accommodate them, and here we're talking about individual companies. I don't know how we can accommodate that. I don't think we're doing them any favour if we prolong this to the point where people lose interest and we're too tired to function anyway.
Mr Conway: I was just going to suggest, on the municipal thing, and I'd be interested to hear from Barb on this, it seems to me that the municipal presentations, I've got to believe, will have a similar core with some variation. I want to spend a good bit of time with them, but I'm just trying to imagine if it would not be useful to have them come as a group, just like that group we had here from IPPSO. That was a pretty varied group, but it's that kind of thing, and it would be close to, I guess, an hour and a half.
I just think it would be more useful to have them as a group and they could decide. We'd want to give them a good chunk of time, but I have a feeling it would be more efficient both for them and for us. If they each come and use time to just repeat ground that somebody has just finished --
Mr Laughren: And questions too.
Mr Conway: -- and for questions, as Floyd says, I think it would be a much more efficient use of time.
Mrs Fisher: In normal practice that would seem reasonable, but if I could explain a little bit of the different nature of even the municipalities, I think it would be helpful here.
Bruce township is the most significant. It is the host community itself. It is a township, not even a town, the host community itself to Ontario Hydro. Between the changes that will happen at Ontario Hydro and the restructuring issues, it has a whole slate of different significant issues, different from the two major host communities in population where the workers live and work.
Where they differ again, then, between Kincardine and Port Elgin is that Port Elgin progressed in a more junior way than Kincardine did in terms of the incoming staffing-up. Therefore, Kincardine has not been affected, I would say, to the same magnitude yet, but will now be, as Port Elgin in the past. When the 708 were laid off, Port Elgin took an exceptional hit on that because they were the junior workers. To be very honest with you, there is a different story to be told there.
The third thing is as a county. When you look at the big picture and how it affects beyond the border of just the lakeshore and the rest of the county, I think that has something to say itself. I don't mean to suggest you wouldn't know that, but --
The Chair: Ms Fisher, I appreciate that. You've very clearly laid out the point and I think the committee appreciates that. Now we'll let members respond to it.
Mr Laughren: I understand local niceties and so forth, but it seems to me, in my mind, you're making an argument for having them all there together so they can explain the differences to us and so forth. Give them a little more time, fine. I'm not trying to cut them out by any stretch of the imagination. I think they're more important in the local community. But I see that as an argument for bringing them together so that there's an exchange there.
The Chair: Let me remind the committee that we will begin the hearings at 7 pm on the Wednesday night and we'll go through until 10 pm, and we'll meet again from 9 until 12:30 on the Thursday. Within that period of time, we're trying to fit as many people as we possibly can in the most appropriate fashion. When we arrive there, of course, there is sufficient time that is necessary for this committee to do the appropriate visitation, ask the appropriate questions and then move itself to the location for the hearings.
There's just a physical impossibility of going beyond certain numbers of hours unless we're prepared to go late into the evening, which is often an abuse of those who wish to come and speak to the committee as well. My guidance for you is to try and do the grouping as suggested and to be as generous as we possibly can, but individuals themselves have a right perhaps to say they would like to have at least a few minutes to speak to the committee and present themselves.
Mr O'Toole: This is somewhat related. I'm looking at a format for the correspondence for the region I'm involved with. I think the roles are somewhat different, but just for the sake of the committee, I think the structure for Donna perhaps inviting people directly would be the region of Durham, which looks after the whole Durham. There's a common emergency plan and all those kinds of things. That's a regional issue that could be dealt with at either site depending on where we have the most time, but it does not need to be dealt with at both sites.
The next would be the host community, of course, Pickering. There are some different issues in Pickering. The other one, the Darlington, is Clarington. Within Pickering there will be people perhaps from Whitby and Ajax who want to get involved somewhat, but I think it should be the host community in my area, for the sake of giving the municipal perspective. If the Ajax mayor has an issue, they can share the time. That's their issue.
Mr Conway: How is our list looking for Ajax and Pickering? We had three or four people on it. Has it gotten bigger?
Mr O'Toole: I would appreciate seeing the list. I have not seen it. I can help, because there are a number of players. If some of the louder voices are not on there, I can probably tell.
The Chair: I'm obviously trying to focus on next week principally. Pickering is important and that comes the week following. The best I can offer, then, is to take the guidance that I've heard today and try to keep us within the parameters of the hours that we've got here. Unless I hear to the contrary from members of this committee, it is from 7 until 10 and 9 until 12:30. Unless I hear opposite to that, that's the time I propose to stay. We will try to keep in mind the balance with mayors and so forth.
Mr Conway: One of the things I think we can do too -- this coming from me should be a major admission. It will be really important for people to make presentations. As we work our way down the list, it may be that the time for questions doesn't have to be as extensive.
The Chair: A matter of self-discipline.
Mr Laughren: I was just going to ask if all the people on this list had been told that they will be on the agenda. They haven't been?
The Chair: No.
Mr Laughren: I go back to my point about an individual company. I don't know why we have an individual company allowed to make a presentation to the committee. It's incredibly self-serving and gives them -- I mean, other companies won't have the same right. Okay, they got in there and put their name in, fine, I appreciate that, but I just don't like the idea of an individual company making a pitch.
Mrs Fisher: I'd really like to address that. I was hoping to get back to that. There are four companies listed here. I haven't talked to these people so I wouldn't know, but I can tell you why the three bottom companies are there: They are fed by the steam line from Bruce A. Their whole business is in jeopardy, their whole livelihood is gone if something isn't done.
Mr Laughren: Can we put them together?
Mrs Fisher: They're in the Bruce Energy Centre, and I think they have an absolute dependency here.
The Chair: Thank you, Ms Fisher. I appreciate that. May I, then, facilitate matters for the committee. You know I will try to do the very best I can; you know I will try to be as accommodating as I can. I have listened to all of the presentations and I will try to sort this one through to the best of my ability. Will you find that acceptable? Thank you very much. I think we've dealt with this matter. I will then do the best I can, seeking able help from the Vice-Chair if I require it.
Any other business to come before this committee? All right. The committee will stand adjourned until 1400 hours on Monday, October 27, and that will be in closed session.
The committee adjourned at 1712.