POWER CORPORATION AMENDMENT ACT, 1991 / LOI DE 1991 MODIFIANT LA LOI SUR LA SOCIÉTÉ DE L'ÉLECTRICITÉ
ASSOCIATION OF MAJOR
POWER CONSUMERS IN ONTARIO
DOW CHEMICAL CANADA INC
J. E. MURPHY HEATING AND AIR CONDITIONING
LEAMINGTON PUBLIC UTILITIES COMMISSION
ENERGY AND CHEMICAL WORKERS UNION
SARNIA-LAMBTON CHAMBER OF COMMERCE
WALLACEBURG HYDRO-ELECTRIC SYSTEM
CONTENTS
Tuesday 28 January 1992
Power Corporation Amendment Act, 1991, Bill 118 / Loi de 1991 modifiant la Loi sur la Société de l'électricité, projet de loi 118
Association of Major Power Consumers in Ontario; Dow Chemical Canada Inc
Ron Johnson, manager, government affairs Ontario, Dow Canada
Don Dukes, manager, safety, health and loss prevention, Dow Canada, Sarnia
J. E. Murphy Heating and Air Conditioning
John Murphy, president
Dan Lenover, president, Handy Brothers Heating and Air Conditioning
Leamington Public Utilities Commission
Robert Leslie, chair
Homer Vandervecht, general manager
Energy and Chemical Workers Union
Frank Kane, vice-president, Local 633
Bryan van Rassel, Ontario coordinator
Sarnia-Lambton Chamber of Commerce
David McGarry, chairman, energy committee
Grassroots Woodstock
Albert Hardeman, president
Union Gas Ltd
John Bergsma, senior vice-president
John van der Woerd, manager, marketing
Wallaceburg Hydro-Electric System
Ted Oliver, general manager
Neil McKay
Subcommittee report
Adjournment
STANDING COMMITTEE ON RESOURCES DEVELOPMENT
Chair / Président: Kormos, Peter (Welland-Thorold ND)
Vice-Chair / Vice-Président: Waters, Daniel (Muskoka-Georgian Bay/Muskoka-Baie-Georgianne ND)
Arnott, Ted (Wellington PC)
Cleary, John C. (Cornwall L)
Dadamo, George (Windsor-Sandwich ND)
Huget, Bob (Sarnia ND)
Jordan, Leo (Lanark-Renfrew PC)
Klopp, Paul (Huron ND)
McGuinty, Dalton (Ottawa South/-Sud L)
Murdock, Sharon (Sudbury ND)
Ramsay, David (Timiskaming L)
Wood, Len (Cochrane North/-Nord ND)
Substitution(s) / Membre(s) remplaçant(s):
Conway, Sean G. (Renfrew North/-Nord L) for Mr Ramsay
Clerk pro tem / Greffière par intérim: Manikel, Tannis
Staff/ Personnel: Yeager, Lewis, Research Officer, Legislative Research Service
The committee met at 1300 in the Wheels Inn Resort and Conference Centre, Chatham.
POWER CORPORATION AMENDMENT ACT, 1991 / LOI DE 1991 MODIFIANT LA LOI SUR LA SOCIÉTÉ DE L'ÉLECTRICITÉ
Resuming consideration of Bill 118, An Act to amend the Power Corporation Act / Projet de loi 118, Loi modifiant la Loi sur la Société de l'électricité.
ASSOCIATION OF MAJOR POWER CONSUMERS IN ONTARIO
DOW CHEMICAL CANADA INC
The Chair: It is 1 o'clock, which is when we are scheduled to start, so we will. The first group participating this afternoon is the Association of Major Power Consumers in Ontario. We have 30 minutes for you, gentlemen. We expect to hear your comments of course. Please try to keep them under 15 minutes so that you reserve at least 15 minutes for questions and discussion, which is an important part of this process.
Mr Johnson: My name is Ron Johnson and I am the manager of government affairs, Ontario, for Dow Chemical in Sarnia. It is my pleasure today to accompany and introduce Don Dukes. Don is the manager of our safety, health and loss prevention activities at the Sarnia division, also the hydrocarbon wells operation. He will be making a presentation today on behalf of Dow and AMPCO. Although he is manager of safety and loss today, Don spent many years and is still involved with both the consumption and production of power at our Sarnia division. He is well qualified to speak to the subject of power generation and cost.
Mr Dukes: As Ron said, my name is Don Dukes and I represent the Sarnia division of Dow Chemical Canada Inc. As a member of the Association of Major Power Consumers in Ontario, commonly known as AMPCO, Dow believes in the group's mandate to obtain for its members economic and reliable power produced in an environmentally sound manner. Like other AMPCO members, which I am sure you have heard previously, we believe the provisions in Bill 118 counter this mandate and consequently should not be approved.
A little about our background: Dow Chemical Canada Inc is a wholly owned subsidiary of the Dow Chemical Co based in Midland, Michigan. This year we celebrate Dow Canada's golden anniversary of operations in Canada. We came in, along with Polymer, as part of the Second World War effort to help overcome the rubber shortage. Our corporate headquarters are located in Sarnia. We have four manufacturing operations located in the province as well as in Alberta and Quebec. Dow's decision in the late 1940s to expand in Sarnia, Ontario, was driven partially by the availability of a plentiful supply of power at competitive rates. Granted that was not the whole reason, but it was one of many.
The Sarnia division manufactures plastics and basic chemicals which are sold to both domestic and export customers for use in end products such as refrigerator linings, automobile applications and many others. For industries like Dow to survive in Ontario, we must be able to look beyond our neighbours and trade competitively in a global marketplace. To help us with that we must have economic power.
Looking at our cost and competitive position, over the years Dow Canada's competitiveness has been challenged in part by the ever-increasing cost of power. In 1991 power consumption at the Sarnia division averaged approximately 140 megawatts, of which we bought about 10% from Ontario Hydro. Over the years we have countered this growing cost by generating our own power through a very efficient cogeneration process. However, to remain competitive, Dow Canada and our customers rely on Ontario Hydro to provide power at competitive rates.
Further efforts have been taken in the past two decades to increase Dow's energy efficiency, lower costs and improve environmental performance. For example, we have had a very active energy conservation program over the years and have been participating in the voluntary Canadian industry program for energy conservation, known as CIPEC, reporting system, which is sponsored by the federal Department of Energy, Mines and Resources. This program covers all forms of energy, not just electricity, and uses a conversion factor of 10,000 BTUs for each kilowatt of electricity purchased.
Just to explain for people who may not understand that, it goes back to the basic fuel used to generate the electricity in something like a fossil-fuel station, such as the Lambton generating station. It allows for the efficiency of generating electricity. In measuring our energy efficiency, everybody in this program goes back virtually to raw fuel. If we do it internally, we take the actual efficiency of our plant.
Referring to Bill 118, proposed changes in Bill 118 threaten the competitiveness of AMPCO member companies. This in turn threatens the economic stability of the communities in which we operate by jeopardizing employment, new industry and future investment. At a time when a record number of Ontario manufacturers are closing the doors or moving their production sites outside of Ontario, we must dedicate our efforts to minimizing, not increasing, costs.
There are three elements of the proposed amendments to the Power Corporation Act which cause particular concern. The first one relates to the principle of power at cost. The principle that the people of Ontario should pay for the costs of generating and delivering electricity and only those costs must be preserved. Already Ontario has some of the highest power rates in Canada. Indirect taxation by means of charging Ontario Hydro water rentals and debt guarantee fees already add significantly to the cost of electricity.
If passed, Bill 118 will enable the government to direct Hydro to include in its rates the cost of programs not directly associated with the generation and transmission of power. For example, in the case of Elliot Lake and Kapuskasing, Ontario Hydro has already been directed to commit something in the order of $500 million in community support. This represents a 5% increase in rates, based on Ontario Hydro's projected revenue for 1992. Granted it is not all being charged in 1992. This is just an equivalent example.
We oppose this. We sympathize with the plight of these many communities hit hard by the recession, but we feel that Ontario Hydro is not a social assistance institution. Any of its revenues for this purpose are misdirected, in our opinion. The Ontario Energy Board supports our position in its report on the Ontario Hydro rate hearing, HR 20. This is the one held last year. On page 188 of its report it states, "There is a general principle for public utilities that social policy initiatives should be left in the domain of government rather than reflected in the rates charged by public utilities."
The next item I would like to address is directors' accountability. The role of any board of directors, not just Ontario Hydro's, is that of a watchdog. They challenge new policies in the interest of the various stakeholders and manage change in the light of organizational values and mandates. Under the proposed changes to section 9a of the Power Corporation Act, subsection 9a(1) states, "The minister may issue policy directives that have been approved by the Lieutenant Governor in Council." Subsection 9a(3) goes on to say, "The directors shall ensure that policy directives are implemented promptly and efficiently."
In addition, subsection 9a(4) states, "A director is not accountable for any consequences arising from the implementation of a policy directive." To excuse an Ontario Hydro director from accountability for "consequences arising from the implementation of a policy directive" as long as "he or she acted honestly" is to remove responsibility to the very people it serves: ratepayers and ultimately the general public. In our opinion, this proposed change should be rejected. Without a body in place representing stakeholder interests, we are vulnerable to government directives on key policy matters at the expense of the ratepayers.
Finally, on fuel switching, Dow generally opposes any provision forcing Ontario Hydro to finance the cost of switching to fuels other than electricity. This runs counter to the principle of power at cost because ultimately ratepayers will be funding this subsidy through higher electricity bills. If switching to alternative fuels such as natural gas makes sense given the situation, we support such a move. Businesses which can economically justify switching, in this case, the gas companies, should be encouraged to subsidize the move instead of Ontario Hydro. Everyone from AMPCO companies right through individual home owners will be forced to swallow the costs of Ontario Hydro subsidization without necessarily benefiting from it.
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Dow is just one company you have heard from during these hearings that has dedicated time and resources over decades to become more energy-efficient. But reducing electricity consumption is not the only way to achieve this goal. Often a total energy conservation program can result in the demand for extra electricity. For example, as you already heard at a previous hearing, Inco has reduced its total energy use by 23% since 1981, but in doing so its net use of electricity has actually increased. They still have a net energy reduction, though.
At Dow, the Sarnia division used 40% less energy in 1990 for each pound of product produced compared to equivalent pounds in 1972. The decision to increase energy efficiency by using different forms of fuel should be up to the individual user. It should not be legislated on us at our expense.
In conclusion, the potential for Dow Canada, the chemical industry and other members of AMPCO to remain a vital part of Ontario is being jeopardized by uncertainty surrounding government policies on economics, labour, environment policies and the subject of this hearing, the supply and cost of energy. In the case of electrical power, we believe Bill 118 will adversely affect the principle of power at cost and consequently the competitive position of Ontario industry. In our opinion, it should therefore be rejected. I thank you for the opportunity to present this brief.
The Chair: Thank you, gentlemen. Before we move on to questions, new people have come in and I would simply ask them to note that there is coffee and juice and perhaps tea against the wall there for you. Make yourself at home and feel free in pouring yourself some.
This committee is a standing committee of the Legislative Assembly. All three parties are represented here. Among the Liberal caucus is Dalton McGuinty, the Energy critic for the Liberal Party; among the representatives of the Conservative Party caucus is Leo Jordan, the Energy critic for that party, and among the persons here on behalf of the New Democrats, the government caucus, is the MPP for Sarnia, Bob Huget, who is the parliamentary assistant to the Minister of Energy. We try to divide the time equally among the three caucuses for questions and conversation.
Mr McGuinty: Thank you, gentlemen, for your presentation. One of the opinions offered yesterday by a witness who appeared before the committee was that major power consumers are energy gluttons. It would appear from the information that you have provided in here that this is not in fact the case in the sense that it seems to me that you have been motivated by dollars, a very powerful force, which is compelling you to take advantage of every reasonable advantage that would lend to greater energy efficiency usage. I would like you to comment a bit on that for me, please.
Mr Dukes: I agree that the drive now has very much become dollars over the past 10 or so years, but if you go back initially to the early to mid-1970s, the oil crisis about that time I think really got all of our attention and initiated a lot of the energy conservation programs. If you refer to the year-over-year results in CIPEC which cover various sectors -- granted this is Canada-wide -- you will see that all industries have been very active opposite energy conservation. Speaking for my own company at the present time, yes, the drive to save dollars is a very big factor, because we are looking at any way we can remain competitive. Energy conservation is definitely one way of saving money.
Mr McGuinty: For instance with the Dow plant in Sarnia here, what further inroads could be made? What are you not doing that you could be doing?
Mr Dukes: We are getting down to some very hard things now. If I can just back up a bit, we have done the easy things. There are things we are doing on an ongoing basis. Where we get any new motors, they are going to be high-efficiency motors. If any new lighting schemes are put in, we will certainly look at the highest-efficiency lighting schemes going around. A lot of the easy things, like simple steam trap maintenance, we have looked after. It is getting to a stage where we are having to really look at technology which can use major dollars for the next stage of energy savings.
Mr McGuinty: Ontario Hydro recently amended its demand-supply plan, which is going to attempt to establish the needs for meeting our electricity requirements for the next 25 years. They call it an update, but I think technically it is a very significant amendment. Whereas Hydro was telling us in 1989 we would be able to conserve some 5,700 megawatts, now they are telling us we can almost double that. We should be able to save 9,900 megawatts, and as a result, we have been able to forestall or delay construction of large supply plants. Can you comment on that? Do you feel that is reasonable or unreasonable? Do you think we could be conserving more, or whatever?
Mr Dukes: I am really concerned about it, because I think it is an overambitious target. This is one of the most ambitious programs ever put together in North America. I will not say compatible, but near-compatible programs, have struggled. At the last AMPCO board of directors meeting we were talking to some representatives from Hydro regarding the contingency plans if they do not meet those targets in a timely fashion. We have some concerns that they had sufficient plans in place. We personally feel those targets are overambitious. They are not based on fact.
Looking at the various sectors, industry has done a lot so far. In answer to your previous question, in common with a lot of people, it is technology we are going to be getting into to make changes. Some of the strides that could be available are in the commercial and residential sectors. I am not sure how landlords or individual home owners are going to react to such programs, because they are very much on a voluntary basis.
Mr McGuinty: I want you to tell me what you think would be the reaction of shareholders in your corporation if you were to tell them that the directors were to be absolved of liability if they were performing certain kinds of actions.
Mr Dukes: There would be very much a loss of confidence in the board. I do not think the shareholders could believe that sort of thing could happen. They look on the board of directors as their representative on the decision-making body.
Mr Arnott: Thank you very much for your presentation this afternoon. You said that about 90% of the power used by Dow Chemical is supplied by yourselves through a cogeneration process. Could you tell me more about how your cogeneration process works?
Mr Dukes: Yes, we have two gas turbines which actually produce power themselves; they drive generators. They feed into waste heat boilers that would produce steam and also feed water heating to help some fire boilers. The resulting high-pressure steam is then passed through two steam turbines, exhausting at the pressure of steam required in our plant. All the steam produced is either used in our plant or in some small quantities actually sold to our neighbours. Out of that result is a supply of electricity which, as I mentioned, supplies 90% of our needs at an efficiency somewhere between 75% and 80%, compared with an efficiency of an average fossil-fired station of about 38%.
Mr Arnott: Could you envision a time, say, if Hydro rates went up 44% in the next three years, that you would find it economical and consider expanding that cogeneration process?
Mr Dukes: It certainly would be looked at. We have one gas turbine mothballed at the present time. We are taking an active look at what we should be doing over the next few years. We have no definite plans as yet, though.
Mr Arnott: An observer looking at your situation fairly superficially might conclude that if you are supplying 100% of your own electricity needs, then the rate of power should have no bearing on investment decisions made at your plant. Would that person be wrong?
Mr Dukes: I think so because, first of all, we are not supplying all our power at the present time, so the next increment of production is using Ontario Hydro's power. The second thing is that we produce things used by other people in their processes. In order for us to be competitive we have to have competitive customers. Unless they have a competitive power supply, they are not going to be our customers in the long run.
Mr Arnott: Your parent plant is in Michigan. Does it pay less for electricity than we do in Ontario?
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Mr Dukes: I am not sure of my facts here, but I believe they still pay more.
Mr Jordan: Thank you for your businesslike presentation relative to Bill 118. Going to the directors' accountability, thinking about it and taking into consideration that Ontario Hydro has a research division, an engineering division and an environmental section, who is going to have the input, steering and direction of Ontario Hydro? The directors are not accountable. How do you see this thing working?
Mr Dukes: In very simplified terms, government is going to provide the input, and the engineering and the research and development groups are going to do as directed. It gives me a great deal of concern. I feel Ontario Hydro has a very competent set of engineers. They certainly know their business in the generation and transmission of electricity. I would have thought they would have been the people recommending stuff to the board of directors and, from that, the board making economic decisions and what it feels is good for Ontario Hydro and the people of Ontario, being a crown corporation. Does that answer your question?
Mr Jordan: Yes, it does. Government is not just made up of the party with the majority. To me, government is made up of all three parties. Do you not think it would be a democratic requirement that any policy directive should come through the Legislature rather than just a direct bypass?
Mr Dukes: The simple answer is yes, I do.
Mr Jordan: I understand, though, by this policy in Bill 118, that is not going to happen.
Mr Dukes: I read it the same way you do. The Minister of Energy, through an order in council, goes directly to the board and bypasses the Legislature.
Mr Jordan: So once he takes a directive to cabinet and has cabinet approval, it becomes an order. They must carry it out effectively, immediately and they do not necessarily have to be accountable.
Mr Dukes: That is the way I read Bill 118.
Mr Jordan: Do you think the bill can be amended or should it be withdrawn?
Mr Dukes: I think there are enough flaws in that bill that it should be withdrawn and you should start from scratch again, if necessary. I am not even sure it is needed.
The Chair: We should say hello to Jim McGuigan, the former member for Essex-Kent. Thanks for your interest. You have sat on many of these.
Mr Huget: Thank you both for your presentation. It is nice to see both of you again.
I want to start off with the Elliot Lake issue. You mention in your presentation that you are sympathetic with the plight of many communities hard hit by the recession. The recession has nothing to do with Elliot Lake. Elliot Lake is a creature of Ontario Hydro. If you can assume or agree with that for a split second, would you not feel that Hydro has some corporate responsibility in Elliot Lake on its way out the door, since Elliot Lake is a creature of Hydro?
Mr Dukes: It is not really a creature of Hydro, it is a creature of uranium. The way I understand it, Elliot Lake went into a commercial arrangement with Ontario Hydro with certain provisions in the contract. Ontario Hydro has not violated the terms of that contract. It has given due notice. We have gotten to a stage where this community is falling on hard times because it has been a one-industry community. I believe if help is needed it should come from the government, not through the ratepayers of Ontario Hydro.
Mr Huget: You mention in your presentation that any use of revenues for purposes like Elliot Lake are misdirected, in your opinion. Would the several times the world price Hydro was paying for uranium out of Elliot Lake be a misdirected use of revenues?
Mr Dukes: It was commercially negotiated. I do not think it was negotiated as a social factor. Granted I would much rather see Ontario Hydro buy uranium at the world rates, which would again reduce the actual cost of power. As far as I could tell, and I am not too familiar with the negotiations, it was a commercial negotiation, not really a negotiation to subsidize the community of Elliot Lake.
Mr Huget: I want to move on to the potential for energy conservation and efficiency in industry. I have the view that there is a lot of potential. I would like your views on that. You mentioned specifically some of the things Dow Chemical has been doing, but I know you have a broader experience than that and I would like you to tell me whether energy efficiency and the goal of making Ontario the most energy-efficient jurisdiction in North America by the year 2000 is worth pursuing.
Mr Dukes: I think it is worth pursuing. Whether the levels of energy conservation that have been forecast can be met is the one I disagree with. For the economy of Ontario, I agree with your philosophy that we need to be energy-efficient. We cannot afford to waste energy. A lot of the forms of energy are not there for ever, among other things.
As I mentioned to a previous questioner, a lot of the easy things in industry, whether Dow or other industries, have been looked after. We are getting into things where it is going to take technology change and a lot of money to do it. I am not saying there is no room for improvement; I think there is still room in all our plants. If we look hard, we can find some things. I think you know from your own background, looking at your previous company, that there is room, but it will have done a lot, the same as Dow Chemical and many others. If you read the annual reports the Canadian industry program for energy consumption group put out, you will see there have been a lot of strides made by industry in all classes. As I mentioned previously, I feel a lot more can be gained on the commercial and residential side than in industry today.
Mr Huget: Would I be safe in assuming that overall it is a goal worth pursuing from an industrial competitiveness point of view and a consumer point of view?
Mr Dukes: It saves dollars, as I was just saying to Mr McGuinty.
Mr Huget: One final point: I would like your opinion on whether you would agree that building excess supply represents extra costs, like having extra inventory.
Mr Dukes: Yes, I would agree on that.
The Chair: Thank you very much. These hearings have been taking place throughout Ontario for the last few weeks and the committee has been very impressed -- perhaps not surprised, but none the less impressed -- at the amount of interest the bill has generated and the wide range of views covering the whole spectrum of opinion. You have made a valuable contribution and you obviously piqued some interest in some of the issues you have raised. We appreciate that and are very grateful. Please feel free to remain for as long as you wish this afternoon.
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J. E. MURPHY HEATING AND AIR CONDITIONING
The Chair: The next participant is J. E. Murphy Heating and Air Conditioning. Please seat yourself and tell us anything you want about who you are and your business. We have 30 minutes. Please try to give us at least 15 of those 30 minutes for questions and dialogue. I understand you are John Murphy.
Mr Murphy: I am John Murphy. I am here today in two capacities. I am the president of J. E. Murphy Heating and Air Conditioning in Windsor, Ontario. It is a family business that has operated in Windsor for 70 years, generally doing residential heating and air-conditioning work. I am also the president of the Heating, Refrigerating and Air Conditioning Institute of Canada, Essex-Kent-Lambton chapter.
I would like to make five points of concern to the changes in Bill 118, what they would mean to me as a contractor and what they would mean to us as a group that I represent.
I would like first of all to commend the study committee for inviting me here. I feel it is to your credit that you listen to all facets of the industry, and I intend to give you my views. As a heating contractor and as the president of the local chapter, I am in agreement with Bill 118 in regard to its ability to offer incentives to people to get off electricity for the purposes of home heating.
As a group, we became aware of Ontario Hydro's problems with meeting future demand for electricity about a year ago. We had representatives of Hydro come to visit our group. They explained to us then and showed us by means of a graph where the demand was going, where the supply was going and what could be expected in future if things are not done to address the problem, so we have been aware of this for a while.
Not only that, but I would guess that most people in the heating business have been aware of the cost disadvantage of using electricity for home heating for at least 10 years, if not 15. It has always been a higher price to pay for electric heating. Installation costs can perhaps be lower, but the higher price for electricity has been evident to us for some time.
In our opinion, Bill 118 allows utilities to promote the conservation of electricity, but also provides for promotion of other fuels which are more economically suited to home heating. In other words, it gives Hydro the incentive to say, "We believe in the right fuel for the right job." Certainly it has been proved that electricity is not the right fuel for the purposes of home heating. We are suggesting that other forms, perhaps fossil fuels in general, be used rather than electricity, basically because of the price advantage per BTU bought. We pay a certain amount of dollars per BTU of heat for electricity, and considerably less for other fuels.
Most home owners heating with electricity are already aware of the high costs they pay for heating. Switching to an alternative fuel will save them money. We wonder, first of all, if this is incentive enough. People who heat their house with electricity are aware of the amount of money they have to pay and budget for to heat a house. We have done some conversions from electricity to natural gas in the form of natural gas high-efficiency furnaces, and in some cases have seen the home owner's fuel bill or electric bill drop by 50%. It reduced the overall energy bill as much as 50% in a house.
Talking from the contractor's viewpoint, this program will mean a tremendous increase in the demand for energy-efficient heating systems and a subsequent increase in business during this difficult time for all those in the residential heating business. I might say that, in general, anybody who happens to be a contractor at this time is experiencing a downturn of business. In fact, it more than likely occurred a year ago, if not longer, and we have not seen it come back. I feel this is a tremendous opportunity for those of us who have been struggling over the last year and a half to perhaps gainfully employ some more people and, if not, to at least keep everyone whom we employ at the present time fully employed.
We also believe that incentives should be offered to the home owner to convert. Depending on the type of heating system the person has now, there can be a very large capital cost involved in changing the heating system over to a forced-air situation. I believe, for this reason only, that it is important to give some people an incentive to do this. Other than that, they may not have the necessary funds to put this program into use. I feel it should be in the form of either a direct cash incentive or some type of reduced-interest loan, some type of incentive for the people to do it. Other than that, they may not have the capital or the funds to do it.
The program sounds great. We want everybody to change, but unless there is this type of incentive, I do not think it will happen. I also think the bills they have been getting are incentive enough for anybody to change. That will make up your mind quickly that you want to do it. Whether you can do it is a different situation. I think there is a case to be made that the incentive should be offered for that reason.
This is the extent of my arguments in favour of Bill 118. I would like to thank the committee for this opportunity to address them and will of course entertain any questions you might have at this time.
The Chair: Thank you, Mr Murphy. Mr Arnott, seven minutes.
Mr Arnott: Thank you, Mr Murphy, for your presentation. I do not think I have seven minutes worth of questions, but I appreciated your viewpoint. You bring a new perspective to this committee.
I think you mentioned earlier in your presentation why market price of energy in itself is not enough to convince some people to convert, and you suggested later on that you felt incentives were required. I do not understand why incentives are necessarily required. If a better educational campaign were launched first to make people aware of the difference in cost, would that not be a prudent way to go at the start?
Mr Murphy: Again I have to say that in the last 20 years of being in business, I have tried to convince anyone to whom I have talked who has heated with electricity that this is a very expensive way to heat your home. As far as a campaign is concerned, it is fairly evident to people who do heat with electricity that they should change to a different fuel, because they are paying more. I am not so sure it would be worth the effort and the money spent on just a campaign to get it done. I would rather see actual policies in effect and given to the heating contractor to say: "Here is the package for the home owner. Put an ad in the paper and tell everybody that you have these available."
I was around when the federal government had the off-oil program, an $800 rebate for things like that. The federal government did extensively advertise it, but it was up to the individual heating contractor to fill out the paperwork, explain the program and find out what was eligible and not eligible. I think that is where you are better off spending money, rather than a giant campaign and then sitting back and waiting. I believe you would not have any heating contractor now who would not participate, would not want to advertise, would not want to tell people that "I am in the business of offering this to you."
Mr Arnott: Do you deal in oil and gas conversions?
Mr Murphy: I used to sell oil furnaces. I no longer have an oil burner service mechanic. He died approximately 12 years ago, so we have gradually depleted our oil burner work. In my opinion, it is an old technology, and you are finding few and far between service people to do it. Granted there are a lot of farm communities that have only oil, and they are serviced well by those people in the area, but as far as the switch to oil is concerned, I am not of the opinion that it is the best idea.
Mr Arnott: If the government were to offer incentive programs, would it not be most fair to include oil and natural gas?
Mr Murphy: By all means. Gas pipes do not go everywhere, and not everybody wants to contend with a propane tank on the lawn and things like that. They have had an oil furnace in their house for the last 40 years; Dad had one in his place. By all means, I think all three fuels should be incented.
Mr Dadamo: Thank you very much, Mr Murphy, for making the trip to Chatham. You were talking about incentives and the need to switch to other means of heat for homes and establishments. How much money would we have to assemble in order to show people, to make the conversion over from electricity to what?
Mr Murphy: That is a good question.
Mr Dadamo: It is a lot of money.
Mr Murphy: In terms of how much, it seems to me that when the off-oil program was going, the federal government decided that the average changeover would cost $1,600, and it would pay up to half of that. I think there should be a maximum put on it in regard to a cash rebate. My point is that some of the houses already have electric, forced-air heating systems. You are talking about a lot less money to convert that to a natural gas system or an oil system or another fuel than a house that has, for example, radiant cable heat or baseboard electric heat. To convert those kinds of homes, you are looking at a lot more money.
As far as the incentive is concerned, I am not so sure it would be a direct cash incentive that would move these people enough to do it rather than something like a low-interest home-owner loan or a long-term loan that they could take advantage of, because you are talking a lot of money. But to answer your question as to how much money, I cannot give you a figure that I think would be enough or too little or anything. I have no idea.
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Mr Dadamo: I am just thinking that if a family of four or five had to come up with that $2,000 to $3,000 to make the conversion, I would think it is a lot of money.
Mr Murphy: It is a lot of money. Manufacturers offer rebates for spring and fall promotions, and a lot of times cash incentives in that case. A lot of these things can be combined, and I think the home owner could come up with a large chunk of change in response to incentives.
Mr Dadamo: I was just going to say, not to sound negative or anything, that a lot of us would rather stay with the status quo, not make the change to anything and stay with what we have.
Mr Murphy: That is my point. That is why there should be incentives. To me it is not a matter of whether you do it or not; it is when you do it, because of the fact of where we are. Like I said, our trade association attended this meeting put on by Ontario Hydro. They showed us what we can expect in the future as far as supply and demand are concerned and we were quite shocked. That is why, as I said, any heating contractor today is going to let you know what the score is, and that is an incentive in itself.
Mr Klopp: Thank you for coming out today. The point about the incentives, the loan or guarantees, or help, I like that idea. You talked about how for the last 10 or 15 years many of you people have been sounding the horn that electricity, for the cost and in the long-term range, has been something that is totally wrong. Yet Ontario Hydro people tell us that we should not be pushing Bill 118, to steer them in this direction, because it is a crown corporation and it is going to look out for the best interests of the ratepayers of Ontario. Why has Ontario Hydro, with all its engineers and all those people -- I am sure you talk to them in your associations -- not picked this up five or 10 years ago?
Mr Murphy: I do not know why they have not. I think they have done what they could. I do not know the exact, whole substance of the existing bill. Perhaps they have done what they could in incenting people to buy ground source heat pumps and things like that to in fact convert heat at a much more favourable rate than straight resistance heat. As to why they have not done this more, they are a crown corporation, but they do have a board of directors and shareholders and they do have to make money. I do not know. I cannot speculate. You know what I mean? I do not know why they have not. The facts are there. It is not a mystery that heating with electricity costs more money than heating with a fossil fuel.
Mr Waters: I have a couple of questions. One is that you mentioned that manufacturers and so on right now subsidize or have plans for incentives for people to switch.
Mr Murphy: Spring and fall promotions.
Mr Waters: Do you feel that would change if Hydro were to offer incentives for switching?
Mr Murphy: No.
Mr Waters: So you think they would be there as well?
Mr Murphy: Certainly. There is always a need, especially in the spring and in the fall, for some type of incentive for people to do something to change the furnace for the home improvement market. These are typically slower times, rather than the summer and the immediate need winter brings on for heating.
Mr Waters: If you could for a moment take off your plumbing and contractor hat or your installation hat, as a taxpayer, if 32 schools out of 654 buildings in Metro Toronto's school board were to switch, and they are looking for an incentive to switch, there would be a net savings in that 32 alone of $1.76 million a year, they are estimating. As a taxpayer, to me, if you were to move the schools that way, you would not have to build another megaproject. You would save a megaproject and Hydro would save that. As a taxpayer, looking not only at your hydro rates but your education dollars, do you think it would be a good move to issue that kind of incentive to those school boards?
Mr Murphy: Yes. Any other large user of electricity I believe should also be incented to make the change where they can. I just think you have to take the future into perspective when you are doing this. In the long run, we are going to be better off if we are using the right fuel to do the right job, and as far as heating is concerned, electricity is not the right fuel. I think everyone would be concerned with how much money they are going to save if we institute this kind of program. I am sure; there is no doubt about it, especially when the school boards are faced with zero per cent increases now. If they can get something that is going to save them, and in the long run probably make them some money, because it is money they will not have to spend on heating, I say that is incentive as well. I think it is a good idea.
Mr Waters: Maybe I am asking the wrong person, but I will ask you anyway. The gas industry has been pretty much a leader in energy efficiency units. They came up with I guess the first high-efficiency furnace. Do you see down the road any more changes, major changes or efficiencies gas could work on, or do you think under this bill they will sit there and ride on their laurels?
Mr Murphy: At the present time most manufacturers make a furnace that is between 93% and 96% efficient. You cannot make 100% efficient gas furnaces. You have to have some type of emission that goes on, and when you have that you lose some efficiency. You do not get all the heat out of the natural gas, or the fossil fuel for that matter, that is burned. They may make some minor improvements, but you are not going to see the major improvement that was done eight or nine years ago from a 65% steady-state furnace up to the present 96% efficient furnace. Does that answer your question?
Mr Waters: I was thinking more in the line of, let's say you like your bedroom at 60 degrees and you like your living room at 70.
Mr Murphy: That is in place now.
Mr Waters: But it is pretty well leading-edge technology right now, I feel.
Mr Murphy: It is leading-edge technology in the fact that not everybody can buy it and it is not really accessible to all contractors. They have to have specialized training and specialized technicians to offer it. But you can effectively get a house now that will maintain four, five, six or seven zones in any room you want on specific thermostats.
That is more a comfort concern and also a bit of an efficiency concern, because of course you are not heating all rooms to the same temperature so you are going to notice a reduction in your bill. But it is more comfort and a logistical point now being made for people. In other words: "I want my bedroom 68 degrees all the time. I don't want it any warmer than that, that's the way I like it. And other parts of the house I want warmer at different times of the day."
Mr Waters: This is out of curiosity because I represent Muskoka, where we have a lot of wood-burners. We also have gas, and I have heard of oil and gas or oil and wood, electric and wood. I do not know whether I have ever heard of gas and wood and I was wondering if they made such a thing.
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Mr Murphy: To my knowledge it is not, but I do not sell or market any kind of oil-wood combination-type furnaces. I know there are a couple of manufacturers in Canada, but whether or not they have a gas and wood unit I do not know.
Mr Waters: It was just curiosity more than anything.
Mr Cleary: Some of my questions have already been answered, but I do have another one to Mr Murphy. You say you support incentives to switch, mostly to gas. I do not disagree with you, but what do I tell the people in rural Ontario where they have no natural gas and they are probably going to see their hydro bills go up substantially? What do I tell those people?
Mr Murphy: I do not want to slant the argument. I am of the opinion that gas is probably the best fuel for heating a home, but I am aware of the fact that where natural gas is not available, obviously if there is no pipe that goes down the street, they are not going to have natural gas for a while. I think incentives should be from electricity to oil or from electricity to propane or to natural gas.
Mr Cleary: So you would support any incentives, as long as you switch from electricity?
Mr Murphy: Yes.
Mr McGuinty: What is the average cost for conversion from electric space heat to natural gas, assuming we go with midlevel efficiency and the duct work is there?
Mr Murphy: You also have to take into consideration the stack. For a midefficient furnace, or what is called the standard efficient furnace -- as of January 1992, they have increased the efficiencies of furnaces to a 78% steady state -- off the top of my head, I would say you would be looking at anywhere from $2,600 to $3,200 if you had existing duct work.
Mr McGuinty: If I was your average home owner and I had not yet made the jump, notwithstanding the fact that it was cheaper for me to heat with gas and these capital costs presented an obstacle to me, how much of a subsidy do you think Hydro should be giving this home owner?
Mr Murphy: I think they ought to make some type of estimate as to how much money he is spending now in his existing heating system, and when he goes off electricity, how much he is going to save. I think the incentive should be based -- there again, I am not going to give you a specific dollar amount because I really do not know. I have no idea. I do not know how to properly arrive at that point. You ought to look at how much money it is costing Hydro to send that electricity to that guy's house and over a certain period of time what they are going to be saving as well, and that money ought to be his.
Mr McGuinty: What if we were to say, "Okay, Mr Smith, your startup costs are $3,200, we will lend you $3,200"?
Mr Murphy: It is an either/or. I think they should offer either direct cash incentives or some type of low-interest, long-term loan.
Mr McGuinty: A loan, for instance, that could be repaid with the savings generated by the transfer?
Mr Murphy: Yes, exactly.
Mr McGuinty: Tell me something. Can you explain to me how a ground-source heat pump works, in as general a way as you can, and, second, its comparative efficiency if we were to compare it with natural gas heating?
Mr Murphy: I do not sell water-source heat pumps, so I cannot give you an idea of what kind of savings they can give. Maybe my cohort Dan -- this is Dan Lenover from Handy Brothers Heating and Air Conditioning, out of Blenheim. Thank you for joining me.
Mr Lenover: John was up here all by himself so I thought I would join him.
The Chair: Welcome.
Mr Lenover: Thank you.
Mr Murphy: I do not know if you can answer that any better than me. I do not sell water-source heat pumps. I can tell you how they work.
The Chair: Let's start with that.
Mr Murphy: The idea behind a water-source heat pump is that what you require is a constant steady temperature for the condensing or the removal or the discharge or the gaining of heat through the refrigeration circuit that is inside the unit itself. It is basically like any kind of heat pump or central air-conditioning system. You have a unit that sits outside that either discharges or picks up outside air heat into the medium of refrigerant. This is brought into an indoor section, and it dispels the heat or absorbs the heat from the room, depending on when you want it to go.
What changes with the water-source heat pump is that instead of having a unit that is outside working on outdoor air temperature, it uses the temperature of the ground below the frost line to constantly pick up heat or dispel heat. They do that by means of a long series of pipes they put in the ground and run a solution that dispels the heat in the solution itself to the ground or picks up heat from the ground. That is how I understand it to work.
Mr Lenover: Yes, essentially it is a package unit that would sit inside the home and would have 200 or 300 or 400 feet of piping that would be buried in the ground. The heat in the ground is absorbed by the liquid that is being circulated in the pipes and that is transferred into the home through the refrigeration system.
Mr McGuinty: What are the capital costs for one of those?
Mr Lenover: Depending on the size of the home and the complexity, looking at just the unit, one of those systems runs around $8,000 to $10,000. We do not install those either, so I am only talking from information I have been given.
Mr McGuinty: Do you know anything generally about their level of efficiency?
Mr Lenover: They are considered to be the most efficient system.
Mr McGuinty: So if I had all the money I wanted and I wanted to convert from electric to an alternative source, I guess switching to that form is better than going to natural gas?
Mr Lenover: Assuming you had sufficient land to run the pipe and sufficient money, yes.
Mr McGuinty: Can you run this pipe even in a home that is presently fully constructed?
Mr Murphy: Yes, alongside the house.
Mr Lenover: There are two types. There is one that runs just underneath the surface over a wide area, and another type where you go straight down with more or less drilling two wells straight into the ground.
Mr McGuinty: Thank you. Another point, Mr Murphy: If you come into a house and people want to make the switch from electric heat to another fuel, what about the insulation that is in that house? If we are heating the environment, so to speak, because it is going out poor windows, do you not think we should have some kind of obligation to check the insulation before we begin to switch to an alternative source of heat?
Mr Murphy: You should do that in any case when you are sizing the heating system in a house. Most heating contractors will have an idea of what the windows are like in the home, what the attic insulation value is like, whether or not it was upgraded with the Canadian home insulation program or if there has been any insulation added to the house or things like that. You always do, and most heating contractors, as I said, do a bit of an energy audit when they walk around the house and they make suggestions to the home owner, you know, "Do this in order to save the heat you are going to be paying for now." A lot of information has been given to home owners over the years as to what they should do to make their houses more efficient.
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I think that when any program is announced there should be incentives available for people to upgrade or change their heating system to a more efficient type of system. I think it has a ripple effect into the rest of the community, in that people begin to think, "How am I doing anyway as far as my energy is concerned?"
Hydro has started the program with the lightbulbs and the rebates for the fluorescent fixtures and things like that. I think a little more information like that is just going to happen if this program gets under way. I do not think it is necessary that you mandate into the program that they conduct an audit or something like that. It certainly would be beneficial to the home owner to be aware of the things he can do, but these things have been available to any home owner for the last 10 years.
Mr McGuinty: Do you not think we should make it a prerequisite, in extending some kind of a loan or a grant to home owners, that they first do whatever they reasonably can in order to batten down the hatches and make sure they have all the proper insulation?
Mr Murphy: I think it makes sense that if you are going to incent people to get this put into their houses, you also make sure they are conserving it as best as they can. How you do that, what is the right way, I am not sure, but it obviously makes sense to me.
Mr Lenover: Could I make one comment?
The Chair: Sure you can.
Mr Lenover: We are noticing that people are more and more battening down their homes, but this is having an adverse effect on the living environment, in that in their zealousness to seal all the cracks and crevices, they are now creating an airtight home and causing an excessive amount of moisture, causing mould to grow inside the home. This is very prevalent in electrically heated homes built over the last few years if there has been no accommodation made for ventilation.
The Chair: Thank you Mr Murphy from J.E. Murphy Heating and Air Conditioning and Mr Lenover from Handy Bros Heating and Air Conditioning. We all appreciate your taking the time from your businesses to come out here and talk to us. You have made an important contribution to the process. This is all recorded and Hansard at the Legislative Assembly has the responsibility of publishing it by way of a transcript of the proceedings, not only transcripts of today but of the whole series of proceedings of the committee. They are available to you or anybody else who wishes, free, by getting hold of any MPP's office. We invite you to do so and they will be made available to you as soon as they are published. I hope you will keep in touch.
Mr Murphy: Can I make one other point?
The Chair: Sure.
Mr Murphy: I go back to the off-oil program. I remember as it came in and out. I would just like to make a point that a lot of times an incentive like this can get out of control, in that you can have a lot of people who will want to jump on the energy conservation bandwagon, ie, unlicensed contractors or anybody who decides to hang a shingle on the side of the truck, now is an energy auditor.
I think it is worthwhile for the committee to research the type of people they want to handle this type of operation and information and make sure it is done by licensed, established heating contractors or energy-audit contractors. There are a lot of people you can find who do really good work, do it well through the proper channels, ie, permits etc, and also know what they are talking about in the term of results and everything. If anything, it should be somehow written into the agreement that it gets done by someone who is a licensed contractor and not someone who can just decide that he or she is one.
The Chair: A point well made. If a government program does not reinforce the role of competent tradespeople, then those tradespeople should be mad as all get out and let their MPP know it.
LEAMINGTON PUBLIC UTILITIES COMMISSION
The Chair: The next participant is the Leamington Public Utilities Commission. We have two spokespeople: Homer Vandervecht, general manager and Robert Leslie, chairman. We have a copy of your submission and that is now part of the record by virtue of being made an exhibit. Try to leave us the last 15 minutes for discussion.
Mr Leslie: I am Bob Leslie and this is Mr Vandervecht, who is going to do the speaking today.
Mr Vandervecht: Thank you for allowing us this opportunity to be with you this afternoon. I suspect that some of the issues we may be addressing today have no doubt been reported to you before by other groups. However, it is our intent to try to maintain a very local focus on these issues and certainly indicate to you how they may apply to our situation in Leamington and how they might impact on our electrical distribution system.
As you know, Leamington is the tomato capital of Canada, a community of nearly 15,000 people. Our utility serves approximately 5,200 customers: 900 of these are commercial and industrial customers, and of the remaining 4,300 residential customers, approximately 600 homes are electrically heated at the present time.
When we first heard about the proposed amendments to the Power Corporation Act, the Leamington commission became very concerned about the possible impacts these proposals could have on electricity rates. It was determined that our customers should be advised of the proposals and given an opportunity to communicate with their member of the provincial Parliament, the Minister of Energy or the Premier.
The issues of policy directives and fuel switching, as proposed in Bill 118, were presented to our customers in a full page advertisement in the Leamington Post. This was the first time our commission has ever spent money on a full page ad. To me this reflects the importance placed on these issues.
The people of Leamington very quickly recognized what these proposed changes could mean to their hydro bills. In all, 325 customers signed a petition in our office and several submitted unsolicited letters to us. There were also some supportive letters written to the editor in the Leamington newspaper.
We are encouraged that the government has listened to electricity users in Ontario and has responded by promising to introduce amendments to the bill that will limit the directive powers to matters related directly to the duties of Ontario Hydro as currently contained in the Power Corporation Act. Our concerns in that area have been somewhat relieved. However, it remains our preference that sections of the bill dealing with binding policy directives to Ontario Hydro be completely deleted.
Ontario Hydro should only be able to exercise powers and undertake duties authorized by legislation. The proposal would mean that the Power Corporation Act can be changed by a mere policy directive rather than through the important process of legislative debate and amendments.
Leamington Public Utilities Commission fully appreciates and supports the energy conservation efforts exercised by Ontario Hydro and electrical utilities across the province. We participate in all the programs that are available. We also recognized the importance of financial incentives and loans for energy conservation programs.
Our utility has been heavily involved for more than two years in a cogeneration project with our largest customer, H. J. Heinz Co, located in Leamington, which is now producing more than enough electrical power to displace its own load requirements. We have not opposed Ontario Hydro's subsidization of this important project. The loss of 23% of our utility's energy sales, as a result of this cogeneration project, was easier to accept because of the immediate benefits to the electrical supply issue in Ontario. Projects such as this cogenerator benefit the entire hydro system in Ontario and are important factors in reducing the need to construct new generation facilities.
We are, however, strongly opposed to the proposal in section 5 of Bill 118 that will permit or force Ontario Hydro to provide loans or incentives to assist in the conversion to non-electricity-based space and water heating systems. This type of conversion has been going on for years. On a weekly basis, people in Leamington are changing their space and water heating systems from electricity to natural gas. In December a year ago, we changed the water heater in our home.
Why is this happening? Simply because it is cheaper. That is why there is no need to subsidize fuel switching. The current state of the market is motivation enough. Why should we force our regular electricity users, the residential, commercial or industrial customers, to pay for fuel conversion that will directly benefit others? If anyone should subsidize fuel switching at all, perhaps it should be the gas companies.
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As a result of the recession, plant closings, as well as energy management efforts, the demand for electricity in the town of Leamington has declined substantially in the past two years. Actual use of electricity in Leamington decreased by some 9.3% in 1990 over the previous year. That decline continued in 1991 by a further 17%. Needless to say, that has very serious effects on our net income.
Our customer base has increased during that time, as has our distribution system, and despite a very large annexation earlier this year and retail rate increases, our load and our revenue dropped severely. The need for servicing our customers and keeping our distribution system in sound condition and maintaining vehicles and staff has remained a very costly responsibility.
The design of an electrical distribution system within a municipality is generally based on the anticipated electrical load requirements. Electric space and water heating obviously is a major factor in determining the sizes of distribution transformers, for example. Reducing electrical loads through fuel-switching incentive programs will leave us with a very expensive, oversized and underutilized distribution system. Unless costly modifications are made, and this might well involve replacing major components of the distribution system, a very wasteful situation will exist. Should this type of situation occur in Leamington, it may become necessary for our utility to receive subsidies or grants in order to keep the distribution system in a good working order. We suspect that there will be many other utilities experiencing similar conditions.
Subsidization of additional fuel switching will place an even greater financial burden on the electricity customers in Leamington, adding to the annual double-digit increases in retail rates. Leamington's increase in retail rates this year was 11.3%. That is why we argue that the cost of fuel substitution should be borne by the beneficiaries of the lower energy bills, the new non-electric heating customers. There is also a growing suspicion among many Leamington residents that once the gas industry has established a much greater customer base, the cost of natural gas may rise.
We believe the current economic slowdown and energy conservation measures have resulted in a tremendous reduction in electric energy demand by all classes of customers throughout Ontario. Subsidized fuel switching is not needed. While we will continue to support the provincial government's energy conservation programs, we urge that section 5 of Bill 118 be deleted.
There are other energy issues of interest to us. However, we wish only to make some very brief recommendations at this time.
1. That the rapidly expanding area of energy management incentive programs be reviewed by the provincial government and Ontario Hydro to ensure that each program will be economically viable and conservation successes can be reasonably assured.
2. That the Ontario Energy Board hearings process be reviewed in order to determine if the OEB should exercise regulatory powers over Ontario Hydro as well as other energy suppliers.
3. That the proposal to subsidize fuel substitution be deleted from the bill.
We appreciate the opportunity to meet with you today to discuss our concerns about Bill 118. We trust that this meeting and others, as you travel the province, will result in reconsideration of the proposals contained in the bill.
The Chair: Thank you very much. We will start off this round of interaction with Mr Klopp. Every caucus has about five minutes.
Mr Klopp: Going back to H. J. Heinz's power-displaced load requirements, am I to understand that H. J. Heinz is effectively off hydro and can stand on its own?
Mr Vandervecht: For the better part of the year that is what is happening, except obviously during their peak season, the canning season in the summer months, when we need to supplement the supply. Basically, for eight months out of the year they are in fact exporting energy into our system.
Mr Klopp: They are off hydro. Ontario Hydro is subsidizing them. Could you explain what they are doing? That word "subsidize" has been thrown around a lot. Are they getting grants, or are they getting some special treatment?
Mr Vandervecht: The reference there was intended to refer to the fact that when the project was first born, Hydro subsidized the studies that were held to determine whether the project was viable and whether it could go ahead. It seems to me the Ministry of Energy was also involved in some of these studies.
Mr Klopp: You go to the next page and it asks, how we can have people like myself help subsidize these kinds of people who do not benefit me. You go to the next page there and you talk about, "Why should we force our regular electricity users, residential, commercial or industrial, to pay for fuel conversions that will directly benefit others?" How can you justify that on one page, and yet on the next page it is not a good idea?
Mr Vandervecht: First of all, I do not consider the non-utility generator project at Heinz to be a fuel conversion.
Mr Klopp: It is off Hydro. They can stand on their own. They do not need to plug into my electricity any more.
Mr Vandervecht: But it is a project that in fact benefited the entire power system -- this is the point I was trying to make -- by obviously reducing the need for future generation. Granted that is the same intent obviously of fuel switching. To me, though, the intent of Bill 118 in terms of fuel switching would benefit individual customers. The Heinz project was a much greater project that benefited the entire power grid.
Mr Klopp: It does not benefit me then.
Mr Vandervecht: No, I suspect it will.
Mr Huget: Thank you for your presentation, gentlemen. You touch in your brief here on electric space and water heating, and the distribution system that was built I guess with that in mind too. Do you feel that in the past, and you are well aware of the promotion of electricity for space and water heating, that was in the best interests of your customers?
Mr Vandervecht: I guess that is a situation that would be different for each customer. We ourselves have had an all-electric home and there are, as you know, different types of home heating systems. There are some that are very inexpensive in terms of capital. I suspect that some of these people, when they built their homes, looked at the capital costs of some baseboard heating system versus a very large furnace. I suspect that people would benefit from the all-electric homes.
Mr Huget: You mention in your brief your fixed costs, and your fixed distribution system. If I read it right between the lines, it says that the more successful we are in conserving electrical energy, the more problem that gives you as a utility. I have heard other presentations from consumers of utilities who seem to be at cross-purposes with the utility.
I have two questions. One, how much of your power bill to your customer is to recover those fixed costs? Two, when you mention the problems you see in the future around distribution systems and maintaining those systems with a reduced load, I would like some suggestions from you in terms of how we deal with that with local utility commissions.
Mr Vandervecht: First, I think we should reiterate that we at the Leamington Public Utilities Commission are not opposed to fuel switching; it is the subsidization aspect that we have some problem with. I do not have the latest figures of what amount of a customer's bill is fixed costs, but --
Mr Huget: Would it be half, sir, or three quarters?
Mr Vandervecht: No, it would be substantially more if we include the wholesale power that we purchase from Ontario Hydro as part of our fixed costs.
Mr Huget: No. I meant your fixed distribution costs.
Mr Vandervecht: It would be less than half in that case. I am afraid I have forgotten the latter part of your question.
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Mr Huget: The situation that you raise in terms of as we get more successful in fuel switching, as is indeed, I think, in the general public's best interests, it leaves you with a problem, and that is the fixed costs of operating that distribution system. What I would like from you is some suggestion in terms of how that can be dealt with. What can we do about that? You raised that and it is an important issue.
Mr Vandervecht: Yes. I think I made the comment that if fuel switching was subsidized and became a very major project -- in other words, if every electrically heated home and every electric water heater were to switch -- then we would be left with that very large distribution system that we would have to do something with. I suspect that perhaps applications would be made for some financial assistance. Either that or the system is left there, underused and oversized. But I suspect there may be some consideration for financial assistance.
Mr Huget: But it is a problem that needs to be addressed, in your opinion.
Mr Vandervecht: I agree.
Mr McGuinty: Pursuing that line of questioning a little bit, I will try to simplify it for my own purposes. We are saying here, if it is no longer necessary to build any more supply and we just use the existing system and we reduce the number of users, we would expect naturally that the rate for electricity is going to go up. Does that make sense?
Mr Vandervecht: It does to me certainly.
Mr McGuinty: Right. Now why does it present as problem in terms of the system? I do not understand that. Is there some technical reason that we cannot use the existing system to transmit less electricity?
Mr Vandervecht: No. If I left you with the impression that the system would not be able to distribute less electricity, that was not my intent. Our concern is that the distribution system now is sized to accommodate a certain number of all-electric homes, whether it be space heating, water heating, that sort of thing. If this use decreased, then our system is still built to accommodate all this.
What I am saying is, particularly transformers are much larger than what is required. I am talking about existing systems obviously. Future systems can be designed on a downgraded basis. But these very expensive transformers, again, if I can use that example, will be out in the system and they will be underused and they also become very -- I was going to say "ineffective," but that is not the word. But a transformer that is oversized, for example, tends to result in higher line losses and that sort of thing. So there are a number of little things that complicate the issue, but the system will still handle the reduced load. There is no question about that.
Mr McGuinty: It appears to me then that what you are telling me is that the rates are going to go up. If we use less the rates have to go up.
Mr Vandervecht: I think either way, whether fuel switching is subsidized or not, we all know that the cost of electricity is going to go up in future years.
Mr McGuinty: Just on that point then, how big an issue is that for your ratepayers, and what about the corresponding benefits or the up side to that, that we are causing less harm to the environment? How do your ratepayers deal with that balance?
Mr Vandervecht: The response that we received to some of the issues and primarily to subsidization of fuel switching dealt strictly with the costs that our people are going to have to pay for on their Hydro bills in the future. Very few comments were received on the environmental issue, so I guess we are addressing the cost concern on behalf of our customers.
Mr McGuinty: If I were to tell your ratepayers, "Look, your costs are going to go up, but it is for the good of the environment," would they say, "Okay, we'll buy it"? Any thoughts on that?
Mr Vandervecht: I guess it is a personal opinion. I had not thought much about that, but I suspect that the majority of them would prefer to have reduced costs as opposed to a concern about the environment.
Mr Cleary: In your brief you mentioned the Heinz project. What is the size of the cogenerator that was installed there?
Mr Vandervecht: There are two units there and the total load is approximately 7.5 megawatts.
Mr Cleary: You say that they are energy-sufficient for eight months of the year?
Mr Vandervecht: Yes.
Mr Cleary: Do they have surplus power at that time?
Mr Vandervecht: Yes, they do.
Mr Cleary: They sell that back to Hydro?
Mr Vandervecht: They sell it back to Ontario Hydro and they actually export it into our distribution system.
Mr Cleary: Then for four months of the year it is the opposite.
Mr Vandervecht: We supplement their needs, yes.
Mr Jordan: I would like to go back to that section of Bill 118 that gives this direct power to the Minister of Energy to bypass the Legislative Assembly. When we talk about the government, we are talking about the government that is in power, those elected members only. When we talk about the Legislative Assembly, we are talking about all the members who are elected, regardless of which party or what riding they represent. What concerns me is this bill takes it away from us who are not part of the government to have any input whatsoever.
This bill gives the Minister of Energy the power to take it to his cabinet and straight through to the chairman and chief executive officer of Hydro and the board of directors has no accountability, because if it makes a bad decision, it is clear that it is not responsible. If it is not responsible, then of course the chairman is not responsible and the responsibility is back to the Ministry of Energy. The members of the Legislative Assembly have not had a chance to see the directive, to comment on it or to represent the people in their ridings. I would be interested in your comments on that power of this bill.
Mr Vandervecht: I think that is precisely the way our commission feels about it. As I indicated in the report, we feel that the directives to Ontario Hydro should be those that are presently contained in the Power Corporation Act. If changes are to be made to that act, it should go through the legislative process.
Mr Jordan: And the power directives?
Mr Vandervecht: We are opposed to that, particularly coming from the minister or from the ministry or from the government of the day. It should follow the contents of the current Power Corporation Act.
Mr Jordan: You were commenting on the reduced use of your system, that you designed the system to carry X kilowatts or megawatts for the people you represent. I would be interested to know, do you have a winter peak now or a summer peak?
Mr Vandervecht: We are one of the few summer-peaking utilities.
Mr Jordan: You have a summer peak?
Mr Vandervecht: Yes, which means that we have a large number of customers with air-conditioning obviously.
Mr Jordan: As some homes with baseboard heat switch over to a forced air system, to gas, it is quite natural you are going to see more air-conditioning load?
Mr Vandervecht: That is very conceivable, yes.
Mr Klopp: So your rates will not go up or down.
Mr Jordan: So your effect could be very negative to the Ontario Hydro grid?
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Mr Vandervecht: It is an issue that we did not cover, but if that in fact were to happen in the summertime, it would tend to boost our peak even greater and become a more expensive system. As you probably know, we pay at those peaks.
Mr Jordan: Right, and at the present time Ontario Hydro is a utility which is geared for winter peaks.
Mr Vandervecht: That is correct. Taking into consideration your hydraulic section of generation, it is at its lowest ebb in the dry months of the summer, to come on with generation for peak loads from June to September. The rivers are low, the head ponds have been drawn down and the efficiency is not there because the water head is not there for the fall compared with when you have your fall rains. The evaporation is reduced then for the colder months. You have the storage and the hydraulic generation for the peaks. I can see many complications, not only for a local utility, but for Ontario Hydro as a system.
How would you explain the fact that the Minister of Energy would see fit to relieve the directors of any accountability? Why would that be a requirement of this bill?
Mr Vandervecht: That is another one of the issues dealing with directives that our commission is opposed to. We purposely did not comment on the makeup of the board. We understand that is also contained in Bill 118. It is a lesser concern that we have, but we do believe the board of directors should be totally responsible for the actions of Ontario Hydro.
Mr Jordan: And increasing it from 17% to 22%, is that --
Mr Vandervecht: To us that is not a big issue.
The Vice-Chair: Thank you, Mr Jordan. Mr McGuinty has one quick one, the key word being "quick."
Mr McGuinty: I am just interested in the cogeneration project. I am wondering if, as a result of that project being started up, your public utility commission lost significant sales. Was there any effort made to enter into some kind of agreement where you would buy electricity produced by Heinz, perhaps even at a reduced rate, so that would be the quid pro quo for that loss? Or is that even possible?
Mr Vandervecht: At the time that the cogeneration units were being built, we were actually given the option by Ontario Hydro to purchase the power directly from the cogenerator or to allow Ontario Hydro to actually purchase the power. At that time, our commission made the decision to waive that option and to let Ontario Hydro negotiate with the company to purchase the surplus power from it, and that is in fact what has happened. As I said, while the power is being exported into our system, it becomes another supply point to our utility from Ontario Hydro.
The Vice-Chair: Thank you, gentlemen, for an excellent presentation. It is good to see you here today. As the Chair said, this bill has sparked a lot of interest. You can pick up all the Hansards, whatever you need, from your local member. I am certain they will be made available to you upon your request..
ENERGY AND CHEMICAL WORKERS UNION
The Vice-Chair: The next group is the Energy and Chemical Workers Union, the Union Gas council. Would you please come forward to make your presentation and introduce yourselves for the sake of Hansard and members.
Mr Kane: My name is Frank Kane and this is Bryan van Rassel. He is the Ontario coordinator for the Energy and Chemical Workers Union.
Good afternoon. I am vice-president of Local 633 of the Energy and Chemical Workers Union. I appear before this committee representing approximately 1,000 unionized members currently working for Union Gas. The workers we represent perform all phases of gas distribution, including new construction, service and maintenance of existing piping, regulating and metering systems, as well as clerical support systems, customer service and meter reading. These members are employed in a geographical location spanning from Windsor, east as far as Oakville and as far north as Owen Sound. Our union also represents workers in other energy-related industries such as oil refineries, petrochemical plants and gas distribution systems.
Our policy in representing workers in the energy field is to take a leadership position in conservation and the effective use of energy while securing our membership's future. The proposed amendments to the Power Corporation Act that are supported by this union could have a very positive effect on our membership through the accelerated expansion of our distribution system. The ample supply of natural gas is currently underutilized, with the option of having natural gas supplied to some rural homes and businesses being very cost-restrictive. Therefore, the obvious environmental and cost savings are not being realized. The creation of hastened gas expansion hopefully would create the opportunity for growth in the manufacturing sector as well as a substantial number of new jobs for our members.
As the cleanest-burning of fossil fuels, natural gas would and should play a major role in minimizing the negative effects on our environment. When substituted for other, less environmentally friendly energy sources it can retard some of our most serious environmental problems, ie, global warming, urban smog and acid rain.
The long-term cost savings to the public could result in further utilization of current gas distribution facilities as well as from the direct price advantage of natural gas as compared to other fuels. The conversion from older, less efficient non-gas equipment to newer, high-efficiency gas equipment would also be a positive factor, using less energy to achieve the same desired results. A new, broader direction in energy policy would create a growth market, developing and testing higher-efficiency equipment, with the province taking a leadership role in developing spinoff industries for potential job creation.
The Energy and Chemical Workers Union supports the amendments to the Power Corporation Act as outlined in Bill 118. Current collective agreement language will allow us to adapt to anticipated changes that our membership will be and is prepared to face. With the expected growth to our industry, we are prepared to discuss any and all avenues which may be necessary to help our membership to meet these new challenges.
The Vice-Chair: We will start the interaction with Mr McGuinty. We have about seven minutes per caucus.
Mr McGuinty: Gentlemen, thank you for your presentation. One of the arguments we are hearing is that since the gas utilities stand to benefit, they should be participating financially in whatever kind of program government ultimately decides to proceed with in terms of subsidizing or giving some kind of incentive grant or loan to people who are heating electrically to switch to gas. What do you think of that?
Mr van Rassel: We really had not addressed that particular issue. However, the gas industries would have to spend a considerable amount of money in coming on stream in order to participate and accommodate. So I guess, as I said, we were not particularly addressing the subsidization industry or the cost of conversion, but would see that as not being a major issue but in fact should apply to the hydro industry.
Mr McGuinty: We have heard, of course, from representatives of other unions, and in particular I think it was CUPE Local 1000. They were very concerned about jobs and what the full implications of conservation are going to mean for them as employees of Hydro. What do we do with that concern? I can understand that, if there is a provision which is going to give people an incentive to switch to natural gas, it is going to be a boon to your industry. I have no difficulty with people getting jobs, that is for sure. But what do we do with the people with Hydro? They have expressed a very real concern that they are going to be losing jobs.
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Mr van Rassel: I expect when you switch industries, that kind of occurrence is going to place. We are not in the business of going around looking for ways and means of taking work from other people. However, when a situation presents itself that is going to be beneficial to our members and in fact support a very real concern of our organization, ie, conservation and the environment, and equally have a direct benefit to the general population, it would almost be a little improper, I would suppose, for us to not come forward and support such a position, recognizing that there is going to be an impact on other workers. But conversion will have an additional impact on employees and workers other than just our members from downstream sources.
Mr Cleary: Back a number of years ago, everyone was talking about changing over to "Live Better Electrically." Many took advantage of the programs. Now we are talking about the same program to switch over to natural gas. Do you think that any time down the road this could be a mistake too, that supply, price, whatever, might go along with it?
Mr van Rassel: I cannot project into the future, but certainly at this point in time the benefits of switching to natural gas are rather obvious. They dovetail with a number of concerns the general public has, and not simply one of a lower cost. I cannot even back up to "Live better electrically," but there certainly seems to be a time right at the moment where the concern of the general population and the concern we have as representatives of workers is loss of employment in our particular industry and/or union. So we welcome an opportunity to have some input in a situation that really allows us to do something or say something for all peoples, our workers, the general population and the consumer.
Mr Jordan: Thank you, gentlemen, for your presentation on behalf of
your membership. I was interested, from reading and listening to your brief, before this government suggested fuel switching, what conservation programs did you have going at that time?
Mr van Rassel: Are you talking about us as a union?
Mr Jordan: It says here that you were supporting it because of different reasons, that it is going to increase your membership and it is going to be good for the environment. I was wondering how active you were prior to this with briefs such as this.
Mr van Rassel: With respect to the organization, we established a health and safety committee within our organization. Such a committee provides research material etc for our various local unions across the country, be they in the gas utility field or in the petrochemical field or some of the others. One of the more recent and probably more noticeable activities has been in the Sarnia area, where all the managers of the major corporations that our union represents and the stewards and some of the local executive got together, in fact in this very room, and discussed the environment and whose responsibility it was and the kinds of things that can and should be done, the kind of participation.
That group meeting formulated a steering committee which met and dealt with those environmental issues, particularly in that instance in the Sarnia location, and then subsequently had another meeting of the larger group and reported back to them. We have ongoing committees dealing with the environment all the time.
Mr Jordan: That is more or less concentrating on commercial/industrial. Is that what you are saying?
Mr van Rassel: That particular one, obviously, yes.
Mr Jordan: Did you have any program where you would come out and do sort of an energy audit on my house and tell me that I should do this and I should do that?
Mr van Rassel: As a union we have not put that program together, no. Whether the utility has, I could not answer that.
Mr Jordan: Would you feel that the marketplace is capable of promoting this fuel switching without cash incentives from the utility that is losing the revenue? When you have fuel switching you have a revenue switch also. You cannot have one without the other, let's face it. So what we are looking at here is, the utility that is going to experience the loss of revenue is considering also making a donation towards the capital required to use the other energy. Do you see that as being a business practice or do you think that in the marketplace, because of the price of your energy relative to electrical energy, it will take place on its own?
Mr van Rassel: As far as the marketplace is concerned, people are going to realize the difference in just out-of-pocket cost. Whether the utility should participate or not, I guess that is really not my position to say. We go to the bargaining table looking to decrease their ancillary expenditures; We like to increase their direct expenditures. But I really cannot answer that for the utility. Maybe I could talk the union into some kind of donation.
Mr Jordan: Yes. At least they are going to receive the increase in customers, distribution system and, naturally, revenues. The electrical utility just prior here this afternoon was expressing its concerns about having invested capital in a distribution system that could very well be oversized and underutilized, so there are a lot of spinoffs to just saying, "I am going to shift it from electricity to gas."
Mr van Rassel: There is no question electricity is going to feel the effects of any switch.
Mr Jordan: Yes. The cost for you to service a residence is basically the same. What is the minimum use that you will come to my house for? Supposing I am just going to have my stove and hot water tank on gas. Will you give me service?
Mr van Rassel: Yes.
Mr Jordan: What is the minimum that I have to take to get natural gas?
Mr van Rassel: At one time, you had to have more than one appliance.
Mr Jordan: You had to have more than one appliance.
Mr van Rassel: Yes, but in the last three or four years they have downgraded that to one appliance so you would be able to convert. They would run a line to your house just for a hot water heater with a service off the main.
Mr Jordan: So it is becoming quite apparent here that the local utility for the electrical service in a municipality is going to have to make the same capital investment and basically only have the lights and television and the rest would be gas, because if you go complete gas, you get a better rate, do you not?
Mr van Rassel: No, you do not. If you go complete gas, it is the same as if you only have a water heater. It does not matter how many BTUs.
Mr Jordan: I thought once you put the water heater in, you got a better rate.
Mr van Rassel: No.
Mr Jordan: That used to be, though.
Mr van Rassel: On electric or gas?
Mr Jordan: Gas.
Mr van Rassel: No, that is not true.
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Mr Jordan: That is not true?
Mr van Rassel: It is not true in Union Gas, excuse me.
Mr Jordan: It is probably Consumers Gas.
Mr van Rassel: It might be Consumers Gas.
Mr Jordan: You can see the point I am coming at, that the capital investment to get to my house is going to be the same and the revenue is going to be considerably less.
Mr van Rassel: You said they just have lights left. We just heard they have air-conditioning.
Mr Jordan: I understand. Yes, the fan at least. You people are working on an air-conditioning coil also, are you not?
Mr van Rassel: Yes, there are natural gas air-conditioners on the market. They have been for a long time.
Mr Jordan: The technology is there and the competitive market is there. I just feel it will balance out without incentives.
Mr van Rassel: Gas air-conditioning has been on the market for 30 years.
Mr Jordan: Same as the fridges.
Mr van Rassel: Yes.
Mr Huget: Thank you gentlemen for your presentation. I want to look at the other side of the subsidy issue in a sort of indirect way. The building code, as you know, mandates that houses be wired for an electric stove and clothes dryer. If you want to, for example, use alternative forms of heat like natural gas, that is an extra cost. I would like your views on whether that building code should be changed or expanded to allow the flexibility of those types of insulations in new homes.
Mr van Rassel: You have taken us a little far afield from where we were coming with the presentation. I do not really feel qualified or capable to answer that one for you.
Mr Kane: I can add a little to that; that is what I do for a living. I am a pipe fitter with Union Gas and I install dryers, ranges, fireplaces and what have you. It seems very unfair to me now that in new construction the Ontario code says they have to have a dryer and range outlet, yet people moving in with gas have to pay upwards of $200 and $300 to have a range and a dryer hookup connected. What is good for one should be good for both.
Mr Huget: There is a view in part of the province at least, and I think probably in pockets throughout the province, that there is a safety problem with natural gas. We recently were in Kingston, and there is certainly an element of the population there that just has a real aversion to natural gas because of the safety concerns. Can you comment on that?
Mr Kane: Yes. As a worker who has worked with it for 17 years, I find it as safe a fuel as there is. There are obviously going to be problems where the regulators freeze up with the type of climate we have and what not. They happened, and I think they are going to continue to happen. The gas companies are going to great measures to rectify freezing of the regulator problems, and they seem to be the only real hazard we have left. The manufacturers of the controls have the safeties down very fine. Virtually, once the house line is pressured at seven ounces, there is no problem any more.
Mr van Rassel: Just as a follow-up, I think you can, from listening to Frank, see readily that the training and the expertise that goes into creating a number one service representative is intensive, and safety is obviously paramount in the picture of the training and the putting on stream of a first-class service representative.
Mr Huget: I just want to briefly, in closing, touch on the industrial opportunities. Proponents of the nuclear industry are always very quick to point out, and I suppose rightly so, that there is a whole industry with a number of jobs attached and leading-edge technology and all those things. Are there any possibilities, in your view, for some real economic advantages for Ontario to get into that type of technology, around energy in particular? Gas is your field of work. What do you see as the potential there for job creation and economic development?
Mr van Rassel: The potential, I think with us, is the expansion of the existing facilities. It would obviously have to create some spinoff work in terms of construction, in terms of revamping etc. I am not sure I can answer it much farther than that.
Mr Kane: There are also going to be some jobs created in developing newer technology and higher and higher efficiency stuff that in the last 10 years has become very prevalent in the industry. There is a large market out there, but I am sure if the market was larger it would accelerate that testing in the technical field.
The Vice-Chair: Any other questions? Hearing none, I thank you very much, gentlemen. I am going to take a bit of licence. I am going to ask a quick question myself actually, because I am one of these people that is considering switching. I keep hearing about, as Mr Huget said, the danger of gas. I know propane is heavier than air. It goes down. Does natural gas go down?
Mr Kane: No, it is higher. It is 0.6%. Natural gas rises.
The Vice-Chair: I did not know whether you had a device that would detect it, if it would go down or not.
Mr Kane: No. That is the last place we look. We look up first.
The Vice-Chair: Okay. Thank you for the information.
The next people we would be calling is the Environmental Law Society. Is there anyone here from there.
SARNIA-LAMBTON CHAMBER OF COMMERCE
The Vice-Chair: Seeing no one coming forward, could I ask the Sarnia-Lambton Chamber of Commerce if it would be prepared to do its presentation at this time? Mr McGarry, I believe.
Mr McGarry: Yes, that is correct.
Good afternoon, gentlemen. I just found out about this presentation through the London paper. We do not have a presentation to hand out, although it will follow shortly.
The Vice-Chair: I find that amazing, because I asked the clerk to check on this. We went to great lengths in this committee -- actually we spent in excess of $30,000 to make sure we hit every weekly and every daily in the province, and we have had a couple of people say they were not aware. I would not mind a suggestion before you start, if you have one, on how we can better advertise so that the people of the province are aware of what we are doing, keeping in mind the sky is not the limit where dollars are concerned.
Mr McGarry: I will have to ask the professional staff at the chamber why they did not see it. I was in the Pacific Rim before Christmas, so I was not reading the papers. I am not sure why I did not see it.
Mr Huget: The committee neglected to advertise in the Pacific Rim unfortunately.
The Vice-Chair: If they have any suggestions, if they would forward them to the clerk of this committee, we would more than willing to entertain them.
Mr Jordan: It is important, Mr Chair, because none of his members knew. How many members are in your chamber of commerce?
Mr McGarry: Although there are something like 10,000 people altogether, I think there is a thousand-member chamber in Sarnia-Lambton.
Let me go back a little bit. I have about four hats on today, and I am going to wing it, if you wish. I am here representing the Sarnia-Lambton Chamber of Commerce. I am chairman of the energy committee. I am chairman of the energy from waste committee. I am a director of the Ontario Chamber of Commerce. I also own and run an engineering company that does work all across Canada, the United States and in the Pacific Rim. We will have to get the paper delivery. I worked for Ontario Hydro for 20 years and quit about 11 years ago and started my own engineering company. We do a little work for the Ministry of Energy -- I might point out at a loss, because there is no money in doing this kind of work, but it is part of doing business in Ontario.
I have mixed emotions about this bill because I am sitting here today with about six different hats on. I represent the mom-and-pop shops and multinational corporations, one of whom pays an energy bill of about $5 million a month, of which this 11% increase represents $550,000, which is $6.5 million a year in increase. To me, that is a hell of a lot of money. I suspect it is the same amount of money, though, to the large multinational corporation as it is to the mom-and-pop shop.
I have some of the same fears that Don Dukes had and maybe more, because I have watched what happened in other provinces. If Ontario Hydro is changed to reflect the whims of politicians, we might see what happens in Quebec, where you get power holidays. That has not worked out very well in Quebec, where different people get different rates because of different reasons, whatever the reasons might be. I am not saying that anyone here is going to do that, but I do not know that. I also have concerns that included in the power rates may be other agendas, and you have already heard those kinds of concerns.
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This does not mean that we in Ontario should not be helping our industries worth saving, but maybe it should not be reflected in the rates of our energy, whether it be electric, gas or oil. If I put my engineering company president's hat on, dealing with Ontario Hydro, Hydro-Québec, Nova Scotia Power, which is for sale by the way, the Georgia Power Authority down in the United States, recently with manufacturers and equipment people in the Pacific Rim, if this change in mandate means that Ontario Hydro will be more cost-competitive, then it is likely good.
As president of an engineering company, I can tell you I build facilities for less than half what Ontario Hydro builds its facilities. I am presently constructing, for Vaughan Hydro and Richmond Hill, two very large transformer stations, using most of Hydro's standards. I have cut away some of the gingerbread. I have managed the project so that there have been cost overruns of only 2% to 3% -- none of this 500% and 600%. If my engineering staff had any more than a 5% cost overrun, they would be going down the road hat in hand. If Imperial Oil, Sun Oil and Shell operated in that fashion, the people there would be going down the road hat in hand.
It is time that we made our utility more cost-conscious, and there are a number of ways to do that. A lot of the petrochemical industries operate on profit centres. I suggest there are sections of Ontario Hydro that should be made into loss centres, and the division that loses the least will be the winner. I think there are ways of changing Ontario Hydro. Ontario Hydro people are very good. I am very proud of the 20 years I spent in Ontario Hydro, and the reason I am running an engineering company is most likely because of the training I got and gave during those 20 years.
There are some new managers in Ontario Hydro who, if given their head, could change Hydro fairly quickly into a cost-conscious utility. There is a grey mass in the middle of Ontario Hydro that has not got its head into discounted return on investment, that has not got its head into, "Do I need it today and will it pay itself back in two years?" There is a group of these people who, as I come to them on behalf of Richmond Hill or Vaughan Hydro or Imperial Oil or Nova, the first thing they do is trot out all the problems. They are problem makers rather than problem solvers. I find the same thing, by the way, in the ministries of the Ontario government, the federal government and the municipalities. It sure puts off a potential industry that wants to locate in Ontario.
Our energy policies must become part of the solution, not part of the problem. As you gentlemen know, Ontario is going to hell in a handbasket fast. We have to get to some of our industries and robotize them and computerize them to save them. That will mean possibly an increase in the amount of electrical power. It will also mean that it will have to become even more reliable than it is today. I think it is time to allow Hydro, if that means changing this bill in some fashion, to get its head into what is going to happen 10 years from now. Then that part is most likely good.
Another item I would like to speak about are is NUG, non-utility generation. Sarnia-Lambton is most likely the only place in Ontario where NUGs really make sense because there is a huge need for steam. The combination of installing the NUG, which brings the efficiency up to around 60%, can cut the cost of steam to less than half for our existing petrochemical industries. That is a very important item. It can also reduce the cost of power to Ontario Hydro.
As a consultant, I find that dealing with the ministry and Ontario Hydro is like hitting a moving target. The rules keep changing. I suspect NUGs in southwestern Ontario are going to become more viable because the cost of gas is stabilizing, the cost of money is going down, the technology is improving and you can bring an NUG on, conservatively, in about two years. But there are some impediments that I as a consultant find difficult to understand.
For instance, in Sarnia the industries can buy and sell just about everything except kilowatt-hours. The present act does not allow Dow to sell Sun kilowatt-hours. The difference is about 80 feet, depending on what side of the road you put the generator. If you put the generator on the Dow side, you are selling kilowatt-hours. If you move the generator across the road and sell steam, then it is allowed. It is somewhat artificial. I find that difficult to understand.
Another item I find a little difficult is Hydro's present stance on being the only outfit in Ontario that can buy power from industries and sell it in turn. I think that within some reasonable restrictions the industries should be allowed to find their own level. If Sun Oil can generate power and sell it to Imperial Oil and they cut their own deal and it is 50 megawatts, that is 50 megawatts you and I do not have to generate. It is the same 50 megawatts. In principle, I find some difficulty with those kinds of rules. I know how they started out and I do not think it is necessarily to the detriment to me as a person to allow the industries to find their own levels.
You gentlemen have heard of rationalization in the petrochemical industry. You are going to hear more in about a week and a half. It is an industry that up until a couple of years ago was very viable. One of the things that may save it in Ontario and Quebec to some extent or make it competitive -- because most of the products are going to be sold south of the border -- could be NUGs. You can cut the price of steam down from something like $5 or $6 to $1 and $2.
I understand there are some technical drawbacks to NUGs in southwestern Ontario that have to do with the power system. They have not been defined to me or my staff, but if they are there I think we need to remove them. We do not have to go looking for a steam host in Sarnia. It is there in abundance. I think we should utilize it to the utmost.
Another benefit to NUGs in Sarnia -- I share the last gentleman's thought -- is that here is the place to use gas to generate power that would not necessarily require the very expensive conversion from electricity to gas in an existing home.
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Another thing that is somewhat of an advantage in Sarnia is that most of the industries that might be the host for the NUG own large amounts of gas reserves. In essence, they are selling themselves their own gas and wheeling it through Consumers' Gas or Union Gas. I am not an expert in the gas business, so I will not dwell on this any further, but you can realize that Imperial Oil and Nova and Sunoco and Shell all have access to gas. So to some extent they can control the upside, the increase in cost.
Another thing that bothers me a little is a bit off the subject, but I think you should be aware of it. Right now with gas-fired NUGs the discounted return on investment is between four and five years, depending on the size, what Hydro's rules are, the cost of money and so on. It is almost impossible to get financing from our schedule 1 banks for NUGs. I have to go to the Pacific Rim to find financing. That does not say much for our banking system. It is really hard to understand. If you can cut a deal between Ontario Hydro and Union Gas and Consumers' Gas and Imperial Oil and still cannot find the money for something that is almost a shoo-in, there is something wrong with our banking system, which made a huge amount of profit last year. I can go to large corporations like ABB and Hyundai and get the money if I have the deal, but if some of these NUGs go down, the money is going to go out of the country, and so are the profits. I find that very frustrating as a consultant and as a Canadian and as an Ontario resident.
I will stop at that. I am sorry if I have been somewhat disjointed, but I will leave you to ask questions, some of which I most likely cannot answer.
Mr Jordan: Thank you for your very interesting and informative presentation. I personally found it extremely interesting, not only because you had spent 20 years with Ontario Hydro. You mentioned that there are a lot of good people in the utility but that there is a grey mass there that has become part of the problem rather than part of the solution.
Mr McGarry: Yes. I do not think that is necessarily the fault of the individuals. It is in some cases; everyone has dead wood. But in a lot of cases it is part of the system. With a big corporation there is a section in the centre that becomes somewhat brain-dead after a while. I will give you an example. I am not whistling Dixie here. I was at a meeting with Ontario Hydro, when I was engineering in Richmond Hill. They told me I had to install $160,000 tone equipment to convert to fibre optics. I can tell you that we run complete refineries on fibre optics at $50,000. Here is $100,000 being grossly wasted for some reason. They need to get with it. It was not up for discussion. These people were brain-dead. They did not hear what I had to say. I can go on with numerous other examples.
Mr Jordan: But we have had Cresap go in and do an analysis of the operation and the administration. I am receiving complaints from the Association of Major Power Consumers in Ontario and others that the operation -- they refer to it as the OM and A budget, the operation, maintenance and administration -- is completely out of proportion to the requirements for a utility of that size. Would you comment on that?
Mr McGarry: I have two large transformer stations under construction in Toronto. Both of those were engineered with five to six engineers. I will not even give you a figure for the number of people on the budget Hydro would have for engineering those stations. It is a great deal more than five or six people. It is not the fault of the individual engineers; it is the fault of the system where you arrange to have meetings to defer decisions to --
The Chair: We are familiar with that, Mr Jordan. That sounds like Queen's Park over and over again.
Mr Jordan: But how do we turn it around, sir? Just your own opinion, having been on the inside of the organization.
Mr McGarry: There are some very progressive managers. I have to give an attaboy to a gentleman in the back here who has a degree in economics. I am quite sure he could whip the corporation into shape if he was allowed to run it somewhat as a business fairly quickly and convert it into profit centres or, if you wish, loss centres and see who could lose the least.
Mr Jordan: I was interested in the breakdown you have.
Mr McGarry: That is how Imperial Oil runs. By God, if you lose for long, you are out the door with your hat in your hand. You have heard that with Petro-Canada and others. People in Hydro have not had that reality. If I bring an Imperial Oil or Sun Oil project in 10% over budget, my fish is cooked, never mind 400% and 500%, okay? So I think there are ways. I am not an expert in management, but I think there are ways.
Mr Jordan: I do not really think getting politics or governments involved is going to help it that much.
Mr Klopp: It has never been involved yet, eh?
Mr Jordan: No, but you know what happens.
Mr Wood: You mean you were not involved for 42 years.
Mr Jordan: You just get more bureaucratic.
Mr McGarry: I would not like to comment. I have a deep suspicion of politicians, gentlemen. As you know, there are very few things run by government that are run lean and clean. I do not think the intention of this bill is to have Mr Huget become an expert in running Hydro. There is good and bad. Depending on which hat I am wearing, there are both pros and cons. I am a little uncomfortable with having the Hydro board of directors not be accountable. I sit on a number of boards. My ass is out on the end of the table, and that is where it should be, or I should get off the board.
Mr Huget: Thank you very much for your presentation. So that you are aware, Mr McCartney of your organization was aware of the hearings. He may not have been aware, I think, of the Chatham location, so perhaps in your different travels the wires got crossed somewhere. I am glad you are here today.
You mentioned a couple of things I am very interested in: the robotizing and computerizing industry and the fact that an energy policy in Ontario should be part of a solution and not a problem. I know this might lead to a lengthy answer, but I think it is worthwhile. I would like to know your views on what role energy policy will play in a different economic structure and a different industrial structure in Ontario. How do you see that unfolding?
Mr McGarry: As you know, a lot of our industries are still making buggy whips. Not only are they making buggy whips, they are making buggy whips with yesterday's technology and an undertrained staff. We, the people of Ontario, and you the Liberals and Conservatives over the last 30 years, have been subsidizing inefficiency. It has come home to roost, but there is hope.
For instance, there was an old Brown Boveri plant on Dixie Road that was building switch gear. It was bought out by ASEA and is called ABB now. They closed it down about a year ago. It was not competitive. It was doing things by hand, wiring stuff with paint-by-number kind of procedures. They built a new plant, which you are going to see on your way home tonight in Milton, with a great big ABB on the front of it. That plant is computerized and robotized.
The ASEA portion of ABB is expert in robotics. That plant will produce switch gear for a world market. They have cut their staff considerably and increased the skills of their staff. No doubt there will be some temporary dislocations of some of the people who were in the old Dixie Road plant but, by God, gentlemen, if we do not get on with some of this and attempt to retrain some of those people -- a lot of them at the old Dixie Road plant were from South America -- to do something else that is valuable, we cannot keep subsidizing the old Dixie Road plants. We are dead in the water if we do that. Everything will get all balled up unless we can deliver clean power at cost. We may argue over what the cost is, but I dare say the cost does not include other agendas. If we want to do that, then we should tack it on the taxes or something because we end up making the ABB plant in Milton 20 years down the road another dead dog kind of thing.
Most of our people are very good. I have travelled extensively across Canada and into the United States. There is a little bit of featherbedding, but really it is not bad. I think the system has done us a disfavour. The universities have done a disfavour to some of our people. I am a product of your college system, by the way. I am an engineering technologist who graduated almost 30 years ago. I have travelled across the country teaching and speaking on energy issues. I have taken many courses at both university and college. Occasionally I am accused, like Mr Kormos, of allegedly talking too much, or at least the papers say that. But that could not be the case, could it?
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The Chair: You cannot always believe what you read.
Mr McGarry: You are right.
The Chair: But then again some of it is true, and I am not saying which is wrong and which is right.
Mr McGarry: I think our colleges and some of our high schools are heading in the right direction. I see seven- and eight-year-olds who know more about computers and VCRs than their fathers do. I think statistics say most adults cannot program their own VCR. Believe me, if you are something less than my age you had better damn well learn to handle that technology because your future is going to depend upon it.
Mr Huget: I am very much a believer that there is a future opportunity economically or in terms of any other number of areas for Ontario, and one of them is in environmental technology and taking a leadership role in that field. I also see one in energy-efficient technology. I wonder what the demand is in other parts of the world for leading-edge technology in terms of energy efficiency. I think it plays a very important role in the sustainability of our business here in Ontario, but I wonder what you sense in your travels in other areas of the world. Is it an issue at the forefront, not discovered, or somewhere in between?
Mr McGarry: I think in the medium term you are very likely correct, but in the short term, for some of our industries out there, it is all they can do to meet the payroll next month let alone change the lightbulbs. Some of the energy things I see going on are somewhat boondoggles at the moment. Generally the rule is that if you cannot pay for it in two years, including the interest, if you cannot count on a return of investment in two years, you are very likely whistling Dixie. A lot of our energy initiatives right now in this environment just do not have that kind of return. We talked to the manager of factories and he says he would like to change those lights, but how is he going to meet the payroll next month, so on and so forth. In the medium term we have to be a little bit careful that we do not send $2 chasing $1 worth of savings. There is a balance there. I am not sure how we find it, but I heard a lot of people here today wanting to throw money at the problem and I suspect that is not the wise thing to do.
I also get the feeling as a consultant -- some of you may know I was chairman of the energy from waste committee and we will not get into that; that is a political nightmare. There seems to be an agenda on the part of some people that would have us all become tree huggers in a hurry. You and I ran Lambton generating station for 25 years without scrubbers. Maybe we should run it for another couple rather than greatly increase the cost of power at a very critical time. We have to be a little bit careful that we do not kill the baby while we are trying to resuscitate it. I hear great concern on the part of little people about the price of power.
Mr McGuinty: I have been listening with great interest to what you have been telling us, Mr McGarry. The major power consumers have been telling us, and I have some of the material, that most of the energy conservation and efficiency inroads that can be practically made have been made. I am also hearing from people from the public utility commissions that it is their belief rates will go up. It seemed to me that the major power consumers' industry is going to be hit hardest, since they have made whatever inroads they can and now their rates are going to go up.
I just wanted to read something I have here. It is a speech given by Lester Thurow at the Aylmer conference in 1991. He talks about the kinds of industries he thinks we are going to be talking about in the next century. He says:
"Not too long ago I received a document from the Japanese government...called Vision of the Nineties. And the question was, What industries should we, the Japanese, target for dominance in the 1990s and the early 21st century?... The Japanese list had seven industries on it: microelectronics, biotechnology, telecommunications, civilian aviation, the new materials science industry, robotics plus machine tools, computers plus software."
He then goes on to say:
"A few weeks after that, I'm happy to be on the mailing list of the economics department of the Deutche Bank. The Deutche Bank owns about a third of German industry and the Deutche Bank sent me a document that said, if we are going to generate a high standard of living for our citizens in the 21st century, we the Germans must dominate the following seven industries. What do you think was on the list? Microelectronics, biotechnology, telecommunications, civilian aviation, the new materials science industries, robotics plus machine tools, computers plus software."
They seem to have come up with the same list. Let us say that somewhere the powers that be want to bring that kind of industry to this province. What is that going to mean in terms of our electrical requirements? Are we going to need more electricity if we get into that? Is it going to be less? What about this distinct possibility that our rates are going to go up? What implications will that have on people looking to possibly invest here to set up those kinds of industries?
Mr McGarry: We are going to need more electricity and definitely electricity equal to or better than what it is now, with fewer disturbances. For instance, Richmond Hill is putting all its systems underground. They are trying to encourage computer centres, without disturbances, clean power with no interruptions so they do not have trouble with computers, robotics and so on. I am not surprised at the list at all.
I travelled to Korea just before Christmas to buy transformers, by the way, at 35% less than you can buy them in Canada, with Hyundai. I was surprised. About 65% of that plant is robotized. It is not a matter of throwing people at it; it is a matter of working smarter. We have to do the same thing. Korea does not have a lot of people compared with the rest of the Orient. I think they have some 55 million and we have 27 million. We are not really in the people business in Ontario, so I think we have to learn to work smarter. We have to use the skills we have and we have to develop new skills.
Back to the first part of your question, I think there are more improvements. Maybe we should be making cars in the middle of the night. Maybe we should be encouraging General Motors not to make cars during the day and shift the peak and change the rate structures to the point where that becomes viable. I still think there are real savings. My appliances in my house are -- let's see, I have been married 25 years now; my wife would give me hell -- about 25 years old. When I cook the turkey I heat the kitchen, then I run the air-conditioner to cool it off and neither one of them is working efficiently. So there are some real basic things we can do that will save energy.
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At Vaughan Hydro two years ago the peak was increasing at 22% and the energy at 18%. Some of that was waste but most of that was developing new 3,000-square-foot and 4,000-square-foot service industries. Since then they have been going downhill and they are still going downhill, but that is what we have to encourage.
If you have taken the time to drive in north Toronto, Mississauga and Brampton and Vaughan and Richmond Hill and Markham to look at all the little companies that are still making a go of it, making widgets and digits, the field has changed. Some time in late November Ontario Hydro invited myself and ABB, that switch gear factory I told you about in Milton, in to discuss how we build transformer stations compared with how they build them. I started out by saying, "This has got to be the big and the small of everything." My company has roughly 20 people in it, and ABB is the largest multinational corporation in the world in the electrical business, just gigantic. They were interested in me because I had learned how to do something effectively, a quality product at considerably less than anyone else. They saw that part of their future at Milton was in delivering a full product. If that meant going in with a 20-man corporation, that did not bother them at all. You see strange bedfellows these days in the business world.
Mr McGuinty: Can you shed any light on the decision taken by Hydro recently, or I guess the government, with respect to the proposed NUGs that were going to go ahead, or had for all intents and purposes just been about to go ahead I guess at Windsor? There was a Transalta project and a Nordic Power project.
Mr McGarry: I am not privy to any of the details. I do have some details of the ones in Sarnia and I have to declare a conflict of interest at this point in time because I am part of that process. I also have to declare a conflict of interest with regard to what is going to happen to some of the industries, because I have privileged information.
In theory, I do not have any problem. If Nordic can swing a deal with Windsor Hydro and it is not to the detriment of the power system and it has the steam host, if it meets the rules under section 34 of the federal act for a NUG and it meets Hydro's rules for whatever it is, 6,000 BTUs per hour or whatever it is, then I think the corporation should not interfere.
That applies the same for Sarnia. If Nova decides to build a NUG and sell the power to Sun Oil or vice versa, then as long as it is not to the detriment of you and me as consumers in Ontario and that is a megawatt that you and I do not have to produce by any means, then they should be allowed to do so within certain limits. We do not want to get into the details.
Mr McGuinty: One final question, Mr McGarry. You made reference earlier to clean power and to how crucially important it is to have reliable power when you are dealing with computers and robotics. Can you explain that? For instance, to use this comparison, if I have an electrical clock and the power stops even for a few minutes, I can simply readjust my clock. Why is it different when it comes to computers and robotics?
Mr McGarry: Large corporations have what they call UPS systems, uninterruptible power supplies, and they run their computers on the UPS system so that when they have a power disturbance the computer system is not affected.
I have 386 and 486 AutoCAD computers in my office in Sarnia. We are on the rural system, which is a four-wire system. Every time there is a lightning storm or a car hits a pole, we get a significant glitch, and I have had to replace three hard drives. The computer people tell me it is because I do not have clean power, and that is very much the case with computers as they are at the moment.
A momentary disturbance at Imperial Oil that shakes the system is in the millions of dollars a minute, and that is a million dollars that you and I are going to pay for. You appreciate that large corporations do not pay taxes, they pay dividends, and some of them do not even pay dividends lately. So it is going to be reflected in the cost of oil or gas or whatever it is. There is a technical argument as to how clean is clean, but we cannot allow the power system to deteriorate, because we need reliable, clean power.
Mr McGuinty: I gather this is going to be more important in the future with new kinds of industries than it has been in the past.
Mr McGarry: Yes. In particular, the very big ones can somewhat protect themselves, and the other thing that non-utility generators may do for the petrochemical industry is that they may give the petrochemical industry a kind of ace in the hole in the event there is a disturbance. You will have some -- just like Dow said; I forget the number -- about 80% of their own power. Dow has been in the NUG business a long time, and in my opinion, it has been very productive for them. I think that in the medium term it will be productive for others, especially if they have the steam and they can be a steam host.
The Chair: Mr McGarry, we want to thank you for coming here this afternoon. One of the things that certainly impressed me, and I believe every other member of this committee as we get to travel about, is the incredibly high level of expertise and talent that is in this province and is eager to come forward and be of assistance. You illustrate that, along with the others who have appeared here this afternoon speaking to us.
I will certainly lend support to the criticism of our reliance on $1,000-a-day consultants when in fact there is expertise out there. There are people who are willing to contribute for far less than some of those downtown Toronto types would rate themselves. So we thank you.
Mr McGarry: Thank you, and I will send you the bill later.
The Chair: It is in the mail. Sir, you have been interesting, as have the others this afternoon.
We are going to be back here at 7 o'clock tonight with participants, beginning with Grassroots Woodstock, and people of course are welcome to return. We thank you all for your interest and for spending time with us this afternoon. Take care.
The committee recessed at 1539.
EVENING SITTING
The committee resumed at 1906.
GRASSROOTS WOODSTOCK
The Vice-Chair: We will start this evening's hearings with Grassroots Woodstock, Mr Hardeman. Would you come up and take a seat in front of one of the microphones. For those people who are sitting out there, the coffee and juice are there for your pleasure. At your leisure, sir.
Mr Hardeman: I am Albert Hardeman. I am the president of Grassroots Woodstock. I would like to begin by telling you about our group, who we are and what we do, and then make our recommendations to this committee.
Grassroots Woodstock is a voluntary, non-profit group of concerned citizens working together to improve the environment locally and globally. Our membership includes people from various professions: teachers, farmers, entrepreneurs, engineers, parents and others.
Grassroots Woodstock provides a forum for learning more about the environment. We seek to broaden people's knowledge about environmental issues through our awareness campaigns, displays and the annual environment fair. We hold general monthly meetings and address specific issues of concern in smaller working committees where the emphasis is on research first and then action.
As environmentalists and consumers of electricity, gas and other fuels, we would like to comment on the proposed amendments to Bill 118 and the Power Corporation Act.
We support in principle the provincial government's attempt to make Ontario Hydro more accountable to the government and to the people of Ontario. We believe the composition of Ontario Hydro's board of directors should reflect Ontario's mosaic. Board members drawn from across the broad sectors of Ontario's population, including environmentalists, would result in representative decision-making.
There needs to be a fundamental change at Ontario Hydro away from promoting an increase in consumption towards simply providing an essential service while promoting conservation. Promoting electricity as a space-heating and a water-heating fuel is neither economically nor environmentally sound. Fuel switching from electricity to alternative fuels must become a top priority for Ontario Hydro.
The unit costs of production for electrical energy is more than natural gas, oil or propane. The environmental impact of electrical energy is greater than any of the alternative heating fuels. Air emissions -- carbon dioxide, sulphur dioxide and nitrogen oxide -- from coal- and oil-fired power plants are greater per unit of energy generated than natural gas. A reduction in electrical space and water heating would provide an economic and environmental savings, considering peak period reliance on oil- and coal-fired power plants.
It is logical that we encourage the cleanest, most efficient fuels. Electrical energy does not qualify as the cleanest, most efficient source for space- and water-heating service. We recommend that Ontario Hydro provide financial incentives to switch to natural gas space heating, including clothes dryers and stoves, and water heating where gas services are available. Long-term savings will be realized by Hydro consumers if fuel-switching programs are implemented.
We have identified as one of the areas of concern in our community the prevalence of electric baseboard heating in high-density residential developments. The low cost of installation makes this expensive and inefficient method of heating attractive to developers. Most town house and apartment units recently built in Woodstock have electric baseboard and water heaters. Many of these are rental units. Incentives for fuel switching should include builders and landlords as well as tenants and home owners.
Fuel-switching incentives should also encompass household appliances. Most consumers, when purchasing a new appliance, decide solely on initial purchase price rather than the total cost spread out over the life of the unit, including the cost of use. Therefore, if Ontario Hydro is to encourage the most energy-efficient fuel, the best way is to provide assistance at the time of purchase.
We would like to take this opportunity to express our concerns about nuclear energy. We are concerned about the storage and disposal of nuclear waste. We also have concerns over reports of safety problems associated with the Candu reactors at Bruce, Pickering and Darlington. We understand from a source at the Atomic Energy Control Board of Canada that the Candu reactors at Bruce and Pickering have experienced pressure tube design problems. Basically these tubes have only lasted one half of their projected lifespan -- a very costly design failure.
At Darlington, unit 2 experienced a fuel bundle break. It was contained. During this crisis, unit 1 was undergoing maintenance and was refused operating approval until the design problem was solved. The design problem was traced to vibrations of a pump, and baffles were tried.
Our point is that nuclear reactors are expensive to build, expensive to fix and have a high risk factor. These concerns, combined with an environmental impact of coal- and oil-fired generators, lead us to believe that in order for us to lessen their impact on our environment we need to curtail our use of electrical energy wherever possible. As a society, it only makes sense for us to continue to pollute our planet if we have another planet to go to.
I would appreciate answering any questions.
The Vice-Chair: Thank you very much. We have about seven minutes per caucus. I believe we left off before supper with the PCs leading, so it is Mr Huget this time.
Mr Huget: Thank you for your presentation. I notice in your presentation you state most of the town houses and apartment units built in Woodstock recently have baseboard electric heating. Can you give me some kind of a perspective of how many units we are talking about here? Are these big developments?
Mr Hardeman: Most of these are town house developments like cooperative housing developments. The baseboard-heated houses do not sell well to the general public. Most are rent-geared-to-income. The ones I am talking about were built two years ago. I do not personally know of any built within the last year.
Mr Huget: In your presentation you refer to fuel switching and you mention natural gas. I am curious as to what forms of energy your group would see us switching to other than gas. I think there are lots of sources of energy. What are some of those other sources your group would be in favour of, and why?
Mr Hardeman: Obviously where natural gas is not available we would like to see a little more interest in oil and propane, and non-polluting sources of energy such as solar energy and windmills. If they could work on some kind of two-way system where the energy generated would be used, where if it was not able to be used at that time it could be fed back into Hydro's power grid and used there, that would save on having to store it in very expensive and environmentally damaging batteries. Right now, I believe, in the rural areas where gas is not available, the only real alternatives are oil and propane, as far as fuels are concerned.
Mr Huget: Thank you. I will defer to Mr Klopp.
Mr Klopp: One of the concerns public utilities commissions probably have is that if all these things really do work in Bill 118, there will be a reduction in the amount of energy used, but they still have their fixed costs, so they are going to have to put their rates up. One of the arguments is that the consumer will go right crazy over this. However -- maybe I am wrong; you have been around this -- if my rates go up a little bit but my consumption goes down, my total energy bill will not really be any different; maybe it will even be a little less. I have been trying to convince people, but they say I am politically biased; I can understand that. But you are a consumer. Would you really go after your PUC if you could see these things happening as Bill 118 is trying to unfold or trying to put this message out?
Mr Hardeman: As a consumer, I would naturally object to my rates going up, but I feel that if we do not curtail the use of electricity, the rates are going to go up to a very large degree anyway because of the expense of instituting new sources of power.
On the second part, as you say, if we do put in the conservation programs, the savings you would generate -- for instance, if you have electric baseboard heating and you save two thirds, which I believe is the figure that was quoted to me in some cases, on your heating cost with gas, then your hydro rate going up really would not be a great hardship on you because over your total energy bill you would save. I think we have to start looking at the total picture rather than just at one group like Ontario Hydro.
The Chair: Mr McGuinty. Before you start, let me apologize for not having been here at 7, but there were some phone calls I was a recipient of. I know Mr Waters took good care of what was happening.
Mr Hardeman: It is quite all right, thank you.
Mr McGuinty: Thank you, Mr Hardeman. Following up on that line of questioning, one of the concerns I have is the impact an increase in rates will have on our industries. I am sure you have heard as many times as I have about the new buzzwords of "global markets," "competitiveness," "productivity." They do have some basis in reality; I have no doubt about that. I am fairly convinced that industry has made very significant inroads in terms of putting into effect measures that conserve energy and increase efficiency, because it pays them to do so.
If rates go up for them, I am concerned about the impact that will have on investors who are presently located here and, of course, investors who are contemplating coming here. I am wondering what you think about that. What is your reaction to that?
Mr Hardeman: There again, I know personally that at the place I work, we have instituted a new lighting system under Ontario Hydro's conservation program. These areas are saving some, but in the long haul the cost of the power should be paid for by the people who use it.
If uneconomical baseboard heating is what is keeping the rates down low, there is something wrong with that system. If we need to use power uneconomically in baseboard heating in order to keep the rates low for our industry, there is something wrong with the way the system is designed. The cost of producing that hydro should be reflected in what the industry pays for it. If what you say is true, that we need to keep having electric heat in order to keep the rates low, then there is something wrong; we need to redesign the system. When we look at electric heating and it is uneconomical, it should be eliminated, because it is not environmentally proper and it is not economically feasible.
If this causes the rates for industry to go up, industry is only paying a fair price for the hydro it is getting. They are still only paying for what they are getting, what the cost is to produce the hydro.
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Mr McGuinty: Let's take that a bit further. I want you to consider my perspective as an elected politician. I want to keep the people in my riding employed if at all possible. Industry is telling me: "Listen, if you put your rates up, we have operations in Manitoba, in Scandinavia, in the States. If they go up significantly, we'll pull out." So you can keep your environment but have your unemployed. How do we deal with that?
Mr Hardeman: We cannot subsidize the rates to industry. I am not suggesting under any circumstance that we would charge industry more than what it costs to generate electricity. It is my understanding that the rates are going to go up anyway if we are forced to expand our generating capacity. Is that not correct? That is my understanding, anyway.
Mr McGuinty: That is what we were told, yes.
Mr Hardeman: If we do not do something to lower consumption, we are going to have to increase supply. That is my belief, that we are going to have a larger increase by having to increase supply than any possible increase we might have by lowering consumption.
Mr McGuinty: I thank you for trying to grapple with those questions; they are not easy ones. It is not easy to come up with the answers. I am wondering if it is a sad commentary to some extent that we have to pay people to switch off electricity on to gas. The market has done a pretty good job, but it has not gone all the way. There are still a significant number of people out there who have not made the switch from electric space heating to gas, for instance, where it is available. Let me put it this way: Should we be giving grants or loans?
Mr Hardeman: I believe we should be getting loans. The sad commentary, I believe, is the fact of the lack of education over the past years. For instance, in my statement we talked about how as recently as two years ago they were still building new developments with baseboard heating when it is quite obvious that is not the way to go. So somewhere along the line we have missed out on educating people on what is the best and most economical way to go. I believe we should have a combination of loans that can be repaid, and not necessarily at the current interest rates.
I do not think giving people something is going to help. I think it should be a program that encourages people to go in the direction they should be going in anyway. I do not really feel that just to hand them a grant should be the answer, but we should include that with an educational program to make people aware of what the costs are and what the advantages are of going in that direction. It seems at the present time that Ontario Hydro is the one that would be best suited to implementing this kind of program.
Mr Jordan: Thank you for your presentation and for taking the time to come and speak to us this evening. On the first page you say, "The environmental impact of electrical energy is greater than any of the alternative heating fuels." I wonder if you could enlarge on that.
Mr Hardeman: To produce a unit of energy for the electrical system, you also need to produce the extra energy to send it down the grid, to start with. So with a gallon of diesel fuel, you would be using more diesel fuel to produce that unit of energy than you would use for that same bit of heating oil at the house.
The second part is that from my understanding, most of the electric heating -- water heaters, for instance -- is at a peak time. Everybody takes a shower at 8 to 9 o'clock in the morning, and that is peak-time generation. Most of the energy we use at the peak time is from coal- and oil-fired generators. So the energy you would save by cutting down on electric space heating is the most environmentally damaging of all, to date anyway. We have not had any of our nuclear reactors blow up yet, but to date the most environmentally damaging are the coal- and oil-fired generators. By cutting back on electric space heating, I believe we would be cutting back on the most environmentally damaging of the generating plants.
Mr Jordan: Do you mind if I just go back to the water heater for a minute? The system peak is at 6:30 in the morning, and then again at 11:30 before lunch and again at about 5:30 or 6 in the evening. With the electric water heater you have either 40 or 60 gallons, depending on the size of your tank, that is heated up during the night when no one else, basically, is using it for cooking or lights. It heats during the night, so when you start your operation in the morning, you have a full tank of hot water. I just have a little trouble understanding that you think it is on from 8 to 9.
Mr Hardeman: What I am saying is that when people take their showers, that is when the hot water heater does kick in, like at 6. My times are out, yes, but that is when the hot water heater kicks in and starts using the maximum amount of energy. As I say, my times might be out, but those are the peak periods of electrical use.
Mr Jordan: But you knew they were designed so only half of them came on. One element or the other comes on, but not both.
Mr Hardeman: Yes, not both. But still the maximum amount of energy used is when the water is depleted and the cold water comes in.
Mr Jordan: For one element anyway. The bottom one does not come on, just the top one.
Mr Hardeman: But the peak --
Mr Jordan: Yes, I know what you mean. You said, "I don't think we should charge industry more for electricity than it costs to generate it."
Mr Hardeman: Yes, I believe everyone should pay the fair cost, pay his or her own way. I do not believe industry should be subsidizing home owners and I do not believe home owners should be subsidizing industry for its electrical power.
Mr Jordan: I guess I was picking up on your phrase, "We won't charge more than it costs to generate and deliver." The reason for that is that this bill to amend the Power Corporation Act is going to allow other costs at the discretion of the government, not of the Legislature. Just the government would have that decision. We members who are elected from other ridings and who are not of the government will not have anything to say on behalf of our constituents, because it will not come to the Legislature.
Mr Wood: The Tories did that for 42 years, Leo.
Mr Hardeman: Okay, yes. I understand what you mean.
Mr Jordan: I am concerned to see that any change adding something to my hydro bill over and above the cost of getting electricity should come through the Legislature so it can be debated and discussed at least. The government still has the power to enact it, but at least it would involve the assembly and not just the government members.
Mr Hardeman: To be honest, I really do not have the ability to make that kind of judgement.
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The Chair: We appreciate that candour, Mr Hardeman.
Mr Arnott: Thank you for coming in this evening, Mr Hardeman. On page 2 of your brief you recommended that Ontario Hydro provide financial incentives to switch to natural gas space-heating, including clothes dryers and stoves, and water heating where gas services are available.
I would just like to tell you a little bit about myself. I was married just over a year ago and my wife and I bought a house. We have been in it a year, January 1991. We bought a house serviced by gas and we heat it by gas. We had no appliances and we bought an electric fridge, an electric stove, an electric clothes dryer and an electric washing machine. In hindsight, if I were trying to make it the most energy-efficient house, perhaps I should have considered a natural gas dryer as well as a stove, but I had my other reasons and I went ahead with these four electrical appliances.
I have to tell you, I would be very embarrassed to come hat in hand to Ontario Hydro with these appliances that are a year old and say, "Give me an incentive so I can trash these or sell them secondhand to someone else so that I can convert to a gas clothes dryer and a gas stove."
Mr Hardeman: The answer for that is in there; that is what I say. The proper time for incentive is not for you when you have already bought the appliances. The time for the incentives, for any kind of incentives, if you want fuel switching -- if this is what the answer is, and I believe it is -- is when you went out and bought those appliances, so that the incentives would be built in to allow you to make the correct choice.
Mr Arnott: How would you restrict me from applying for the incentives after the fact? I mean, I could decide I wanted new appliances.
Mr Hardeman: I had a similar experience to yours, actually. I bought a house and the lady left a gas range in the house. It obviously was not in very good shape. I had a perfectly good electric stove. Within six months, this gas range bit the dust, but my wife refused to use anything else. So I went out and bought a gas range.
I repair things and I am mechanically minded, so I looked at the new gas ranges and they are actually a lot cheaper construction and there is actually a lot less to them than there is in the electric stove, yet they are almost twice the price. I did buy the gas stove, because I am henpecked and my wife said, "You have to buy that stove."
Interjection: We have got that on record.
The Chair: Mr Hardeman, all those confessions having been made, yours and Mr Arnott's, and we all sympathize with the sense of consumer embarrassment --
Mr Arnott: I am not embarrassed, Mr Chairman.
The Chair: It did not seem that way when you were confessing.
Mr Hardeman: I would just like to finish that point.
The Chair: Go ahead, wrap up.
Mr Hardeman: If the same number of gas stoves were sold as electric stoves, the price of the gas stoves would be a lot more reasonable and we would be buying them. As it is, people are not buying them because they are so expensive and they are rare.
The Chair: Other people have commented that if people like Consumers' Gas and its affiliates here and in other parts of Ontario which are retailing some of these gas appliances were serious -- in any event, Mr Huget, you have 30 seconds left from your caucus's time.
Mr Huget: I would like to touch on the public education issue. You have raised it tonight. I want to take you back a bit into the Live Better Electrically campaign, which was a public education campaign to promote the use of electricity for space heating and hot-water heating in the province.
Ontario Hydro has a certain amount of funds allocated for energy conservation and part of those funds should be used for public education. Do you think there is a need for more public education and will it be effective?
Mr Hardeman: Yes.
The Chair: Thank you, Mr Hardeman. One of the things that has impressed all of us is the interest in this legislation and also the eagerness of people, yourself and others like you, to contribute to the process. Your views are well articulated and have obviously generated some interest and response by the committee members. We are very grateful for your having taken the time to come here. We trust you will keep in touch.
I should let you and others here know that you can obtain a transcript of these proceedings free of charge. Hansard records and publishes them and you can obtain a copy of the transcript for your own participation here, or, of course, the transcript of any or all of the committee's hearings over the last two weeks and this week, plus the next week we are going to do in mid-February. Get hold of your MPP's office.
UNION GAS LTD
The Chair: The next participant is Union Gas, which may want to talk with Mr Arnott later. Come up here, gentlemen, and tell us who you are. You may want to respond to the concerns about the price of household gas appliances.
Mr Bergsma: Mr Chairman, we will be happy to answer any of those questions.
My name is John Bergsma. I am the senior vice-president, regions, for Union Gas. What that means is that I have overall responsibility for Union Gas's distribution operations. With me is John van der Woerd, our marketing manager, who is responsible for gas marketing and our demand management programs as well.
It is our hope this evening to demonstrate in our submission that everyone in Ontario can benefit from economic and practical substitution of electricity by natural gas: electric consumers, new gas consumers, Ontario Hydro, the local electric utilities and society in general as well.
Union hopes to show that natural gas has currently some significant advantages over electricity, including lower prices, greater source efficiency and lower environmental emissions. Union believes that fuel switching to natural gas can be a less expensive alternative than either the addition of new electric generating capacity or even Ontario Hydro's demand management programs. By that we mean that we believe rates will go up less with substitution than they will under electricity demand management or under the construction of new generating capacity.
Although many customers in Union's service territory are converting from electricity to natural gas each year without incentives from Ontario Hydro, we believe that the rate of conversion could be substantially accelerated with appropriate economic incentives. We would like to illustrate the overall saving to Ontario Hydro through a substitution example where the total reasonable potential for conversion in Union's franchise area is considered. Then we would like to give a further example that shows how the need for 100 megawatts of electric capacity could be eliminated if Union's system were expanded to a number of communities near Union's existing distribution system. This project could be completed if the cost of such expansion were shared by the beneficiaries of the expansion, that is, the participating customers, Union Gas and Ontario Hydro.
Just by way of background, before Mr van der Woerd takes you through some of the detail of those points, Union Gas is a natural gas storage, transmission and distribution company covering the territory, shown in the colours on the map, ranging from Windsor to Oakville and Owen Sound to Dunnville. Union has been in business for more than 80 years and has developed its customer base over 560,000 residential households and 60,000 commercial and industrial establishments, representing more than two million natural gas users. Union annually sells 271 billion cubic feet of gas, which is transported through 10,800 miles of pipeline. Contributions in the 200 municipalities that we serve include $22 million in property taxes.
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Just for the record, Union is today actively promoting conservation in energy efficiency among its present customers, which has contributed to an 18% reduction in residential gas use per customer over the last 15 years. The kinds of programs included in our commitment to conservation are the promotion and sale and service of high-efficiency natural gas furnaces, the promotion and sale of low-flow shower heads and setback thermostats, participation in the development of new high-efficiency gas technology, contributions to a greater customer understanding of wise energy use through customer education, the introduction of new leasing and rental programs to defray initial costs of high-efficiency equipment, the promotion and support of cogeneration technology and, finally, the introduction and proliferation of natural gas for vehicle technology.
With that, I would like to turn the mike over to Mr van der Woerd to give you some of the details of the benefits that we see natural gas providing, and substitution providing, for all users in Ontario.
Mr van der Woerd: I would like to use illustrations, if I could, in making my presentation.
We have presented you with some information regarding the benefits of fuel substitution. That is the reason we are here this evening. Our first point would be that conservation through fuel switching to natural gas is going to benefit electric customers, gas customers, society in general, Ontario Hydro and local electric utilities. I would like to just take a minute and deal with each one of those.
First, electric customers will realize reduced increases in electric rates as Ontario Hydro chooses fuel switching rather than other more costly capacity options, including demand management programs. Second, new gas customers will receive lower energy bills. Third, society generally will benefit through lower energy consumption and reduced environmental emissions. Fourth, Ontario Hydro will see reduced energy demand and thereby limit further capacity cost increases. Finally, the local electric utilities will pay less for electric supply and thereby manage energy costs for their customers.
To the extent that the local electric utilities have other concerns, which we have heard about as well, Ontario Hydro may wish to develop mechanisms to resolve such concerns in a mutually beneficial way.
The second point I would like to make is that there are really three reasons why natural gas ought to be seriously considered by the committee: cost savings for customers; energy efficiency improvements; and reduced environmental emissions. I would like to deal with those three.
First, I show you a chart which compares electric to gas annual operating costs for a typical household in our territory. The bottom line is that for the typical household, switching to gas from baseboard electricity is going to save just short of $800 a year in the annual operating cost. That is about a 56% savings.
Second is the issue of efficiency. The concept we would like to share with you is that of source efficiency, that is, efficiency from the point of source to the point of use. What I am showing you here is a comparison of the efficiency of electricity and gas from source to use. We have calculated energy equivalents measured in kilowatt-hours. It could have been measured in BTUs or some other units, but for ease of comparison we have chosen equivalent kilowatt-hours. The amount of kilowatt-hours the system would have to consume in order to heat a home is 65,000. For an equivalent gas home it would be 33,000. Net saving: 32,200 kilowatt-hours. That of course is a significant saving.
The third point in the area of savings is societal benefit. The societal benefit we articulate here is in relation to carbon emissions. Of course, there are other benefits to natural gas in terms of nitrous oxide emissions as well as sulphur oxide emissions and particulate, but we will deal specifically with carbon, the greenhouse gas.
You can see that there is about a 65% saving in carbon emissions between electric and gas. This is comparing electricity at the margin; that is, the marginal portfolio of electricity that would be displaced through substitution, which includes coal, hydraulic and nuclear, would have this type of carbon emissions in order to generate electricity, and it would compare to gas this way in terms of the amount of kilograms of carbon. As you can see, the saving would be in excess of 3,000 kilograms.
The next point I would like to deal with is the issue of savings to Ontario Hydro. Our paper deals with issues relating to the relative costs of various capacity options for Ontario Hydro. I have given you a conservative estimate of what new electric generation will cost Ontario Hydro, at $800 per kilowatt. This is actually the cost of NUGs. It would also be the cost of coal. This number would be about $6,000 for the cost of Darlington, and if you wanted an average portfolio cost, it would probably be around $3,000 per kilowatt, but for ease of analysis we have used $800.
Ontario Hydro's DSM programs are in the range of $600 per kilowatt today; some are a little higher, some pay a little lower. Then Union's cost, or the cost that would be required for customers in Union's area to be able to switch, we think at the upper limit is going to be $300 per kilowatt. There would be significant markets that would be able to switch with lower incentives than this, but that is the relative cost of the options. Of course, Bill 118 creates the option for Ontario Hydro to consider this last line, which they now cannot.
Having looked at those numbers and accepted them for purposes of example, what we have done is a simple analysis to show you the cost to society if 1,000 megawatts of electricity were displaced by Union Gas, which is the estimate of what we think we could displace in our territory. The 1,000 megawatts times $600 per kilowatt, with a few extra zeros added, is a cost saving for Ontario Hydro of around $600 million. Looking at our alternative at $300 million, we think that fuel switching in Union's territory for this particular 1,000 megawatts is going to save the people in our area $300 million in supply cost.
As Mr Bergsma mentioned, to give you an example of what fuel switching means in terms of expanding our territory, which is only one small component of a fuel-switching program, the component that deals with expanding our territory beyond its current bounds, we think we can offer gas service to a variety of constituencies, many of whom are impressing upon us the want for our product and have petitioned us and have written us letters and there have been town councils that have asked us to appear to explain to them what it would take to get gas. All of that combined is about 100 megawatts displacement for Ontario Hydro.
The way we would see this particular program working is that the customers would pay around $18 million for conversion costs, because it is in their interest because of the energy cost savings. We see Union paying as well, because we would put in distribution systems to the extent that we could do it economically. Then we would look to Ontario Hydro to help us with gas transmission incentives, that is, to get the pipeline to the communities so when we are in the community with gas we can run the distribution system ourselves. Then in addition, because of the cost of going particularly to high-efficiency equipment, which I am sure we would want to do, there would be incentives related to conversion as well. Together this program would generate $62 million in economic benefit for Ontario; that is for that particular 100 megawatts.
With that, I guess I would just like to turn it back to Mr Bergsma.
1950
Mr Bergsma: To summarize, then, Union believes that fuel substitution from electricity to natural gas, where economic and practical, is in the best interests of all participants and of society as a whole. We believe substitution offers cost savings for Ontario Hydro and the local electric utilities and also improves energy supply efficiencies and reduces environmental emissions. Ontario Hydro in particular stands to benefit through reduced electricity demand and therefore reduced supply costs. These cost savings would be reflected in reduced rates to the electric customers of Ontario Hydro and to the municipal electric utilities.
Union supports fuel substitution to the extent that it is economic to both Union and Ontario Hydro. Union believes that overall economic benefits should drive the decision-making process, with government providing leadership in the form of policies and legislation that promote and facilitate the wise use of energy.
Union Gas is well positioned to accommodate an increased role for natural gas in its territory. Union has an excellent delivery system for offering natural gas and offers quality service in a responsible manner and at competitive prices to its customers. Union looks forward to working cooperatively with governments, Ontario Hydro, customers, environmentalists and other interested parties in promoting economical energy supply in Ontario.
The Chair: Thank you, gentlemen. Mr Cleary, four minutes please.
Mr Cleary: Thank you, gentlemen, for your presentation. You mentioned Union Gas, you mentioned Ontario Hydro, you mentioned the customer. Should the part that belongs to Ontario Hydro for this efficiency program come in the way of a loan or a grant, and should it come from Ontario Hydro or should it come from the Ministry of Energy?
Mr Bergsma: I think our view is that certainly with Ontario Hydro promoting demand management and trying to reduce the rate of increase of its system, it is in its economic interest to spend up to $600 per kilowatt for demand management. We are saying they can achieve the same end for $300 per kilowatt through natural gas substitution, so it is a clear benefit to Ontario Hydro to support that kind of initiative.
On the point about whether it should be done as a loan or as a grant, I think that is something that is obviously going to get further consideration under regulations that may come out subsequent to the bill. But Union Gas today does have leasing programs for equipment in the social housing area and in some commercial establishments. That works in some applications. But again, if you can do it through some incentives other than loans, you are obviously going to accelerate the level of participation, and to the extent that Ontario Hydro is trying to drive down that additional demand, it might be in its interest to do so.
Mr Cleary: The other thing I would like to ask you is that many areas in the province do not have natural gas. Do you feel this same program should be available for alternative types of heat?
Mr Bergsma: I think that to the extent that it is in Ontario Hydro's economic interest in its load-shedding efforts and its demand management efforts, it should apply to other fuel substitution opportunities equally. I do not know what the arithmetic is relating to oil substitution or any other form of substitution, but to the extent that the arithmetic works, I would think that would be reasonable.
Mr McGuinty: It is my understanding that people have been switching off electric space heating to natural gas at an accelerating rate in recent years. Is that correct?
Mr Bergsma: Yes, that is right. In the detail of our document I think we may have indicated that last year we switched some 6,000 people over from electricity to natural gas.
Mr McGuinty: Have you done any projections as to how many you would anticipate would switch in years to come as a result of just the market forces?
Mr Bergsma: Mr van der Woerd may want to speak to this in more detail. I think our current forecast suggests about the same level of conversions for the coming year, and we really have not taken a detailed look very much further into the future than that.
Mr McGuinty: How many more years would we have to wait for people who are heating their homes electrically to switch to natural gas so they all switch, or all who are going to switch have switched?
Mr van der Woerd: The main reasons people are switching from electricity to gas at this point are two. One is if their existing electric system has reached its useful life and has to be replaced, and second, where the economics are favourable for a customer seeing a three- to five-year or maybe a little shorter payback. It depends on the customer.
In terms of baseboard electric heating customers, some of the people are switching regardless of the economics out of concern about the rate of increases Ontario Hydro has been announcing. In terms of whether it is economic or not, it really does depend somewhat on the individual situation. I guess the primary driver, in addition to the two I just mentioned, is electric prices, and that is difficult to predict.
Mr Bergsma: On a statistical basis we have roughly 80,000 electrically heated homes in the area we serve. Obviously if there are diminishing returns as you go out into the future, and certainly if you go back two or three years we were not anywhere close to converting 6,000, but if you wanted to take sort of the maximum point and divide 6,000 into 80,000, that gives you whatever: 13, 14, 15 years. But I think it would be substantially longer than that, because you are going to get into diminishing returns.
The Chair: Did you want to complete that sequence of questions with one short question? I thought you did.
Mr McGuinty: Yes, just on a matter collateral to that, Mr Chair. From a strictly economic perspective, if I were a financial analyst and I looked and on the left hand I saw that here was an entity, a corporation that stood to benefit as a result of something that was going on over here, and that there was a risk somehow that some of these people over here were going to be saddled with costs, and perhaps unfairly, I might say to myself, "Why don't we have these people who stand to benefit kick some money in?"
Mr Bergsma: I think there is really a very straightforward answer to that. If you look at this example where we have Union investing $17 million in distribution lines, that would be done on a basis that is neutral with respect to Union's ratepayers. The customer is prepared to pay $18 million because on whatever kind of payback he sees, he is held financially whole, if you will. That is what drives the need for the $12 million of incentives on equipment and the $15 million of incentives on the transmission system. If Union were to spend that money, the rates for Union's other customers would go up. By Ontario Hydro spending that money, its rates go up less than they otherwise would, so Ontario Hydro ratepayers benefit from that expenditure.
It does not seem reasonable to us to have gas customers have their rates increase because of a benefit to electric customers, so the approach we have taken is that you keep the gas customers whole and the benefit then goes to the electric customers. That is what justifies the expenditure by Ontario Hydro.
Mr McGuinty: I wish I had more time. Well, just briefly. The Chair has indicated briefly.
Public utilities commission people are telling me that hydro rates are going to go up as a result of fuel switching. They are telling me that Hydro's ratepayers are going to be hurt as a result of fuel switching. I am saying, why do we not consider the possibility that those who stand to benefit would pay for some portion of the costs associated with the transfer? It would seem to me that you would have to pay the transmission incentives of $15 million notwithstanding the incentive program.
Mr Bergsma: Where it stands today, we do not go to those communities. Those communities do not have access to gas and will not obtain access to gas, because one of the things we would have to do is take that kind of proposal to the Ontario Energy Board, and the Ontario Energy Board would say to us, "You can't pass on unreasonable increases to other customers."
Mr McGuinty: But if the demand was there, surely you would have to pay those costs?
2000
Mr Bergsma: That assumes the demand is there.
Mr McGuinty: Yes.
Mr Bergsma: The other point about the municipal electric utilities I think is an important issue. Clearly, if our numbers are all right, and we think they are conservative, if electric demand continues without demand management, it is going to cost $800 per kilowatt to add new capacity. That is going to reflect itself in higher rates for all electric ratepayers.
Ontario Hydro says that by spending money on demand management, we can reduce the rate of that growth. It has programs that amount to roughly $600 per kilowatt to do that. That is a reduction from what rates otherwise would have gone up to. It is $200-per-kilowatt reduction, if you will. What we are saying is that on a fuel-switching basis, Ontario Hydro is able to pick up another $300 in avoided cost, which means that electric rates from Ontario Hydro to the municipal electric utilities are going to go up less than they otherwise would. That is what this is all premised on.
Mr Jordan: Thank you, gentlemen, for your very informative brief. Certainly it has been well presented, but I am confused because of the advantages you have listed. I am not questioning them, but why do you need Bill 118?
Mr Bergsma: I do not think it is so much a matter of us needing Bill 118. I think what we are really seeing here is that Ontario Hydro and Ontario Hydro ratepayers need Bill 118.
Mr Jordan: Since when did you get interested in that aspect of marketing? This is where I am confused. All of a sudden they introduce Bill 118 and we find you out live-marketing. You have all the advantages there. Why do you need Bill 118? That is my question.
Mr Bergsma: Let me repeat myself. I do not think we need Bill 118, but doing some arithmetic on Bill 118, we see a role for the gas utilities and natural gas in that process. As John pointed out earlier, we also have a lot of requests for service from communities that are currently beyond our economic reach and the application of Bill 118 would be one mechanism to reach some of those communities.
Mr Jordan: In what way?
Mr Bergsma: Currently it is not economical, largely because of the cost of the transmission pipe. Let's take an example of a community we are not serving that is 10 miles away from one of our current transmission lines. It is the 10 miles of pipe, say 10-inch diameter or 12-inch diameter, that makes that project non-economical.
The notion here is that if Ontario Hydro were able to provide through its demand management program an incentive at approximately $300 per kilowatt displaced, that would probably pay for the transmission piece of pipe. Once that transmission piece of pipe is paid for, then Union can meet the economic tests it is required to meet and provide service in that community.
Mr Jordan: You are hoping that through Bill 118 Ontario Hydro will extend your system.
Mr Bergsma: That they will help us to extend our system, yes.
Mr Jordan: You were saying if they paid that much, it would pay for the pipe.
Mr Bergsma: Yes.
Mr Jordan: In a free market and all these advantages, do you have conservation programs? Do you do residential home audits to conserve energy?
Mr Bergsma: We do not currently do residential home audits. We have had some discussion with Ontario Hydro because we know that it is planning major initiatives in this regard. I do not think they have all the details worked out yet. It seems to us that it probably makes sense for us to do that on a cooperative basis. We do not think it makes a lot of sense for them to go into homes and places of business and for us to follow them in with a similar program the next month or two weeks later. We would like to do that on a cooperative basis.
Mr Jordan: You mean a shared cost?
Mr Bergsma: Probably some form of shared cost or some form of shared implementation. For example, we often have direct access to customers in communities that Ontario Hydro does not, because Hydro has to work through a local municipal utility whereas we are directly in those communities. There is some opportunity to work together. We have not worked out the details yet. One of the things that is standing in our way today is that Ontario Hydro really is only in a position to address conservation as it relates to electricity.
Mr Jordan: But they have been doing energy audits on all buildings.
Mr Bergsma: Electricity audits.
Mr Jordan: No, all buildings.
Mr Bergsma: Yes, but they are electricity audits. They are not recommending natural gas solutions.
Mr Jordan: No, they are just doing energy audits. You see, it does not matter what the fuel source is; they do the energy audit. The person is then free to put in whatever energy he likes, but the recommendations to correct the building are the result of the energy audit. I am just saying, are you planning to share the cost of that?
Mr Bergsma: We have not gone that far yet to discuss any of those details, but certainly we think there may be an opportunity to work cooperatively.
Mr Jordan: I just hope it is the customer who says the interest is in here and not just in increased markets. Thank you very much.
Mr Arnott: I am just wondering if there is anything that precludes you from initiating your own fuel-switching incentive program?
Mr Bergsma: We have fuel-switching incentive programs now. When we do our spring marketing campaign, we give people discounts on equipment purchases that are high efficiency. That is part of what is resulting in the 6,000-a-year conversions we currently have. We have made some limited what I would call line extensions to get to subdivisions or communities that we do not serve. I think what we are seeing here is that there is a significant opportunity to accelerate that program and to help Ontario Hydro achieve its objectives for its demand management. In the latest plan, if I am not mistaken, Ontario Hydro identifies some 3,000-plus megawatts on a provincial basis for fuel switching and part of that is the kinds of programs we are talking about here.
Mr Klopp: One thing a few people brought up that concerns me too and that I hope you can expand on is the security of supply. It is a buzzword that we have heard, but you guys are in the business a little deeper than some others and maybe you could expand on that a little bit.
Mr Bergsma: Yes, we can. I think from our standpoint and from my standpoint, in running the distribution business at Union Gas we do not have a concern about supply. If you are looking at natural gas pricing today, natural gas prices are at their lowest levels ever because there is an absolute glut of gas in western Canada. If you look at the number of years of gas supply available -- I cannot tell you the exact figures; perhaps John can -- I think it is 20-plus years. There is new gas being found.
From the perspective at Union Gas, we have access not only through the TransCanada system and the Great Lakes pipeline system to western Canadian gas, but through our St Clair River crossing and our panhandle connection we also have access to US gas, so from a supply standpoint we do not have any concern. I think if you look at the latest version or edition of Ontario Hydro's forecast, having taken a pretty careful look at natural gas supply, it no longer has a security concern either.
Mr Waters: I am going to read a bit of an article from the Financial Times dated January 27, and I would like you to respond to it:
"Stripped of its mystique, a nuclear power plant is simply an expensive way to boil water. Unfortunately, Ontario Hydro has great difficulty grasping that concept. The runaway costs of our provincial crown corporation's steam kettle at Darlington, Ontario -- $13.5 billion with no real end in sight -- threaten to overwhelm Canada's largest electric utility.
"Darlington, 60 kilometres east of Toronto, is about five years behind schedule. Each day its four 950-megawatt units are not in full operation costs Hydro -- and ultimately all Ontarians who use electricity -- $3 billion in lost power sales plus $3 million in interest charges."
2010
It goes on for a little bit. Somewhere down in the article it says that if Hydro doesn't change its ways by the year 2000, Ontario's energy rates will be 27% higher than the US average.
Do you see the switching as a means of helping to cut those rates and bring Hydro rates back in line so that the industry in Ontario can be competitive, energy-wise, with its US counterparts south of the border?
Mr Bergsma: Yes, we do. The key to that is the difference between $800 -- keep in mind that is at the NUGs level; as John pointed out, if you are talking about nuclear, that number is something like $6,000 -- versus $300. That is on a per-kilowatt basis. If you look at the 3,000 megawatts natural gas could displace on a province-wide basis, that is a significant contribution, but it is not so big that it really makes a dramatic difference to the overall cost. Even if you look at the 1,000-megawatt potential in Union Gas territory over Hydro DSM, that is a $300-million saving. If you compare it to the NUGs, the $300 becomes something close to $500. If you then compare it to $6,000 you are talking billions of dollars of savings that are costs Ontario Hydro would not have to incur.
Mr Waters: Basically, what you are saying is that if Ontario Hydro indeed wanted to give its customers power at the cheapest cost, it would therefore be in favour of switching and assisting people to switch, because in the long run the cost is cheaper for that Hydro customer.
Mr Bergsma: We believe that to be right. I think it is important to reinforce the point that from our standpoint, we would not suggest that Ontario Hydro should do anything that is not in its own best interests. We just happen to believe that fuel switching is indeed in its best interests and we hope that some of the numbers we have presented here today illustrate that.
Mr Waters: What I am wondering about is switching. We talk a lot about switching houses and the odd time about industry. Do you get involved very often with people who want to switch and try to work out savings or cost differences on large scales? We have a thing from the Metro board where it is going to save $1,760,000 on 32 schools. Is there much of that?
Mr Bergsma: There is some of that. Mr van der Woerd can give some detail.
Mr van der Woerd: Probably a good specific that gives you an example is that the Ontario Housing Corp has 178 buildings in Union's territory and about 500 high-rise buildings in Ontario generally. The Ontario Housing Corp came to the Ministry of Energy and the Ontario Natural Gas Association, which we are a member of, and said: "What can we do?"
We now have the three utilities financing out of the energy saving the switch of water-heating systems, air-handling systems and soon the heating systems as well. We are financing that program out of the differential between their electric bill and their gas bill. In the first couple of years, which in the case of OHC is like two years, they are able to make that switch. They can do that because of the size of the saving in that particular instance. That activity is happening.
In addition, as Mr Bergsma was saying, there are a number of communities that we have been able to get to because of the energy cost savings, and in some cases customers are prepared to actually contribute because they are really desperately interested in saving money and getting on to what they perceive to be a heating commodity that is stably priced.
In the industrial sector, just as an example, something that is going to require incentives is, General Motors has approached us about air-conditioning one of their manufacturing facilities. It will be a 4,000-tonne cooling facility which could be done on gas engine-driven cooling, but it cannot be done without incentives. There is 1.8 megawatts, so that is an example.
We have a list of 300 constituencies including town councils, etc, who have written to us, petitions from every single member of the community saying, "When are you coming?" The mayor of Grand Bend is an example, and others.
Mr Waters: The question is, when are you coming?
Mr Van der Woerd: We are going to be coming as soon as we can resolve this issue.
The Chair: Gentlemen, I want to thank you for taking the time, along with others, to come here this evening. You have provoked some very significant discussion and debate, and we appreciate your contribution to the process. Thank you; take care.
Mr Bergsma: Glad to be here.
The Chair: I trust you will be keeping in touch.
WALLACEBURG HYDRO-ELECTRIC SYSTEM
The Chair: The next participant is the Wallaceburg Hydro-Electric System. This time we have Ted Oliver, the general manager. Sir, please be seated. We have your written submission. It is part of the record and will become an exhibit. You can read it or highlight as you wish. Please leave us some time for questions and discussion.
Mr Oliver: Thank you, Mr Chairman. I would like to highlight the presentation, because I think if I just left it with you, there might be certain key points that would not have been underlined the way I would like.
First, I would like to explain that we are very well aware that you have heard from many members of the Municipal Electric Association and are well aware of our concern about changing the mandate of Ontario Hydro through directives and the problems of fuel switching.
I am delighted to have been able to hear part of the presentation by Union Gas on fuel switching, because our utility and I think many other utilities feel there is definitely an area where fuel switching can be an advantage to both sides. However, we feel this should not be at the expense of Ontario Hydro or at the expense of the electric users, and I was pleased to hear the gentlemen from Union Gas express that they would not wish initiatives which would be harmful to Ontario Hydro.
We feel a deep concern that the basic principles upon which Ontario Hydro was founded have been subverted by successive provincial governments of three different parties during the past decade.
Sir Adam Beck -- his name has been recalled many times over the years because of what he contributed to the growth of Ontario -- one of the founding fathers of Ontario Hydro, carefully planned the creation of this corporation so that, while created by the government of Ontario, it would not be a political instrument.
In the creation of local municipal utility commissions, he saw to it that these commissions, while created by a municipal council, would be free from political influence of the council in the conduct of the day-to-day business. These local commissions are driven by economic and market forces to provide services to their customers at the lowest possible cost, consistent with the degree of reliability their customers are prepared to accept.
A place that will tolerate few interruptions will pay more for electricity than a place that will accept unlimited interruptions. However, if the supply of power from Ontario Hydro is compromised, all municipalities will suffer and industry and commerce will go elsewhere.
Changes in the cost of power: In the changes mentioned earlier, we have noted the Progressive Conservative government established a water rentals charge for use of water flowing through the turbines.
The Liberal government, following the PCs, added its share of taxation by charging a fee for a loan guarantee for Ontario Hydro's borrowing, despite the fact that the guarantee has never been required.
The present New Democratic Party government has now evidently chosen to transform Ontario Hydro into an instrument of social change, but this change is a complete reversal of the role Ontario Hydro played since its inception. In the beginning, it was believed and proven that the spread and increase of the use of electric power would contribute to the development of industries, towns and cities and would reduce the drudgery of manual labour in factories and homes and on the farms.
By first declaring a moratorium on nuclear generating plants, the government has set a limit to Ontario Hydro's growth. By further restrictions on emissions from thermal generating stations, the government has added large increases in the cost of power. As most of Ontario's hydraulic plants are ancient, over 40 years old, the costs to refurbish them will be another burden on rates.
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To imply that we can meet our power requirements without new generation by Ontario Hydro means a great reliance on energy efficiency, load shifting and private generation. Perhaps greater than any of these factors will be the plants shifting to another province or another country. To the best of our knowledge, Ontario is the only place where the government intends to attract and hold industry by providing less power.
By comparison with Sweden, in 1980 Sweden had a moratorium on nuclear power, and through a plebiscite the public decided that operating nuclear reactors should be shut down. This was to begin in 1995 and be complete by the year 2010. In government bill 1990/91:88 (reference 1), Sweden's government brought down a bill which agreed with the principle of shutting down nuclear reactors but set no fixed dates for starting or completing the process. This, by the way, is a bill which was brought down approximately one year ago. It did note, however, that nuclear power generation is 50% of Sweden's total.
In the same summary it is noted, and I quote a few passages from the report:
"The measures proposed here lay the foundations of a competitive and ecologically appropriate Swedish energy supply. They imply vigorous action for improved energy conservation and a firm commitment to the development of new, environment-friendly power production.
"In addition to safety requirements, the transformation of the energy system must be governed by considerations of the electrical energy needed for the maintenance of employment and prosperity.
"The phase-out of nuclear power will eliminate roughly half of Sweden's present electricity production capacity. The loss will have to be offset by means of electricity conservation or the establishment of new electricity production."
I would comment at this point that part of that equation has already been applied in Ontario in the energy conservation, but I think we are neglecting to realize that if the electrical system is to remain healthy, it must be allowed to grow some time in the future.
"Sweden's energy supply in the past few decades has been characterized by falling oil consumption and rising electricity consumption for domestic heating and for industrial purposes. Use of oil products has increased, however, in the transport sector. Total energy use has levelled out and was roughly the same in 1989 as in 1970."
I do not think anyone can say the same for Ontario's energy picture. I think the consumption of energy in Ontario in 1989 was many times what it was in 1970. I am not clear on the gas supply situation in Sweden, but I believe, since it is not referred to, it does not make up a very substantial portion of the energy supply.
"Even with a successful program of electricity conservation, however, one cannot discount the possibility of a rise in total electricity consumption.
"At the same time, it is essential both in the short term and the long term that there should be a good margin between capacity and first-rate electricity consumption. Steps should therefore be taken to encourage the expansion of environment-friendly electricity production."
Concerns over cost of electric power: Our customers have very serious concerns about the cost of power as it relates to the cost of their product.
For the benefit of the committee, I will say Wallaceburg is a small town of about 12,000 people, 24 kilometres north of Chatham, which takes about half the power consumed by the city of Chatham and its industries, which has a population four times the size of Wallaceburg. So our industries are especially important to us and we take special care to be in touch with them and work with them if they have concerns. When they want audits, we work with them through Ontario Hydro and we follow through to see how much implementation can be done.
During the past year, from 1991 to 1992, the rate increase was 12%, and we have been told by Ontario Hydro that future increases could be 11% per year for 1993 and 1994. Our industries have told us that this increase is unacceptable, as it will mean, first, the elimination of jobs to keep the cost of their product down and still pay the rising cost of power, and second, moving their plants out of Canada into the United States or other jurisdictions.
These statements are no idle threats, as these customers have been faced with tough market competition which in many cases dictates that they cannot pass any increase in the cost of their product to the consumer. Therefore, the only recourse they have in meeting higher power costs is to eliminate jobs in the plant of a dollar equivalent to the dollar increase in the cost of power. These same industries will be among the first to complain if the power supply from Ontario Hydro, or any other source, is unreliable to the point that they are faced with power interruptions more frequently than they have been used to. This relates to the capacity of Ontario Hydro to meet its total demand load at all times. Therefore, brownouts or blackouts would speed the day when these plants would leave Ontario.
Where are we going? At the present time, local electrical utilities who have seen additional taxation by two previous governments and have seen price increases in the cost of power of double-digit size are rightly concerned that the earlier relationship between the Ontario government and Ontario Hydro has greatly altered, though we hope not irrevocably. All efforts by our Municipal Electric Association to persuade the provincial government to back off from imposition of the water rentals tax and the loan guarantee tax have failed to find a responsive ear; this is not the present government, but previous governments. Perhaps the earlier governments felt that a small tax would not really be felt by the electric users in the province. However, these two taxes do amount to a significant portion of the cost of power supplied by Ontario Hydro: 1.5% for the water rentals tax plus 3% for the loan guarantees for a total of approximately 4.5% or about half of the increase from last year to this year.
Also, the application of the GST to our residential customers is an additional burden here which is not negligible. Water users are free of this tax. Is water really any more essential to life in these times than electricity? While a trend in sales of other energy forms has been to let market forces work and provide a lower price for the consumer, as in the case of natural gas, government regulation and government taxation have driven the cost of electricity upward. Therefore, any further addition to the burden of electric users by indirect taxation through incentives for fuel switching will be counterproductive. Our industrial customers are already complaining about the recent levels of rate increases, and a further increase of whatever amount for fuel switching could be enough to force them to close.
There is also the question of fairness to those who have already switched fuels. Individuals and firms who did this on the basis of good economics have a legitimate complaint if their neighbour or their competitor is now given an additional subsidy by Ontario Hydro.
While it may appear that we are singing a song that has no hope of being heard, we long for the day when Ontario Hydro returns to the business of producing power at as low a price as possible, consistent with reliable delivery of the product. Many aspects of business today are much more complicated than they were in the days when Ontario Hydro was created. However, we believe it should be the job of legislators to simplify the process of enabling Ontario Hydro to get on with its job. This raises the question of, "What is Ontario Hydro's job?" Members of our association have felt that, from the beginning, it was to provide power at cost. It is our earnest hope that the members of your committee will make recommendations that will lead us to the day when Ontario Hydro will be allowed to act within its own sphere with the full support of the government, and to carry out the wishes of the government in a way that is economically sound and will provide for the greater good of all the citizens of this great province.
The Chair: Thank you, sir. We have four minutes per caucus.
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Mr Arnott: Thank you, Mr Oliver, for your presentation this evening. We have had a number of suggestions from various presenters over the past couple of weeks about an ideal board of directors for Ontario Hydro. I wonder if you have any suggestions as to how you think the board should be set up.
Mr Oliver: I have not really given the matter much thought, except to know that in the past there was representation from our electrical association. That is not mandatory on the present board. In the past, up to two members of the smaller board were members or usually past chairmen of the Ontario Municipal Electric Association, which is now called the Municipal Electric Association. It would appear to me that since we are suppliers to 70% of the population and industries of the province we should have a significant voice on Hydro's board. Some proportionate representation of the MEA, be it two, three or four, would I think be appropriate, considering the amount of input they should have.
Beyond that, I have felt that from the makeup of previous boards there was a reasonably good balance from different segments of industry. I believe there should also be representation from people who are not representing big industry but other special interest groups, if you wish, or people who will be representing the consumer at the level of a residential consumer and not a huge industry. As I say, I have not really given the matter much thought, but I feel MEA representation would be a must on the board, and it should be as broad a spectrum as you can. It would be impossible to have a board of 40 or 50 people; I would not suggest that. But a board of between 12 to 19 people who would cover the spectrum, and who would be representing different spectrums on the rotation, would in my mind be as ideal as I could see.
Mr Arnott: There have been a number of presentations and presenters who have stopped just short of calling the board of directors for Hydro a eunuch if Bill 118 goes through, in that the minister will have ultimate power to issue policy directives and the board will be emasculated of much of its power. How do you feel about that?
Mr Oliver: I think this would be a matter of how the government, through the Minister of Energy, and the Deputy Minister of Energy, being a non-voting member on the board, would see their role in the function of the board. My personal opinion would be that the government should have enough confidence in the chairman of the board to know it has a voice directly as the head of the board without the need to have the Deputy Minister of Energy present. I would not wish to prejudge how the board will act. I think it depends on the attitude both of the government and of the board itself, vis-à-vis the government, as to how it would turn out.
Mr Arnott: Bill 118 contains provisions that remove the accountability and the liability of some of the directors on certain matters.
Mr Oliver: I feel uneasy about that. I think any director of a large corporation -- and Ontario Hydro is one of the largest -- should be accountable for all decisions he makes and should be held to account for them.
Mr Huget: Thank you for your presentation. I want to quickly go to page 2 of your presentation. There you say that by placing a moratorium on nuclear generating plants the government has set a limit to Ontario Hydro's growth. Are you saying to me that Ontario Hydro's growth should continue the way it has in the past and indeed escalate unchecked? Is that what you are saying?
Mr Oliver: What I am saying is that to put a moratorium on the only considered feasible method of developing power in large blocks at the present time means that that option is definitely taken away. Thermal options are very costly because of the emissions problem. In effect, you have established a ceiling, that this is where Ontario Hydro is now. Barring minor cosmetic changes, it might increase by 5%, 10% or 15%. That is as far as you are going to grow, until we get to the day where we see some alternatives that would be more palatable than nuclear power.
I do want to comment that a lot of us have Three Mile Island in mind perhaps when we think of nuclear power. We do not realize that more than half the generation in France is nuclear. In Sweden, 50% is nuclear. Sweden, while it had a revulsion against nuclear power, decided in this bill last year that it would have to review the question of timing of phasing out of nuclear power. The old idea was the nuclear power plant would be good for 25 to 30 years and would then go through a phase of being decommissioned. I think, like hydraulic plants, we are going to be seeing nuclear plants continue as long as they possibly can, regrettably, because of the large investment that is put in at the beginning.
I feel very passionate about this whole thing because I feel if you put a limit on what any organization can do in the way of producing its product and say, "You cannot go beyond this point," and then say further, "You will only survive by telling your customers to use less and less of your product," you are saying, "You will only grow by getting smaller." That does not make economic sense. I have not heard of any other business that has grown by getting smaller.
Mr Huget: I want to come back to the economic sense issue. You raise in your presentation the cost factor and the costs associated and the cost increases for hydro in the province. Hydro itself says the Darlington station and the nuclear refurbishing program are responsible for a large part of those costs. Is Hydro lying here? I mean, that is the fact.
Mr Oliver: I do not believe Hydro is lying, but I do believe that what Hydro is also saying in other reports is that in days gone past -- this is also from the chairman of Ontario Hydro at the present time -- Ontario Hydro was able to push its nuclear plants higher than anybody else in the world, to get the production out of its units at a higher level than anywhere in the world at the present time. They were running at rates of 85% to 90%, I believe, whereas most other operators throughout the world were content with 75% or 80%.
If you are running higher than the norm in your industry in the output of whatever type of production you have, sooner or later there is an economic price you have to pay. It may be that Ontario Hydro was unaware that operating at that level might produce premature failure and therefore premature cost. I am not pretending I understand where they all come from, but I do know that a large part of the costs, from what I have read, will be in refurbishing both hydraulic plants, many of which are 70 years old and older, and a lot are 40 years old and older. When you take the economic life of electrical equipment as 40 years, if you are getting 50 or 60 years out of it you are living on borrowed time and you are having to pay something to replace the windings and other components in that unit to make it economically successful to continue operating.
Mr Waters: I understand that the hydro commissions are basically a non-profit service to their community. Given that, if that is so, why would the local utilities not assist the local taxpayers in savings? The end result here is dollars in somebody's pocket. Why would they not assist them in savings and, at the same time, assist Ontario Hydro through its customers with savings there because they do not have to build nuclear plants?
Mr Oliver: We are working with our customers to save on their cost of power. We have worked with Ontario Hydro, with approximately 12 different industries out of some 20 or more in town, and 12 or 13 commercial customers, to develop energy audits so they could save money on their power bills which would help to offset a good portion of the 12% increase they saw in the cost of power from 1991 to 1992.
Being a non-profit business means we do not have profits to share with our shareholders, which are essentially our customers, but we do feel it is our responsible business to provide savings to our customers if they are unaware that savings are possible.
I spent eight years working with industries in Wallaceburg to make them aware of the savings possible through installing capacitors with a two-year payback. In the last year, I have seen some of the first of those customers finally understand what it was I was trying to say, whereas it took some of the others no less than six months to realize what was happening. What got across the message was that in the whole energy audit that Ontario Hydro provided through its consulting service, the benefits to one customer of all of the savings that it could implement was no greater than what it could do by putting in capacitors, so right away that moved to a priority situation.
This can only happen if you are in touch with your customers and have the sense of what they can see as economically viable. I am always sensitive when you or someone else raises the question, why do we not help save our taxpayers or our customers money? We try to differentiate very clearly between a taxpayer, who can be anyone who is paying taxes to the municipality, and an electrical consumer or customer who is one who is connected to our system, is buying power from us and has an ownership of our system.
The Chair: One moment. Was that the question you were going to ask, Mr Klopp?
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Mr Klopp: No.
The Chair: Then ask the one you were going to ask.
Mr Klopp: Would you agree that building excess supply represents costs, like having excess inventory in a business? You referred to the fact that this thing has to be run as a business, for least cost and all that.
Mr Oliver: I heard the question, but I am not sure I understood the import of it fully. If I build extra capacity into our system in Wallaceburg, that is extra cost, to provide it before I need it. But it also means I have it when I need it if another industry locates there. If I do not have it when I need it, I have lost that customer. Usually there is enough time to provide the system increases if I have available capacity from Ontario Hydro. If we reach the point where Ontario Hydro is pushed between its margin of capacity to supply us and what we are now taking as customers, we would eventually have to refuse customers to connect to our lines and turn them away to another province or another country.
Mr McGuinty: I wonder if you would please comment on Hydro's recent revisions to the demand-supply plan where it has informed us that it anticipates it will save some 9,900 megawatts by the year 2014. In 1989, they told us it would be in the neighbourhood of some 5,700 megawatts.
Mr Oliver: I have only seen the brief synopsis of the plan today. I have seen the figures that are proposed there and I agree with the levels that you have stated as being given in the plan.
There are so many variables in achieving those goals that some of them can be achieved by the undesirable consequence of increased rates. In other words, we can maintain a margin between capacity and load requirement by chasing industry away. Unfortunately, I think some industries have become jittery already and have put off plans to build plants or expand plants in Canada, in Ontario, for that very reason.
To comment in depth on whether the 5,000 to 9,000 megawatts is a reasonable figure, it is very easy to say it is a good figure or a bad figure, but I have no basis for making a comparison. I think the proof will be in how well we approach those targets over the next few years, maintaining a delicate balance between confidence of the customer that the system can deliver and that these changes will be to the benefit of the customer, both to the customer now producing and to all of the other customers connected to the line who will not feel a negative impact because of the downsizing of the total system load.
I am an engineer. I have had 40 years experience in the power business as a designer, as a consulting engineer, as a utility chief engineer in Peterborough and now as a manager in Wallaceburg. I have a very uneasy feeling about the process of downsizing the program.
The comments from Sweden were deliberately put in here to indicate that while they know they have to make efforts on energy efficiency and energy conservation, they know also that they have to make provision for expansion of the generation capacity at some time. They are concerned as to how they will do it. Some of the options are very far away.
Mr McGuinty: I was interested to hear you tell us something of the Swedish experience. It was my understanding that in 1990, when the social democrats decided they were going to back off the earlier plan to phase out nuclear generation in existing plants, one of the concerns the government had was with global warming and the problems that arise through generation from burning fossil fuels. Is that your understanding as well?
Mr Oliver: My understanding is that they decided to back off. Whether global warming was the major consideration I am not entirely certain. I think there was also the fact that there were no ready alternatives to follow through with the program to immediately phase out the nuclear plants and still maintain the 50% they would lose in the generation capacity.
This document just came into my hands today, so I have not researched it fully, but the charts for growth of energy consumption are very similar to Ontario Hydro's demand-supply plan in showing the mix of various ways they intended to meet their total electricity goal. Time and again they keep referring to the necessity to maintain a reliable supply, the quality of supply, the same things I am sure Ontario Hydro is very concerned about and certainly all of us in the Municipal Electric Association family are concerned about, that we have a reliable supply of first quality so we can maintain what our customers demand.
Mr Jordan: Thank you for your presentation. It is very much in line with what the other utilities have been telling us and the Municipal Electric Association, the concern you expressed about supplying load through conservation, with the result of downsizing the utility to a degree where it becomes not an electrical industry but just a minimum requirement electrical service at a very high unit cost. I really wonder why, if we can see we are headed in that direction, yet through our assessment and through the demand-supply plan, even as revised, it states that, like Sweden, we are still going to have to look at new production.
Mr Oliver: There is no escaping that.
Mr Jordan: Having said that, from all the studies that have been done, it would seem that at the present time, with the technology we have, nuclear is the most benign to the environment.
Mr Oliver: This is what all the experts of all systems tell us, that the emissions to the environment from nuclear are the least of the three. I mean, you have the problem with hydraulic plants of the fish and other wildlife that are affected by the creation of dams.
I had the pleasure of working for a year on a fusion project in Quebec that was to be an alternative to the nuclear power plants. The horrors people had about creating this kind of generation, and location of people many meters farther away from the actual generator than from a nuclear power plant, indicated that they were very uneasy about this too. They also felt this was a project that was at least 20 years away before it would become commercially available. Some eight or 10 years after I left Quebec, the unit at Varennes in Quebec had managed to produce power for I think a matter of 30 seconds or one minute. They were excited because at least they had produced continuous power for a very short time, and a relatively small amount of power. To go from that point, which is in the lab, into a commercial production is still a long way. Really, no one at this time is talking of fusion before 2010 or 2020.
Mr Jordan: No, but there is continual research and development there.
Mr Oliver: Yes, there is. Sweden was talking also of solar energy being used as a means of offsetting some of the losses through the electrical system and also through the changeovers from oil. They did not come up with any other new wrinkles I could think of. They talked of wind power as well, but we also have wind power demonstration units in the United States at the present time. These look like weird things; I think they are in the Nevada or New Mexico desert, but it is just a bunch of great propellers generating power, which I think goes into batteries; I am not clear on the total. But this is still very much in the experimental stage. Nuclear power was in the experimental stages back in the 1950s too.
Mr Jordan: That is right, yes. You see, I would sooner -- it is like the $7 million on those lightbulbs. They said they consulted the utilities, but the utilities tell me they did not, that they did not know anything about it. That being the story, that $7 million, and the $6 billion planned over the next 10 years for conservation programs --
Mr Huget: And the $13.5 billion for Darlington; there are lots of numbers.
Mr Jordan: I just wonder if we would not be better to step up our research and put the money in there to either improve our nuclear plants as we know them today -- for instance, that Candu for 50 megawatts is coming on now, which is a much smaller plant than what we have been looking at, and may have other advantages I am certainly not aware of, but I understand there has been considerable improvement. To me, the industry is such a young industry, 20 years of age, and we are going to throw sand on it and walk away from it.
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Mr Oliver: I think Canada's nuclear industry is maybe even more than 20 years, but basically with the Candu reactor it is one of the most respected by other nuclear designers around the world --
Mr Klopp: That's why the government can't sell any unless they give them money.
The Chair: Please do not interrupt --
Interjection: The witness.
The Chair: Anybody.
Mr Oliver: The whole thrust of what we are doing now I think is good in that you are having a mix of energy efficiency, energy conservation and fuel switching. All of these are certainly going to help to maintain the margin of capacity either where it is now or maybe increase it.
I think, though, I would be remiss in my concerns as a spokesman for our own commission if I did not again express the view that any system, to really be free to develop to its full capacity, has to have a chance to expand at the end. Maybe along the way we have a temporary marking of pace while we consolidate, but if the system is going to stay to consolidate, it is bound to atrophy from that point on. It has to be allowed to grow, if you want it to grow, if you really feel it is worth it. If there are other ways of providing the energy needs of the province without electricity, we will do that, because the economy will determine it.
The Chair: Mr Oliver, we thank you very much for taking the time to come here this evening, you and a whole lot of others who have visited us here and shared their views, their insights. As you can well imagine, there has been a wide, diverse set of views presented, covering the whole spectrum, but each and every presentation has been a valuable part of the process and we are extremely grateful. We trust you will keep in touch.
Mr Oliver: Thank you. I appreciate the time of the committee.
The Chair: Our pleasure.
NEIL MCKAY
The Chair: Now one final participant, Mr Neil McKay, who has been here throughout the whole day. We appreciate his interest. Tell us where you are from, sir.
Mr McKay: Corunna, Ontario.
The Chair: Good to see you here in Chatham.
Mr McKay: South of Sarnia on the St Clair River, St Clair Parkway.
My good friend Leo Jordan mentioned a moment ago, "Would you just speak for a moment on the dam for power generation?" The words had been spoken as, "Would water coming from a pipe be sufficient?" Yes, and it depends on what that pipe's pressure is or where its source is. You have to have a certain amount of water with a certain amount of weight in order to turn a propeller.
To give you some idea, and that is all I can give you at the moment, Churchill Falls, Labrador, which was put in by Brinco, was nationalized by the province. The head at that plant is 1,025 feet, with 19-foot-diameter pipes supplying the generator. The pressure at the scroll case to go through the impeller is 475 square inches. You know some of the velocity and the power that is in the volume of water coming to that generator. That comes from a storage area of 2,900 square miles, from a watershed it has accumulated from 29,000 square miles.
You have to take into consideration, what did that storage area do to the normal ecology that was there? Certainly it did something to the waterfall, it did something to the caribou and the animals that were there that had to move to higher areas. This is all beside the point, but basically Leo said, "What about water coming from a pipe?" This is the reason I have given you that illustration of the supply to that turbine and the volume it takes to do whatever you are going to do with it. That was to supply a 500-megawatt generator.
There is a price to pay wherever we are today, and it is the sheer economics of how we go about it. As Ontario Hydro started out with Sir Adam Beck, it was power at cost to the users, and that old slogan Live Better Electrically has certainly given us a standard of living we all enjoy here today, whether we care to admit it or not, gentlemen and ladies. We are all too free, all too well fed, and many of us negative, rather than looking at something positive and saying, "How can we improve it?" We know where we stand today. We know where our Canadian dollar stands today. Are we prepared to do something about it, or are we prepared to just stand on our other foot and say, "I can't pick it up because I'm standing on it"?
It is my privilege to have the attention of the young ears that are here. I hope you will have the same privileges and the same feeling as I feel sitting here and have been asked to do this little moment this evening for you. Thank you.
The Chair: Thank you, sir. Do not go away.
Mr Jordan: I would just like to express my thanks to Mr McKay. I did not have the opportunity to work with him during his Ontario Hydro career, but he did work in eastern region and was well known in that area for his expertise in Hydro projects, and all through the north. Len probably knows him better than I do.
The other day in -- I am getting mixed up; which hearing was that? -- it was brought to our attention that the people in the watershed area of these dams could live with what they call a river-run project, like a flume that would have the river flow through the water-wheel and generate power that way. I was wondering why Ontario Hydro does not push that more than building a big dam, which is very expensive, and building a large storage area. Perhaps you might want to enlarge on that.
Mr McKay: Yes, Leo. At the moment, for example, on the Thames River, the north branch of the Thames at London, in the conservation area, to control that water flow and the freshets in the spring, they did put a generator in that dam site. These are the smaller sites that are taking place, much the same as was mentioned here a moment ago about the 50-megawatt nuclear generator, which is available for isolated areas or smaller areas. They all have a place. All these smaller areas are being looked at and are being developed where feasible costwise and whatever the need may be.
We have gone into northern approaches to supply the native people with diesel units and fly the fuel in. We did not have a waterway to take it in by boat or barge. But they are enjoying the same comfort or whatever is necessary to support whatever it was that was to take place in there. I admire the country for doing and developing and sharing these things that are possible. That is part of the theme of Live Better Electrically, however you turn it.
Mr Klopp: Leo brought up the point about the water-run system. I gather you have been retired from Ontario Hydro a couple of years.
Mr McKay: Yes, 16.
Mr Klopp: I have no doubt that 16 years ago, even 15 or maybe even 12 years ago, you were pushing these things, which seem very much common sense. I know even Leo was shaking his head. But apparently the last few people who have replaced you at Ontario Hydro and even replaced Leo have been more attuned to doing exactly what you are concerned about, putting the blinkers on and not looking at all those alternatives. They are only geared to their friends in certain energy fields, which happens to be nuclear more than anything. All I am saying is what you have been saying, that we have to look at everything.
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I do respect that the day you retired you thought Ontario Hydro was looking at all these things. My sense is that in the last 10 or 12 years they have not. The other day this chap talking about the water-run versus -- they are hell-bent on damning the dam, if I can say that. I think that is what we are trying to produce here, through things like Bill 118, to make it a little more accountable, to allow more like this committee to really have some input so people like yourself can come back and remind us a little of what was going on and, if there are some changes, to make it more accountable. I appreciate your coming in to show your interest. I certainly hope I can do the same some day too.
Mr McKay: I retired from Brinco. I was asked to go there. I was within four months of normal retirement at 63. I was prepared to go at 60, but I did not have the intestinal fortitude to say no to my superiors who said, "Neil, will you go here or will you go there?" This request came from Brinco requesting help for one year. I accepted and three months after I was there the whole situation changed. The manager came to me and said, "Will you take the responsibility of the transmission section which you came to set up for?" "Well, that's a three-year project." "You have fitted in so well here at the moment and I see physically that you are enjoying it." "Yes, I'm getting to know my wife," because I was always somewhere in the province for all those previous years. It was nice to get home for lunch every day, unless we happened to be out somewhere. I got to know my wife again, and that is most important if you want to have a livelihood, particularly if you are married to her.
The Chair: Quite right.
Mr Huget: Sound advice, I think.
Mr McKay: I do not want some of you young fellows to miss something. It is the most important part of the organization.
But seriously, coming back to it, I do not think that we in Hydro have been putting on our blinders. I think somebody has got information misconstrued, misinterpreted or just did not actually give a damn. I know how it is to become "aye-aye" just a bit. I learned as I came up through the organization the privilege of being part of it. I appreciate more than you will ever know sitting here today.
The Chair: Thank you. One more question, if you can, Mr McKay, from Mr McGuinty.
Mr McGuinty: It is more of a comment, Mr McKay. I think it is rather fitting that you are wrapping up for us here today. It has become rather trendy of late to criticize Hydro. We try to climb over each other in our efforts to level criticism. Some of it is very legitimate, but we do not have your perspective, understanding and recognition of the role Hydro has played in the development of this province.
My colleague Mr Jordan told me a little tale at dinner this evening which I think is worth recounting so that members of the committee can understand how vital a role Hydro played. He told me that one time he was working Christmas Eve in a small town where they had just extended lines. The locals had even gone out and purchased Christmas lights. You could imagine the sense of wonder when they flicked the switch that evening and the town lit up with all the colours and everything. I think we should keep those kinds of things in mind from time to time as we consider Hydro, the role it has played and the way we hope to shape it for our future needs. Thanks very much.
Mr McKay: You are welcome, sir. Thank you for that dissertation.
The Chair: Mr McKay, let me add briefly to that. You are quite right. There has been, as Mr McGuinty points out, criticism of Hydro, perhaps the occasional criticism of the people in Hydro who make, what is it, $400,000 a year or $260,000 a year, however much, but not a word of criticism -- I appreciate very much what has been said in your comments here -- of the hardworking men and women who have spent lifetimes and their careers with Hydro creating a province which is one all of us should be proud about. You may have heard some criticism of Hydro -- some of it is valid; maybe some of it is not -- but not a word of criticism about those men and women who worked so hard for so many decades developing hydro-electric here in the province. You are obviously one of those people about whom we are very proud.
Mr McKay: Thank you kindly. I do not appreciate, though, that our present chairperson said, "I think I should get a $400,000 salary in a $9-billion organization."
The Chair: I know people who would do it for half the price, Mr McKay.
Mr McKay: Yes, I think so. Mr Iacocca said the other day to his group, on how the Japanese salaries compare, that there is quite a difference. Thank you.
The Chair: Quite right, sir. I trust Mr Jordan is going to make sure you get a transcript of today's proceedings. I want to thank you, sir, and all the other participants, and the city of Chatham for its hospitality.
Mr Jordan: Thank you, Mr Chairman, for giving me the personal satisfaction and, more important, giving Mr McKay the opportunity to speak this evening. I also thank my colleague Dalton for bringing in a memory of 1948 that was quite moving at the time. Thank you very much.
The Chair: Our pleasure.
SUBCOMMITTEE REPORT
The Chair: We have one more matter to deal with as a committee. The clerk is going to read into the record the report of the subcommittee.
Clerk of the Committee: "The subcommittee met this afternoon, January 28, to discuss the committee's agenda.
"It was agreed that the minister would be present for clause-by-clause consideration of Bill 118 on February 18, 1992.
"It was decided that the opening statements would be limited to 20 minutes per caucus.
"It was agreed that all parties would file amendments to Bill 118 with the clerk of the committee by Monday, February 10, 1992.
"It was agreed that the chair of Ontario Hydro, Marc Eliesen, would appear before the committee on Monday, February 17, 1992, at 2 pm.
"It was agreed that each party would have 30 minutes to question the chair of Ontario Hydro and that this time would be in addition to the time for the chair's opening statement. Staff from Ontario Hydro will be available after this time period to respond to questions from the committee."
The Chair: Is that report of the subcommittee moved for approval by you, Mr Waters?
Mr Waters: Yes.
The Chair: Any discussion?
Motion agreed to.
The committee adjourned at 2107.