POWER CORPORATION AMENDMENT ACT, 1991 / LOI DE 1991 MODIFIANT LA LOI SUR LA SOCIÉTÉ DE L'ÉLECTRICITÉ
FORT FRANCES PUBLIC
UTILITIES COMMISSION
MUNICIPAL ELECTRIC ASSOCIATION, DISTRICT 3
ASSOCIATION OF MAJOR POWER CONSUMERS IN ONTARIO
KAMINISTIQUIA NEIGHBOURHOOD ACTION GROUP
ONTARIO LUMBER MANUFACTURERS' ASSOCIATION
CONTENTS
Monday 13 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
Ministry of Energy
William Ferguson, Minister of Energy
Rick Jennings, acting manager, policy coordination
Atikokan Hydro
Wilf Thorburn, representative
Fort Frances Public Utilities Commission
Larry Cousineau, representative
Municipal Electric Association, District 3
Larry Hebert, representative
Thunder Bay Hydro
Wayne Tocheri, commissioner
Larry Hebert, representative
John Stradiotto
Association of Major Power Consumers in Ontario
Terry Brown, director of administration
Environment North
Mike Bryan, chairman, energy committee
Kaministiquia Neighbourhood Action Group
David Ramsay, representative
Ontario Lumber Manufacturers' Association
Mike Auld, president
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 L) for Mr Ramsay
Wilson, Gary (Kingston and The Islands/Kingston et Les Îles ND) for Ms S. Murdock
Clerk pro tem / Greffière par intérim: Manikel, Tannis
Staff / Personnel: Yaeger, Lewis, Research Officer, Legislative Research Service
The committee met at 1233 in the Valhalla Inn, Thunder Bay.
POWER CORPORATION AMENDMENT ACT, 1991 / LOI DE 1991 MODIFIANT LA LOI SUR LA SOCIÉTÉ DE L'ÉLECTRICITÉ
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.
The Vice-Chair: I would like to welcome everyone to the beginning of the public hearings on An Act to amend the Power Corporation Act, Bill 118. This is our first day in Thunder Bay. This is the first time I have had a chance to see most of you since the start of the winter break. I hope everyone had a good Christmas. We have a busy week ahead of us, so without any further chitchat, I would like to call the Minister of Energy, Mr Ferguson. Do you wish to start your presentation?
MINISTRY OF ENERGY
Hon Mr Ferguson: Good afternoon. I am extremely pleased to be addressing the first in a series of hearings on Bill 118. I want to tell you that it is not only a privilege and a pleasure to be here; it is also a real inconvenience. You can laugh.
All of us in this room are taking part in what I consider to be a very healthy process. The Power Corporation Act is a key piece of legislation. It is entirely appropriate that any proposed changes in the rules governing Ontario Hydro be considered in a public forum.
I do not think we should kid ourselves: Bill 118 does contain some important rule changes, changes that will help the government to keep an important promise made in the speech from the throne in November 1990. That promise was, of course, nothing less than new energy directions for Ontario. These are new energy directions that, more than ever before, emphasize the need to control the demand for energy and reduce our traditional dependence on increasing the supply of energy. Reducing the environmental impact of energy production and consumption is another key component of our new energy directions. They recognize an equally compelling obligation to ensure that Ontario continues to have reliable supplies of energy at reasonable prices.
Bill 118 will help us achieve these goals in the following ways: (1) It will make Ontario Hydro more responsive to the concerns and priorities of the people of Ontario, (2) it will strengthen Hydro's relationship with the Ontario governmentm, (3) it will make the Hydro/government relationship more open and more visible, (4) it will guarantee Hydro's independence in carrying out its day-to-day operations, and (5) it will make it easier for Hydro to meet the imposing challenge this government has placed before it. That challenge is to play a leading role in the drive to make Ontario the most energy-efficient jurisdiction in North America by the end of this decade.
Mr McGuinty: On a point of order, Mr Chair: I hesitate to interrupt the minister. I am wondering -- he is reading from a prepared text -- if there are copies available for the committee members.
Mr Jennings: There are copies at the back which can be distributed.
Hon Mr Ferguson: Bill 118 will also clear the way for local electrical utilities to join in this worthy crusade, as I will explain in a moment. First, I would like to explain why the government believes these changes are necessary. I will begin with the issue of Hydro responsiveness, which Bill 118 addresses in two ways.
First, adding four new board members to the Hydro board of directors brings a broader range of interests and outlooks to bear on Hydro decision-making. With an expanded board, no one can call Hydro a closed club.
The bill also clarifies the vitally important question of who runs what. To start with, it leaves no question that Hydro is its own boss in the day-to-day conduct of its business. However, the government is responsible for setting the province's policy direction and Hydro has an important role to play in implementing the government's energy policy. Accordingly, Bill 118 enables the government to give policy direction to Hydro.
Some have expressed concern that this directive power will allow the government to make Hydro an instrument of social and economic policy, but this is not and never has been our intention. During this committee's clause-by-clause examination of Bill 118 I will be introducing a change to the bill, in fact a number of changes to the bill, that will put an end to any such misunderstanding. The changes will make it abundantly clear that policy directives must relate to Hydro's exercise of its powers and duties under the Power Corporation Act, and will not lead to an extension of those powers and duties.
Bill 118 also brings new clarity to the relationship between Hydro and the government. Under the Power Corporation Act, government direction to Hydro has been subject to a highly complex set of procedures and approvals. In order to get anything done at all, past governments have provided direction informally, frequently in closed sessions with Hydro management. That will change. The directive power conferred upon the government in Bill 118 creates an open, visible channel for communicating the government's wishes and needs to Hydro. No more closed doors.
To give added strength to that communications link, the bill creates a place on the Hydro board for the Deputy Minister of Energy, an individual with direct and daily access to government policy.
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Bill 118 will also make it possible for local utilities to play a bigger role in promoting energy efficiency in Ontario. It will do this by giving them the option of spreading out the costs of conservation measures by treating them as capital expenditures, not as part of an operating budget.
Local utilities are on the front line in the drive to make this the most energy-efficient jurisdiction in North America. Bill 118 unties their hands and lets them make a real contribution.
The bill also unties Ontario Hydro's hands in a very significant way. Under the Power Corporation Act, Hydro is not allowed to encourage its customers to move off electricity for space heating. It is not even allowed to advise anyone about using other forms of energy. Bill 118 would remove these impediments and let Hydro actively promote the substitution of electricity, where appropriate, with more efficient and, let me add, cheaper energy sources.
I expect that Hydro, in developing its approach to fuel switching, will consult closely with its partners. I am thinking in particular of the municipal utilities, the gas utilities, propane and oil companies and environmental groups. These discussions will be important. They will ensure that the criteria and financial mechanisms for implementing fuel switching take full account of the impact on all those involved.
I am confident that fuel-switching programs supported by Hydro will stand up to scrutiny and will be in the best interests of the electricity system, the economy, the environment and indeed the people of Ontario. The consequences will certainly be far-reaching. Hydro estimates that fuel switching will save between 870 and 2,100 megawatts by the end of this decade. It might help you to understand these figures if I point out that the saving would be equivalent to the output of between one and three Darlington-sized nuclear reactors. That is without question a real savings.
There will also be savings for the consumer. The cost of natural gas for space heating is about one third of the cost of electricity. Oil costs about two thirds of the electricity cost. Let's say you live in a typical two-storey detached home. Over the life of that home you could save as much as $15,000 by using gas instead of electricity for space heating. You would save $7,000 by using oil. With numbers like these I do not think there is much doubt about where consumers would stand on the question of fuel switching.
Fuel switching is also good news for the environment. For the most part, it will mean using natural gas in place of electricity that has been produced through coal-fired generation. As you know, natural gas is clean-burning relative to other fossil fuels, and when it is used directly for space heating it is twice as efficient as generating electricity to provide space heating. Switching to natural gas for space heating would mean greatly reduced emissions of carbon dioxide. This of course is the gas that is getting much of the blame for global warming.
Fuel switching would also mean reduced emissions of sulphur dioxide and nitrogen oxide, the SOx and NOx gases that contribute to urban smog and acid rain. I said a few moments ago that consumers are sure to endorse fuel switching. If this poor old planet of ours had a vote, without question I am sure it would back fuel switching as well.
We must remember that fuel switching is just one of the avenues Hydro is pursuing as it seeks to reduce electricity consumption in Ontario. In the course of this decade the utility plans to spend between $5 billion and $6 billion on energy efficiency and conservation efforts and programs. If that seems a lot of money, I ask you to bear in mind that conserving energy can be much cheaper than producing it.
Hydro plans to use a variety of measures to improve energy efficiency, including load-shifting incentives and interruptible service. These measures are expected to produce an electricity saving equivalent to the output of more than two Darlington-sized reactors. Building that much generating capacity would cost between $6 billion and $10 billion. Seen that way, Hydro's investments in energy efficiency are a great bargain for the people of Ontario.
This is all worth thinking about in the wake of Hydro's announcement that electricity rates have increased 11.8% this year. As I am sure you know, more than half of that increase is going towards the costs of bringing Darlington on stream; for the first time it will be costed into the rate structure. In addition, that cost is also going into repairing existing nuclear facilities. Without question, we are finally paying the nuclear tab.
The significance of fuel-switching is that it will reduce the pressure on Hydro to build more Darlingtons. It will also defer the need for new distribution and transmission systems. In doing so, it will reduce the likelihood of big Hydro rate increases in the future.
I am sure future generations will thank us for reducing the dollar costs of maintaining a large and elaborate electricity system and they will thank us for reducing the environmental costs of maintaining such a system.
A Hydro that is free to pursue energy efficiency with all its energies and resources, a Hydro that is more responsive to the concerns and priorities of the people of Ontario, a more open and aboveboard relationship between Hydro and the government, a more rational way of using our precious energy resources, a cleaner environment -- those are the promises of Bill 118. I urge you to give Bill 118 your full and enthusiastic support.
I am sure there are no questions on this, Mr Chair, so --
The Vice-Chair: One or two people might want to make some form of comment. We have about five minutes for each party, so I will start with the Liberals.
Mr McGuinty: Thank you. I might begin by saying that I, and I am sure I speak for my colleagues sitting at this table, am somewhat perplexed and in something of a quandary regarding some of the goings-on at Hydro and the Ministry of Energy these days. I want to put a few comments on the table.
First of all, with respect to rates, the chairman and CEO of Hydro, Mr Eliesen, indicated in September that we were going to be seeing double-digit increases for the next two or three years. Just as recently as Saturday I think the minister indicated that we will not have such double-digit increases. I am a bit confused as to what is happening there.
With respect to non-utility generators, those kinds of generating stations which are to be built by people other than Hydro, the minister and his predecessor and his government have generally indicated that they are very receptive to this idea of NUGs, as they are called, and overtures were made and encouragement offered to proceed with such kinds of projects. But now I am reading in the paper that the government will no longer permit the development of non-utility generators.
With respect to the government's directive power, more directly relating now to Bill 118, at first the bill provided that the government was to be able to tell Hydro to do virtually anything, notwithstanding that it would cause Hydro to step outside its traditional mandate of providing power at cost to the people of Ontario. Now we are told that there is going to be an amendment to the effect that government will no longer be able to issue such a directive. That is eminently sensible, but it makes you wonder about the kind of thinking that went into the original version of Bill 118, which provided that government could tell Hydro to do virtually anything.
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That was somewhat comforting, but on the other hand you have to keep in mind what happened at Elliot Lake. There, without benefit of any kind of special directive power being given for it to the government, the government directed Hydro to pay $250 million, some of which was spent on a short-term job creation program and some of which went into paying off a couple of municipal debts. Now, apparently, we are to believe that those kinds of expenditures fell within Hydro's mandate of supplying power at cost. Again, I remain confused as to whether Hydro is in fact going to be doing what it has always been doing -- supplying power at cost -- and whether it is going to step outside that ambit from time to time.
With respect to Mr Eliesen's employment contract, we were originally told he would be receiving some $400,000 for a three-year contract, which would earn him $1.2 million. Subsequently, we were told that out of the goodness of his heart Mr Eliesen agreed to accept $260,000 a year. We subsequently learned that was to be for a five-year contract. The end result would be that he would earn $1.3 million rather than the original $1.2 million, so I am confused as to whether as ratepayers we are coming out ahead or falling behind.
With respect to conservation targets, those are increasing fairly regularly and I am perplexed as to whether we actually know how much we are going to save and whether we are making the kinds of projections that are theoretically possible or, I guess, more directly attainable.
Then I understand that this very week on Thursday, Mr Eliesen, chairman and CEO of Hydro, is to make some kind of statement. I understand it is going to be to the effect that Hydro will be making a substantial amendment to the demand-supply plan which is being heard before an environmental assessment hearing, and the assessment right now is considering the need for the supply and demand for electricity during the next 23-year period. So I am perplexed as to what is happening at the Ministry of Energy, where we are going, and I am sure the minister would be delighted to respond to some of my points.
The Vice-Chair: Would you like a response at this moment, or do you want him to --
Hon Mr Ferguson: I would be delighted to respond to those points.
The Vice-Chair: Quite briefly, then, please, minister.
Hon Mr Ferguson: I will try to do it in 25 words or less, but sometimes it is a little difficult and I think you will appreciate that.
The first point raised was the 44% increase. I have explained this in the past and I will attempt to do so again. Mr Eliesen was asked quite some time ago about whether we could expect double-digit rate increases over the next three to four years. His response to that question was quite simply this: "If we take a hands-off approach and do absolutely nothing, yes, we could expect that." However, he qualified that statement by suggesting, as I will to you today, that in fact we are not going to take a hands-off approach. We are going to make this the most energy-efficient jurisdiction in North America within the next 8 to 10 years. As a result of that, I can only tell you that no way are we going to experience a 44% rate increase over the next two to three years. In fact, the consumers of this province would not stand for it and the economy of this province would not be able to withstand such a rate increase.
It is my job to keep the rate as low as possible, particularly given the inheritance we have today. I am sure you recognize that over half the increase that has currently been passed on to the consumers of this province is directly related to Darlington being costed into the rate structure for the first time.
The second point raised was on non-utility generation. Quite simply, this non-utility generation is very much encouraged by Hydro and the Ministry of Energy. However, we are just overwhelmed by the success of that encouragement and, as a result, we have to take a moment to catch our breath and ensure we are not bringing on more supply than will be needed for the short term as well as the long term. I am sure Mr McGuinty and his friends would be the first to criticize us -- Hydro, as well as the Ministry of Energy -- if in fact we did so; that is, brought on more supplies than were needed.
The amendments before this committee are here at the request of both opposition parties as well as the Municipal Electrical Association, and these amendments are here to clarify the position of the government.
Two more quick points: Elliot Lake Hydro had the power to enter into those types of relationships, economic development relationships, as the result of amendments passed by the previous Liberal government back in 1989. We are not doing anything new. In fact, that relationship itself will save the ratepayers and the taxpayers of this province $1.4 billion over the next 10 years. Finally, Mr Eliesen was hired by the previous Liberal government as Deputy Minister of Energy. Let's be very clear about that.
Mr Jordan: I too would like to thank the minister for taking time to come before our committee this afternoon. I realize the minister was not in charge at the time Bill 118 was brought in and since that time he has seen fit to make some amendments to the bill. I wonder if he could quickly run over those amendments and explain what effect they are going to have, in his opinion, on Bill 118.
Hon Mr Ferguson: The criticism levelled at the bill -- I am sure the member is well aware of this -- essentially was directed at suggesting that Ontario Hydro would become a social arm of the government of Ontario and develop its own social programs. I think the most often suggested example was that the government could, prior to the amendments being proposed, ask Ontario Hydro to assume the debt of the SkyDome and to assume ownership of the SkyDome.
Of course we suggested that was not the intent of the bill. The intent of the bill was to give the government of the day the power to provide Hydro with policy directives. So what we have suggested in the amendment is that Hydro would only be acting within the goalposts of energy matters.
Mr Jordan: The amendments you have just explained are amendments that are going to be subject to the changes you are also making in the Power Corporation Act. You are changing the powers of the government relative to Ontario Hydro. The question comes to my mind with Bill 118, if you look at the rest of it, whether, if you and your government were positive towards nuclear generation, if you did not have a problem with that, would you in fact leave long-term planning and policy to the people qualified to do it, rather than take it over by your ministry?
Surely you must need the expertise of Ontario Hydro in its research, in its engineering, in its technology, in its environment section. Surely you must recognize that. You are saying the only right they are going to have, after this bill is passed, is the right to run their day-to-day operations. If you think of the size of that corporation, how could any president and CEO plan and organize the running of a corporation of that size when you give him only the right to do day-to-day operations?
All long-term planning goes back to you, the minister, and the Ministry of Energy. What expertise has your ministry acquired in so short a time that you can replace the history that is over at Ontario Hydro?
Hon Mr Ferguson: Let me tell the member that in fact long-term planning for future electricity generation in the province is still with Hydro. It is Ontario Hydro that will be making its presentation --
Mr Jordan: Excuse me, it says in the bill day-to-day operations only.
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Hon Mr Ferguson: It is Ontario Hydro that will be making its presentation to the demand-supply hearings which will be scrutinized by the Environmental Assessment Board. It will not be the Ministry of Energy nor the government of Ontario. In fact, Hydro does have the experts. They are the ones who will be making that presentation, which will go a long way to deciding what the future energy needs of this province will be over the next 25 years.
The Vice-Chair: I am going to have to step in here; time is up. Mr Huget.
Mr Huget: I would also like to welcome the minister here, as well as my fellow committee members, many of whom I have not seen since about December 20. It is nice to see all of you again.
I think there are three issues that the public is concerned with in terms of Hydro and this province. The rate increases and the speculative nature of announcements around the rate increases have been a major concern to many people. I have a three-part question I think you should have sufficient time to answer at least that.
First of all, with regard to Bill 118, what impact will it have on power rates in this province?
A second concern of many people in the general public is reliability of supply. It has been announced that there has been a change in strategy away from, at least on a moratorium basis, a nuclear strategy. In fact, I believe a significant amount of revenue has been directed to efficiency and conservation. How can we still ensure supply in this province? I think that is a major concern of the general public and in particular some of the heavier industries.
Third, the generation of power and the use of energy is an environmental issue in this province and every other province in Canada. What effect is Bill 118 having on environmental concerns of the public in Ontario?
The Vice-Chair: As quickly as possible, please, Minister. We are already going to run over, but please answer as fully and as quickly as possible.
Hon Mr Ferguson: As quickly as I can, Bill 118 will in fact ensure that we do not sit idly by or relax and go with the supply, supply, supply option and the nuclear, nuclear, nuclear option. Yes, that is why we are facing a 12% increase today, folks. I think it is about time some people finally get it. To build new supply, it costs about $3,500 a kilowatt, whereas to permanently save a kilowatt of power today, we know it is around $500 a kilowatt. I think the economics are fairly clear there.
Notwithstanding its proposal before the Environmental Assessment Board on the demand-supply hearings, even given its expertise and its best guess and the information it has, I have suggested to Hydro that on the one chance out of a hundred that it might be wrong, I also want to see a contingency plan put in place. I think that is important, that they are going with the best information they have.
This is a long-range forecast, but I think it is important that they have a contingency plan in the event that they just might be wrong or their forecast might be off somewhat. I think that is the most we can expect from this utility.
The Vice-Chair: I thank you for coming before us, Minister. I know you and your staff will be watching as we go on through and I understand we will be talking to you again just before clause-by-clause. Thanks for coming up.
Hon Mr Ferguson: It is a pleasure.
ATIKOKAN HYDRO
The Vice-Chair: I would like to call Atikokan Hydro to come up. When people are presenting, could they please refer to the parts of the act that they wish to make their comments on. It makes it a bit easier for the staff and for discussion purposes. Whenever you are ready, and please leave some time at the end for questions and answers, if you could.
Mr Thorburn: I would like to thank everyone for coming. I think I will address the entire group as fellow citizens interested in energy as opposed to trying to hit on everyone's title. I cannot address specific sections of Bill 118 because I did not prepare that way, if you will bear with me on that.
The Vice-Chair: That is fine.
Mr Thorburn: I would like to take this opportunity to thank you for taking time out of your busy schedules to come to Thunder Bay and meet with district 3 of the Municipal Electric Association and other people. I feel it is an excellent gesture on your part to allow the people most affected by the proposed legislation to have some input into the decision-making process. We have been left holding the bag far too many times on poorly executed legislation in the past.
I do feel that the seriousness of Ontario's energy viability into the next century is not receiving the attention it deserves. The Ministry of Energy for the past several ministers has either not really bothered to learn the fundamentals of energy in Ontario or has been unable to fathom them. I hope to impress upon you that some of the decisions being contemplated as we speak will have far-reaching implications and should receive a lot more planning than they have.
It should be noted that the economic success of Ontario has been related in part to an abundant resource of affordable, reliable electric power. I ask, did this resource happen by magic? Has it been sustained by supporting parasitic programs and being used as a tool for social conditions? I think not. It has been sustained by two basic principles: power at cost and public power.
Let us examine these two principles. From the beginning of Ontario Hydro, legislation has been in place to guarantee that electric utilities and their benefits remain the property of the people.
Power at cost means that people and industries will receive their power at the cost of production and distribution. Like any successful commercial venture, the ability to produce the product and distribute it must be factored into the cost.
There are some fundamental differences in the various forms of governmental influences that affect our lives on a day-to-day basis. Federal, provincial and municipal governments are elected from time to time and set their agendas according to their various beliefs. They set policy, compile wish lists and levy taxes or lobby for grants to support their ideals. They are not necessarily bound by normal business or budget criteria.
Utilities are by definition an industry involved in meeting a vital public need. This indicates that utilities do not have the same luxuries that other governmental influences have. An electric utility must purchase a product, repackage it in a form that its customers can use and distribute said product. Like any other business, an electric utility must generate enough income to sustain its plant and operational costs.
Over the past few years, both the provincial and federal governments have imposed their influence on the electrical industry by hidden and unfair taxes. I refer to an additional water tax introduced three or four ministers ago, and the GST. These taxes were accepted by both the utility industry and the general public rather grudgingly.
While I realize we cannot see where we are going by only looking at where we have been, let us look at some various marketing strategies used in the past and let us look at some of the projected results.
I believe the electrical utility industry has contributed a great deal towards our present-day energy efficiency standards. When allowed to compete in the open marketplace and while being forced to stand on its own, competitive electric heat installations developed the Gold Medallion standards. Many of those standards are with us today in the R-2000 guidelines.
I do not for one minute suggest that we in the utility industry return to massive sales campaigns as were conducted earlier. I would like to see the average citizen given the respect deserved by an intelligent human being. Let our average Ontarian come to the marketplace and take note of the price of energy. If said person notices that to heat a living space will cost one bucket of money to use natural gas, and two to three buckets to use electricity, probably the person will choose the one of least economic resistance. The person will benefit by having had the opportunity to invest as he felt best. The generators of power will benefit in that they can use the power already generated to sell to some customer to utilize in a more productive manner. This sounds almost reasonable.
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Provincial governments can take pride in what some of their various ministries accomplish. This government, through the Ministry of Energy and the Ministry of the Environment, has been presented with a golden opportunity to set policy and take responsibility for the results of that policy.
The Ministry of Energy has asked that consumption be reduced. The previous minister asked Ontario Hydro to look at other alternatives than generating power to meet the growing demands. These sentiments should be applauded. Our society should not tolerate waste of any type of energy.
The amount of thought having gone into some of the ministry's guidelines is not overly obvious. I hope it reveals itself soon. My concern arises from the methods the Ministry of Energy is attempting to use to achieve its goals. If the Minister of Energy is serious about subsidizing fuel conversion, then the Ministry of Energy should perhaps create a provincial gas utility. The ministry may be able to either nationalize the existing companies or work with some of them to expand their markets on an individual basis. Any and all incurred costs should either be borne by the company gaining the long-term benefit or the Ministry of Energy through direct taxation. To suggest that fuel conversion should and can be done on a universal basis will result in a greater catastrophe than building units 12 or 14 at Darlington without any sort of feasibility studies.
As I have indicated previously, the marketplace, if left unsubsidized, will let most Ontarians make wise choices for themselves. Another question that arises is should there be a greater reward than the obvious financial reward to the customer for choosing a sound investment? Is subsidizing fuel conversion artificially propping up a marketable commodity?
How does the Ministry of Energy propose to justify the moneys already spent in load reduction subsidies? Will there be any consideration for responsible people who have already built to better standards, that is, triple-pane windows, 200-amp service, R-40 insulation, etc?
Are the same people who decide to convert to gas heat going to find themselves in the same situation in the future because of a shortage of gas? Is this government's stampede away from electricity and towards gas any different than the Big Blue Machine's "Live Better Electrically" stampede towards it? Will such sudden moves allow the Ministry of Energy and in fact the government to be perceived as credible organizations?
A wiser approach to the energy supply problem would be to not act upon one area of utilization, that is, heating, but to educate and re-educate every citizen, private and corporate, to conserve their usage of energy in all areas.
We as a society must look to the future and try to decide where we would like to be in several years. We would probably not condone the flooding of a people's homes to generate power. We may even do air and environmental studies prior to constructing new fossil fuel generating stations. If we can accept the above two statements as being reasonable, would it not follow logically that if we are going to build the equivalent of one or two Darlington units by conserving, we do a feasibility and impact study on this process?
Are we sure Ontario is in fact gas self-sufficient for at least our natural life expectancies? Do we have in place long-term gas contracts that will guarantee that the price of gas to the consumer will not exceed the price of electricity for the next several generations? Given the present constitutional stability of the country, do we know with whom we will be negotiating future gas contracts? Do we know with whom we will be competing to negotiate future contracts?
Do we know that converting kilowatt-hours into water and carbon dioxide is environmentally acceptable to our children and grandchildren? Have we examined what effect a drastic change in direction and policy of present-day legislators will have on our elderly and retired population, especially in rural areas?
Have we looked at the financial implications on utilities to have their load dramatically changed? Do we have a place for all the power we are attempting to save? Have we done other than a pragmatic study? Can we choose our descendants' future on the whim of an Angus Reid poll?
Unless we have an overwhelming positive or documented answer for these questions, I suggest we avoid stampeding into a pragmatic decision. I believe all of us in this room would not feel comfortable with building anything large or making drastic changes to our lifestyles without first doing some sort of environmental study.
I think this is a golden opportunity for the Ministry of Energy to take the lead of Ontario's energy future and find answers to the questions posed here. Such research may even raise more questions. The point is that there is no one quick fix for our environmental, energy or economic woes. What will work for one area will be devastating for another.
I would like to share with you what load reduction or conservation means to the utility I represent. Atikokan has gone through some rough economic times. We are a resource-based community with our resources in decline. At one time we had two open-pit iron mines as well as a thriving woods industry. Our infrastructure was set up to accommodate over 6,000 people. Our electrical distribution system could service 10,000 people. Our population is just over 4,000 at this point in time. Last winter our unemployment exceeded 60% because of wood industry slowdowns.
The point I am trying to make is that we are operating our electrical distribution system at 30% to 50% capacity. Reduction of load by any means only results in less revenue to the utility. Reduced load does not reduce the cost of distribution; it would only drive up the unit cost of power. This is not easy for the economic development officers to add to our community's résumé. We still very actively support conservation efforts, because we realize that unwise use of our resources is unacceptable. The very fact that the ministry could possibly consider hiding the cost of subsidizing large multinational corporations, the gas companies, in electricity rates to communities like ours is not palatable at all.
In some communities, where their load is growing, it may make sense for the utility to subsidize fuel substitution rather than increase its distribution capacity. These decisions must be made on an individual situation based on sound economic principles.
As you know, the rates charged and capital expenditures allowed by the utility industry are stringently regulated by guidelines set out in the Power Corporation Act and the municipal utilities act. When a utility rebuilds itself for its rate of load growth, the economic predictions are made with certain load factors as givens. What do you think universal fuel substitution will do for these plans? Who will pick up the pieces when such flawed policies artificially drive up the cost of energy to everyone and reduce the utilities income in one fell swoop?
You might ask yourself, does this person have any positive suggestions? After all, we know it is easy to criticize when you are not in a position to do anything. I do have a few suggestions.
Have the Ministry of Energy actually take charge of energy in Ontario. If fuel substitution makes sense for one utility and there are not enough funds present to allow this to happen, let the Ministry of Energy take pride in its initiative and subsidize conversion. Let the ministry either recoup its cost from the area receiving the benefit or raise the money through general taxation. Do not hide the cost in the price of electricity. Our industry cannot afford it.
The ministry should be compassionate to the sector of the population that has gone to all-electric living. The people who in a lot of instances are on a fixed income and in a non-gas area will never benefit from a fuel substitution program and should not have additional hidden costs bestowed upon them.
The Ministry of Energy should work with the Ministry of the Environment and actually investigate the long-term effect of converting kilowatt-hours to water and carbon dioxide.
The Ministry of Energy should be honest with the public and promote conservation as an environmental issue rather than emphasizing the economic benefits. Most ministry initiatives do not keep pace with the rise in cost of energy. At this point in time the public are supportive of conservation, but if it is sold on economic incentives and the incentives are less than expected, the public could be turned off.
Ministry policy should encompass all forms of energy.
Ontario Hydro should advise the Ministry of Energy on the areas it has expertise in but should not tax its economic viability in energy reduction to the point that its own distribution system cannot be maintained in excellent shape.
The Ministry of Energy should refresh its mandate and try to understand what has made this province tick for so long. Make sure the item you are fixing is broken. Make sure the cure is not worse than the kill.
I plead with you to give careful consideration to what you are doing. You have the opportunity and a moral obligation to take charge and ensure that all forms of energy are used wisely. Conservation and conversion of form must be dealt with on an individual basis, with consultation to encompass all of the players. Remember, the policy and direction you set will affect the lifestyle of Canadians for generations to come. The electrical utility industry has survived many hurdles on its own. Please do not saddle it with hidden costs that have nothing to do with the generation of power.
In closing, I once again thank you for coming to hear our concerns. If you have any questions, you can ask me now or you can contact me if you pick up a copy of my paper.
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Mr Jordan: Thank you for coming this afternoon and making what I consider an excellent presentation into which you and your commission must have put considerable thought. You have not only pointed out to us the overall problem to the utility, but the problem to individual customers who do not have an opportunity for fuel switching.
On page 14 you say, "Ontario Hydro should advise the Ministry of Energy on areas that it has expertise in...." That is what bothers me about Bill 118. The expertise is being ignored completely and there is going to be a policy directive issued independent of thinking out the problem and we could be left with many more serious problems, as you have pointed out in your presentation. I thank you very much.
The Vice-Chair: Do you wish to respond to that? I think it was mainly a statement.
Mr Jordan: I did not mean that as a question.
The Vice-Chair: Do you have a question, Mr Arnott?
Mr Arnott: Thank you very much for coming in, sir, to explain the position of your utility and to give us some information about your community in Atikokan. I think implicit in your presentation is that your community, like my own, is very concerned and very sensitive to the cost of electricity. With Bill 118, power at cost is out and now we have power at a reasonable price as the stated policy of the government, which I think indicates that power is going to be going up and that included in the cost of power are going to be some of these extras. That is quite obvious.
The minister presents fuel switching as being a great benefit to society, resulting in a considerable decrease in the consumption of electricity. I would like to ask you, in your community, how do you think fuel switching and incentives to convert to natural gas will in any way affect the numbers of people who will switch? I think I agree with you, in that there already is an incentive based on the market and I cannot see very many more people switching, even if incentives are there.
Mr Thorburn: I do not know how many in our community would switch, but what makes it really ludicrous is that we have 6% of the heating load as it is. The point is that whether they switch or not, most of Ontario Hydro's revenue comes from the utilities, I believe 75% or so. I am sure other people will have the exact figure on that. Any switching done anywhere is going to impact on our rates at some time. I guess it does not really matter to us whether it is a 12% rate increase because of Darlington, a 3% rate increase because of lightbulbs or an 8% rate increase because of fuel switching. It is not going to benefit these people and it makes it that much harder to sell the community once you start driving the unit costs up.
If we took our 6% of electric heat people off -- I am not sure how many of them would go, because a lot of the electric heat was sold on baseboard-type installations and the dwellings are not suitable for natural gas, but it would start to drive the price up. I think if the marketplace demands it, then the people will switch and the benefits will be gained, but I am not so sure there is a whole lot of difference in the salesmanship of these particular policies than in the Live Better Electrically slogan days. The message has changed, but they say the more we change, the more we stay the same. I am not sure there has been any thought put into some of these procedures. We are going far too fast at it. It may turn out that some of this fuel substituting will in fact happen, but I think if the marketplace is left to take care of itself, it will.
Mr Klopp: Just a couple of short comments on your brief. I think I find your concern for rural Ontario a little bit sad. I come from rural Ontario, and we had to fight long and hard to get Ontario Hydro to recognize we were subsidizing the cities with its power lines many years ago. In fact, we had to fight with Ontario Hydro for a long time, and politicians, to get the rural credit, which recognized we had problems.
Also, you talk about the Big Blue Machine in your report and you talk about stampeding towards electricity. It was not so much stampeding towards electricity that was the problem, it was Ontario Hydro being locked in on one type of energy to produce electricity, nuclear, and then hiding those costs for years and years and years, and transmission lines all over the place. The way the forms are and the way the accountants do things, we do not see those costs until now, after a plant is built, when we are continuously chasing ourselves around.
The problem was they did not look at solar 10 years ago. They did not put any money initiative into that. They did not look at solar heat for water, for heat pumps; they only looked at what they thought -- once in a while, let's face it, they did check them out. Where I live we were going to have a nuclear. It was probably Bruce B, but because there was enough political pressure at the time -- thank God we had MacNaughton, I guess, and they wanted the riding -- they slowly put it back up there. This is what this bill is all about, making things a little more open.
My question to you is, what is the life expectancy of a nuclear plant, since we talk about the long term?
Mr Thorburn: I do not know what the expectancy would be. The concern I have always had with Ontario Hydro financing -- we are, I guess, fortunate to have a thermal generating plant in our community. One of the problems I see is precisely what you have indicated, the type of financing that has been allowed to happen. A few years back, when the key phrase was to convert to metric concerns, there was a big thought that this would be a major problem for plants, and at that time the line of thought was that the plant would last 25 years. This was a couple of years ago this figure comes from; I believe it was a Dane MacCarthy speech. My concern is that if you are going to amortize your debt over 40 years but your product is only going to last 25, we have a 15-year shortfall. I think some of these types of policies need to be looked at and need to be addressed in some manner.
What I do not see happening is there being enough thought in the direction we are actually taking on this. I am not saying the answer is to carry on with the big megaprojects; maybe smaller units are good. The solar has a lot of potential, but if you are going to heat hot water in solar, you are going to take either very cool or very few showers from November into January quite often.
That creates some other concerns, whether it is a gas utility or the electrical utility. What happens when the sun does go behind the cloud? Somebody has to be there to pick up the load the solar cannot take. I think the heat pumps offer a great solution, because we are reusing energy. That is how we can get an efficiency of greater than one. We have up to 400% efficiency on heat pumps now.
Mr Klopp: Well --
The Vice-Chair: I am going to have to cut you off, Mr Klopp, sorry.
Mr Conway: Thank you, Mr Thorburn, I very much appreciated your brief. I know something of your community. I take it you are served by natural gas?
Mr Thorburn: Yes.
Mr Conway: I do not think we have been allowed to visit any community in the province that is not served by natural gas, and it seems to me that fundamental to the new government's energy policy is an understanding of natural gas as the workhorse for the future. In fact, on CBQ this morning I heard a very interesting, fascinating interview I would recommend to everyone with the just-departed Minister of Energy where, to the extent you could unscramble the egg, that seemed to be very much the intention of this government's energy policy.
Be that as it may, in your community, I take it the overwhelming majority of households are heated by natural gas?
Mr Thorburn: About 94%.
Mr Conway: Does your utility serve anyone in the rural area not served by the natural gas lines?
Mr Thorburn: Yes, we do.
Mr Conway: They must be really pleased to know that they are going to pay increased hydro rates to subsidize their neighbours in town who will have access to a lower-cost alternative that will not ever be available to their friends out in the country.
Mr Thorburn: I would think so. We have very few customers, but we do have some that will never get natural gas. They live on a rockcut. You will never get it there.
I believe you are going to Sioux Lookout tomorrow. That is going to be an interesting community for you. I would ask that you take a look at the condition of the hydro lines there also, because they have just rebuilt to service the electrical industry. That is one of the things I alluded to in my report, that when a utility does rebuild based on a rate of return because it has this load here, what it does if you suddenly knock that from under it. I believe you are going to Sioux Lookout and if you do --
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Mr Conway: It is hard to disagree. I do not think you can disagree with fuel substitution. I do not think you can disagree with conservation. I am not aware of any reasonable person who is prepared to do that. It seems to me, though, that around the question of fuel substitution there is this issue, which is fundamental to this government's energy policy and is contained in this bill, and that is, who pays for the fuel substitution? Surely people in Atikokan would agree with your brief, that given market conditions presently and the fundamental equity issue, hydro ratepayers, many of whom will never have access to natural gas, should not be expected to subsidize fuel substitution to a lower-cost alternative that is unavailable to hundreds of thousands of people in this province, and quite frankly is a subsidy that does not seem to be merited now on the basis of market conditions.
Mr Thorburn: Yes, that is precisely the position of a lot of people. That is why I think a lot more thought has to go into this before we do it. As you say, no one is going to go out and try to sell electric heat, and hope to make a living at it at any rate, but I do not think the electric industry should pay for the conversion.
Mr Conway: As you indicate, your load growth has slumped significantly because of the difficulties you have faced in your resource community. Since I think your brief says you are running now at 30% to 40% capacity of what you are able to deliver as a utility, can you indicate to me what that has done to your per-unit price in Atikokan over, say, the last three to five years?
Mr Thorburn: I am not sure that it has affected it terribly at this point. We were fortunate that the capacity was purchased and installed when the community was booming. I have been the manager for a very short time, but we have had the benefit of some very good managers since 1957, when the utility came into being. They did some very good planning for us, so fortunately we have not been hit that hard. We would like to rebuild faster. Our plant is very old. But we have to do those sort of things quite slowly because we do not generate the revenue to do it.
Mr Conway: I take it that you --
The Vice-Chair: I am sorry, Mr Conway; we are going to have to cut your time there. Thank you very much for coming before us today. We will make sure that we get the final report out to you as soon as possible after clause-by-clause is finished.
FORT FRANCES PUBLIC UTILITIES COMMISSION
MUNICIPAL ELECTRIC ASSOCIATION, DISTRICT 3
The Vice-Chair: I call next the Fort Frances Public Utilities Commission and the Municipal Electric Association, District 3. I understand you have two separate sets of remarks. Could you please introduce yourselves individually for the sake of Hansard.
Mr Cousineau: Larry Cousineau, Fort Frances.
Mr Hebert: Larry Hebert, Thunder Bay Hydro.
The Vice-Chair: I would appreciate it if you could leave a few minutes at the end for some discussion and interaction.
Mr Hebert: Perhaps I could just comment beforehand. Obviously I am not from Fort Frances. I am doing the district paper and Larry is doing the Fort Frances paper. Our brother Darryl could not be here today.
Mr Cousineau: It gives me a great deal of pleasure to be here today. I am a very new member of the Fort Frances commission, having just been elected a month ago, so I hope you will be kind to me in the question period after.
I am actually presenting this paper on behalf of Mr Doug McCaig, who is a long-time member of our commission. He is presently in Toronto at a meeting due to the fact that he is the incoming chairman of the Municipal Electric Association, which we are very proud of in northwestern Ontario. I think it is the first time someone from our area has ever been the chairman -- possibly, I guess, if no one runs against him.
The Vice-Chair: Congratulations.
Mr Cousineau: Thank you. I wish to address this committee in my role as a representative of the electorate in my community, a job that brings with it moral obligations not unlike yours.
Every three years the villages, towns and cities of Ontario elect public utility and hydro commissions for a singular and very important purpose: the maintenance of a unique industry and the preservation of the ideals upon which it was founded. I refer, of course, to public power and the municipal cooperative concept so eloquently espoused by the industry pioneers, without which the prosperity we enjoy in the province simply would not have been.
I would like to draw your attention to a statement printed on the first page of a Municipal Electric Association booklet entitled Working for You:
"Public power shapes our lives. Its dependability and cost-effectiveness allow Ontario's industry to grow and compete in world trade. It contributes to a standard of living that is among the highest in the world. And it's there when we need it, at the flip of the switch. But behind that switch is a powerful group -- the Municipal Electric Association."
As a member of the Fort Frances Public Utilities Commission I am concerned with the ever-increasing interference with our heritage and our mission resulting from government initiatives which serve to draw from our resources and yet have nothing to do with our mandate, which is the supply of reliable, low-cost electricity. These initiatives seem to have one purpose: the channelling off of money for purposes of supplementing tax revenues required to satisfy ever-increasing government bureaucracies.
Let us examine just a few of these imposed costs and what they mean in moneys wrung directly from our municipal electricity rates.
Water rentals: a long-standing practice of charging for water used in hydraulic generation. The 1990 cost was approximately $102 million.
Ontario Hydro debt guarantee, which is self-explanatory: The 1990 cost was $133 million.
Rural rate assistance: The 1990 cost was approximately $100 million.
Goods and services tax, a federal tax never before applied to electricity: 7% on electricity sales.
These are not the only charges, but without them our electrical bills would drop approximately 12%.
Let me draw your attention to the cost of living index increases in Ontario for the years 1989, 1990 and 1991 and the wholesale rate increases from Ontario Hydro to our utility during the same years.
In 1989 the CPI was 5.1%; Ontario Hydro wholesale was 5.1%, which was fine; it held its own. In 1990, it was 4.4% and 6.6%. In 1991, it was 6.1% and 9.3%. As you can see, the average is from 4.8% to 7%. We can see a clear pattern developing. For 1992 we are predicting an increase in the provincial CPI of between 5% and 6%, maximum. However, our wholesale rate is increasing 11.9%.
We now see the pattern, and the worst is yet to come. Ontario Hydro is predicting double-digit increases for the next several years which will probably be more than double the consumer price index increases. Where will it end?
In addressing Ontario Hydro's debt and fulfilling our role as a member utility in the Hydro family we gladly shoulder our share of the burden, since we have a legal and moral responsibility to do so. This having been said, I wish to make a point very clearly. In the view of the Fort Frances Public Utilities Commission we can ill afford the imposition of further charges that have nothing to do with our role as a municipal utility. For the near future we must address Ontario Hydro's $35-billion debt, the declining nuclear performance, the poor economic climate and our obligations to the residential, commercial and industrial environments in this province.
We do not need more hands in the pot. We do not need the burden of bailing out Elliot Lake placed on the backs of the ratepayers. We do not need the burden of the Spruce Falls hydraulic plant funded through electricity rates. We do not need additional taxes on our product, be they overt or hidden, and we sure do not need to be providing subsidies for electric heating customers to convert to natural gas.
What we do need is a comprehensive plan to carry our industry through the next decade in a responsible manner and to ensure the continued availability of low-cost, secure electrical energy in order that Ontario may continue to prosper.
Having said that, I would also like to state my support for the concept of conserving energy in all its forms. Conservation makes sense. However, it does carry a price. Spending vast sums of money on schemes that serve to lower utility usage patterns will undoubtedly result in lower revenues, lower rates of return and lower working funds for our utility. In order to maintain an acceptable level of service we will have to increase the unit cost of our product.
This we will live with. It can be considered as part of our conserving energy for the long-term benefit of the province. But that is where it must end. We must not pass on the cost of social programs to our customers. We must not agree to funding the capital costs for converting to natural gas through our electrical rates. Market forces must dictate the need for conversion. If subsidies are required, let them come from the natural gas companies.
My statements are strong, as are my feelings. If you insist on tampering further with electrical rates in Ontario, very soon our customers will not be able to afford us, and in turn we will not be able to afford you.
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Mr Hebert: I am presenting this paper on behalf of District 3 of the Municipal Electric Association, which represents 11 municipal utilities in northwestern Ontario.
There are two fundamental principles which form the foundation for the municipal utility concept in this province: first of all, public power, and second, power at cost. The importance of these basic tenets cannot be overstated, and in the opinion of District 3 of the Municipal Electric Association they must be restated in light of the negative influences recently introduced that serve to undermine and destroy.
Public power, simply stated, refers to hydro in Ontario as a great and valuable resource that should not be treated as anything but an asset of the people. This basic principle being adopted, the municipalities joined together in pursuit of a cause which by its very nature required an unparalleled commitment and strict adherence to the founding doctrine.
It should therefore come as no great surprise that we, as members of this historic family, take issue with governmental efforts both past and present to move us away from this original purpose. The MEA and its predecessor, the Ontario Municipal Electric Association, have been the unifying force in the pursuit of public power in Ontario. As the only legitimate representative or voice of 75% of the electrical ratepayers in this province, its opinion should be actively sought, not disregarded as that of a special-interest group.
At this point we can probably drag out the old argument of legality versus morality and safely apply it to the subject under discussion. Nobody disputes the right of the provincial Parliament to enact such legislation as it deems appropriate in the interests of the citizens. However, the oft-heard expression, "Do they have the moral right?" seems to fit at this stage of the discussion.
If I could move for a moment to the second principle, power at cost, I would like to quote from a campaign speech from the then soon-to-be Premier, James Whitney:
"The water power of Niagara was the property of the people and the provincial government must help them to enjoy their heritage without paying tribute to profit-seeking interests."
Certainly the generation facilities in Ontario have grown substantially from the limits of Niagara, and were Mr Whitney alive today, he would recognize this as a natural growth and evolution. However, we feel strongly that he would be greatly disturbed to find the "profit-seeking interests" to be the actual government of the day. Before you dismiss this, let me draw your attention to a retrospect of the extraneous demands made on this industry over the past few years.
Water rental charges: Since its inception, Ontario Hydro has been charged rental for the water flowing through its hydraulic generation facilities. While the formula has changed from time to time, one thing has remained constant: This charge has been passed on to the municipal utilities, an odd arrangement when you consider that the citizens of Ontario are charged for water they own to flow through turbines which they also own. It is sort of like charging a farmer for walking through his own cornfield.
Ontario Hydro's debt guarantee: The purpose of this charge was to cover costs incurred by the provincial government while guaranteeing Ontario Hydro's debt, a guarantee that we must understand was not even required. This fact notwithstanding, it remains that all assets of Ontario Hydro are owned by the people of this province. Coincidentally, all assets of the provincial government are also the property of the people of this province. So we find ourselves in the unusual position of paying out money to guarantee our debt when we alone are responsible for it and no other party can possibly be involved.
Rural rate assistance: If one considers the Hydro family as being composed of municipal utilities and the rural system, this charge is somewhat less offensive than others. However, it certainly goes against the principle of power at cost.
Goods and services tax: The incredible unpopularity of this federal tax speaks volumes about its application to electricity rates. If ever a blatant violation of the principle of power at cost existed, this is surely it. Electricity is no longer a luxury. It is surely more essential than water, sewer or transportation. The chap on the operating table would not be too disturbed if he could not have a glass of water, a trip to the toilet or a bus ride, but he would be in some distress if the lights went out.
Elliot Lake bailout: This is another example of the misuse of electrical ratepayers' money. Ontario Hydro can appear to be magnanimous while posturing as a responsible corporate citizen, but it is the municipal utilities that will pick up the tab. Participation in social assistance programs is so far removed from our mandate as to be silly.
Having endured these several programs, all thinly disguised tax grabs, we come to the next debacle, fuel substitution subsidies, a proposal whereby the actual costs associated with an individual's conversion from electric heat to natural gas will be funded by electrical utility ratepayers. In addressing this specific issue we, as District 3 of the MEA, wish to make absolutely certain you understand our meaning.
As earlier stated, we recognize your legal right to enact legislation, and certainly in a democracy you have the right to be wrong. However, we the people, owners of the Hydro system and owners of all of the assets held in trust by the provincial government, say this in respect of the proposed subsidies: No.
No, we do not and will not support subsidizing the costs of conversion to an alternative fuel with funds from electrical users. No, we do not believe that any factor is more important than market forces in dictating the need for fuel conversion. No, we do not believe that transfer of tax burdens on to the back of our electrical customers, or ventures into the field of social engineering, are in the best interests of this industry.
If that is not clear, we would only be too happy to repeat it.
Mr Conway: Tell us how you really feel.
The Vice-Chair: Thank you for your presentation. I will lead off with Mr Huget.
Mr Huget: Thank you both very much for coming and taking the time to present your obviously very clear views on an important subject.
I want, if I can, to speak a little bit about the former chair of Ontario Hydro, Bob Franklin. He said some interesting things over the years. One of the most interesting things, I think, was: "Baths and bungalows should be heated by natural gas wherever possible. Electricity is too valuable and too costly to heat dishwater." Another interesting approach he had was for the 1990s: "Our first priority must be to make more efficient use of the electricity we already have. No doubt this is the best, the fastest, the most economical, the most environmentally responsible way to meet people's need for energy services." Those were Mr Franklin's views on conservation.
I want to ask your opinion of Elliot Lake, as both of you have mentioned it in your presentations. If I were to take your presentation the way you have spoken it, I would have to assume we would have been better off to continue to buy uranium from Elliot Lake at several times the world price and thereby incur costs of about $1.2 to $1.4 billion more for the people of this province. Am I to take it that would be your suggestion, and would that be a sound corporate decision?
Mr Hebert: No. I will answer that first and Larry may want to answer it after. That contract is coming to an end and it would not be that much longer before it was over. I do not think you would be incurring those costs when you look at what was paid to subsidize Elliot Lake.
Mr Cousineau: I am very new to this, but the way I understand it is that the contract is coming up and the ratepayers of the province should not be burdened with the increased cost of this uranium when it could be purchased at a lower rate somewhere else.
Mr Hebert: To continue to answer the question, from my standpoint I guess you have to look at why you got into the agreement to begin with, why they were paying more. That is another aspect and I will perhaps address it a little later.
Mr Huget: The reason I ask is that it is constantly being mentioned that Elliot Lake is a social program. I would like your counsel in terms of being business people in the utilities industry. Is saving $1.2 billion for the taxpayers of Ontario a social program or a responsible corporate business decision?
Mr Hebert: If it is a true saving, then it is responsible. I am questioning: Is it a true saving?
Mr McGuinty: To pick up on that point, it is my understanding that what took place at Elliot Lake was that Hydro had the option, pursuant to the agreement it originally entered into with the suppliers of uranium in Elliot Lake, to bring the contract to an end in 1993 rather than to continue it to 1996. So the issue was, do they get out? If they decide to get out, do they make any kind of payment out of some sense of moral obligation as a good corporate citizen? I think that is the issue.
From a strictly economic perspective, the directors of Ontario Hydro were very concerned about making any kind of payment in keeping with the interests of the ratepayers, their shareholders. It is important to note that Hydro's directors, the people who are accountable in law to the ratepayers, insisted that the order in council signed by the cabinet, this government, specifically make reference to the fact that they were being absolved from any and all liability for going ahead with that payment of $250 million to the good people of Elliot Lake. I do not think there is any doubt that they were in desperate financial need and that someone had to look out for their interests. The question is, was it Ontario Hydro's obligation to look out for their interests or the government of Ontario's?
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Perhaps I can follow up with a question. Do you feel comforted now in knowing that the minister plans to table amendments to Bill 118 which essentially are going to return it to its original form, that is, that it will not be able to issue directives to Ontario Hydro that will compel Hydro to act outside of its mandate, keeping in mind that what it did at Elliot Lake was something done without the benefit of any amendment which enabled it to act outside of its mandate.
Mr Cousineau: I would feel satisfied.
Mr Hebert: I guess there is the original development aspect to the Power Corporation Act as it stands now, and if you take that widely enough you could consider the Elliot Lake situation as part of that, but yes, we are happy. I know the Municipal Electric Association parent body successfully lobbied the government early under the planned amendments and has already achieved some changes, so yes, we are happy about that.
Mr McGuinty: Let me put it this way. The minister is indicating that what they did at Elliot Lake fell within Hydro's mandate of providing power at cost. Do you believe what they did at Elliot Lake is in keeping with that mandate?
Mr Hebert: As I just said, if you take the regional economic development aspect, which was a change to the act not too long ago -- it was seen at that time as a minor change -- in its wide enough interpretation, I guess you could say that is within their mandate. If you truly look at it, I think it may not be. That may be as it may be, with Elliot Lake in the background. I certainly would not want to see it happen again.
Mr Conway: I have a supplementary on that, if I may, very quickly.
It seems to me that on the two critical questions, regional economic development and fuel substitution, the question is not whether they are a good thing. Clearly, in one case fuel substitution may be highly desirable, and in the other case, certainly in Elliot Lake and in Kapuskasing, it is transparent to anybody with a brain that they are both desirable and absolutely necessary for those single-industry communities. There is only one question: Who pays?
When I think about Elliot Lake and Kapuskasing, there cannot be anybody associated with a utility who thinks that under the old act, as interpreted -- as my friend from Ottawa rightly observes, this minister just said that what they did at Elliot Lake and Kapuskasing has to do with their interpretation of the Power Corporation Act as unamended by Bill 118.
The question is, should the Hydro ratepayer be in the business of subsidizing that kind of regional economic development or should the Hydro ratepayer be in the business of subsidizing to a lower-cost fuel alternative that in many cases may not be available to hundreds of thousands of Hydro ratepayers? Surely the answer to both questions, if you think about equity for a moment, is no. Desirable as they may be, one or both of those responsibilities, to the extent that they have to be entertained, are the rightful obligation of the consolidated revenue fund of the government of Ontario.
Mr Hebert: Certainly part of the district's presentation is that they may be desirable. They probably are, but they do not come under the Hydro mandate in terms of, "Ratepayers should not pay for that." It should come out of general tax funds or what other source the government has, but it should not come out through the Hydro rates.
Mr Cousineau: In answer to that question, if I could just add, in Fort Frances we were paying probably the lowest electrical rates by very far up until about five or six years ago, when we lost a major power agreement with a local mill. What happened at that time is that the power rates jumped considerably. There were a lot of people on electric heat in Fort Frances due to the fact that we had such low power rates. The gas companies came out with very good rates too. Their rates were lower in Fort Frances due to arrangements with the mill in order to be in the town. I am not exactly clear on that end of it, but consequently a lot of people changed to natural gas.
Now I think a lot of our ratepayers who are still on electric heat are definitely going to have trouble trying to maintain their homes and, not knowing what the gas rates are going to do, they are going to have trouble with their Hydro rates subsidizing the possible adding on of converting to gas.
Mr Conway: I can believe that.
Mr Jordan: The question underlying the whole question of Bill 118 that keeps coming to the forefront is really the move from power at cost to power at reasonable cost. Why do you think the government is putting such importance on changing that wording through Bill 118?
Mr Cousineau: That is a tough question to answer. In my short term here so far, I think the ratepayers are concerned that there could be too many unknowns.
Mr Jordan: At least we can assume very definitely it will no longer be power at cost, which is a major change in the utility as it has been known to serve the people of this province over the years. Are your own utility and the association strong in your objection to that part of the bill?
Mr Hebert: The concept of power at cost?
Mr Jordan: Where it says "reasonable cost."
Mr Hebert: Yes. We would prefer to see the original tenet of power at cost kept in the bill.
Mr Arnott: My question is with respect to the fuel-switching issue. I am having a great deal of reservation, after having listened to the minister and the presentations so far as to whether fuel substitution will have a meaningful impact on reducing hydro demand. I do not see so far that it will and I would like to ask what your opinion is on that in your community. Do you foresee many people converting to natural gas if generous incentives are given?
Mr Hebert: If I could answer that first, it depends on who is giving the generous incentives. If it is the gas company, then it can give the generous incentives. I do not think our utility should be subsidizing people who go to the gas company.
In Thunder Bay, most places are accessible to gas. There are a few that are not, but most are. I can see a significant portion, given the differences in cost, heading over to gas for heating. Right now there is a significant portion in our community who use gas for space heating, so I think that would be increased even more, using subsidies or even just using market forces.
If you have come from a situation where it is baseboard heating, it is a tougher time because you normally do not have duct work in your home, so that mitigates against using gas. But if you have central heating with a furnace, then chances are you have the duct work in place from the electrical system, so it makes it very easy to convert. So with or without subsidies, but definitely not with the utility paying, I can see people definitely moving to gas where it is available. That is a good business decision on their part and should make sense.
Mr Cousineau: In Fort Frances I could see a lot of people changing over, simply because a lot of people do have electrical heat, where they did not have oil before due to our previous low rates.
Mr Arnott: When the minister has told us that natural gas is one third of the cost of electricity, why is that not a sufficient incentive for people to convert if they want to?
Mr Cousineau: I would think if that was the case, it should be enough reason for them to convert without any subsidy.
Mr Arnott: What I am suggesting is I do not think there are going to be that many people converting, even if you do give away the cost.
Mr Jordan: A quick point on what was mentioned previously, that a number of years ago Ontario Hydro had a Live Better Electrically program: It was sort of indicated that they promoted the use of electricity at any cost. That, in my opinion, was not the case. That program was very much directed to off-peak loads. You had to supply the generation and the distribution to handle the peak. Then you had your valleys of power, and the loads they concentrated on were very much the ones to be used during the off-peak periods. Would you agree with that?
Mr Cousineau: I cannot really answer that question.
Mr Hebert: I would agree partially with it, except the individual consumer cannot take advantage of off-peak rates, because he does not have meters at a reasonable price that will measure that. So from an individual resident's standpoint, it does not matter whether it is off-peak or not.
Mr Jordan: It did help the utility.
Mr Hebert: Yes, I was going to say that from the utility standpoint it did help.
Mr Jordan: That is right. It was better business.
Mr Klopp: Very quickly, natural gas: You seemed to dwell on that one issue alone, but I think it was pointed out by my colleague over here that it is already one third less and people maybe will not convert any more, so maybe the utility company will not be spending any money subsidizing those people changing. Are you against the idea of a generating plant built for natural gas?
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Mr Hebert: Certainly not. I think we will have an example here perhaps, depending on what happens with Ontario Hydro. They just put a freeze on NUG developments, so if that comes off, then we will probably be looking at one here, and I think Fort Frances -- Larry can speak to that -- already has a situation where they are into one.
Mr Klopp: So that is a good deal then.
Mr Herbert: Sure.
The Vice-Chair: Thank you, gentlemen. I understand one of you is staying behind, wearing another hat. Thank you for your presentation. We will be sure to forward the outcome of all of this to you.
THUNDER BAY HYDRO
The Vice-Chair: The next presenter is Thunder Bay Hydro, and I believe you have another co-presenter this time. At your leisure, and if you could, once again, leave time for some questions and answers.
Mr Tocheri: Thank you, Mr Chairman. My name is Wayne Tocheri. I am a newly elected commissioner for Thunder Bay Hydro, and also a newly elected Chair for the new commission. I would like to thank the committee, first of all, for this opportunity to address you, albeit as limited as my remarks may be.
I would also like to say as a new commissioner that we have been somewhat deflected in the last few months with respect to our responsibilities in other matters dealing with conflicts of interest and the like that have consumed most of our political attention in this community for the last two years.
I would like to invite the members of this committee, however, to return to Thunder Bay, either at the end of this month or next month, as Thunder Bay ratepayers receive their first utility bills for 1992. There, ladies and gentlemen, I think will be the first public expression from the north of what we think of the responsibility of this government and Ontario Hydro to provide electricity to ratepayers in this province at reasonable cost, economical cost and cost that can be properly budgeted by any responsible ratepayer.
To recognize rates of 12% increase at a time when the rest of this province is, in our view, facing an economic calamity of unprecedented times is to me a severe indictment of the past that we have not planned responsibly, developed responsibly or educated our ratepayers to what electricity means and should be costing them for the future. So please, gentlemen and ladies, return to Thunder Bay. This commission, the Thunder Bay commission, will have a lot more to say about what is needed in legislation and what is needed by Ontario Hydro to ensure a proper mandate for the ratepayers of this province.
This brief that you have in front of you has been prepared by our management and will be delivered by our management. We have had only a brief opportunity to consult with our general manager on its contents, but we think that he addresses responsibly the need for a very, very serious look at our total obligation on behalf of ratepayers. Thank you for this brief opportunity. I will allow our general manager to proceed.
Mr Hebert: Hi. Back again, Larry Hebert, Thunder Bay Hydro.
Thank you for the opportunity to make a presentation to your committee on Bill 118. You will hear many presentations from MEA members as you go across this province on this matter and they will do an excellent job, I am sure, of suggesting changes from the municipal utility standpoint.
We will certainly support their position and the position of our parent MEA association that has been taken with regard to policy matters. This lobbying by our association and its 312 members has already led to some amendments or changes to the bill.
There is no question that one of the main reasons in the past for the prosperity of the province of Ontario has been the cheap, reliable energy system provided by Ontario Hydro and the municipal utility group. Unfortunately, successive provincial governments, without bias to political colours, Progressive Conservatives, Liberals, and now the New Democratic Party, have legislated away at the delivery system and its founding principle of power at cost.
Political decisions such as rural rate subsidies, debt guarantees, excessive water rental rates and now proposed fuel substitution and incentive plans have diluted the original concept of electrical energy production and delivery at cost. Either the successive provincial governments have been consistently right or consistently wrong with regard to their political changes to the electrical energy delivery system in Ontario.
Add to the government issue the inconsistency of Ontario Hydro's marketing programs going from the "Hydro is yours, use it" philosophy of the 1960s, to the 1970s conservation theme, to the early 1980s "Use electricity but use it wisely" motto, to the late 1980s and early 1990s demand management blitz, and you can perhaps understand the reason for the approach we have taken.
Our electrical delivery system is good but it does have its problems. The Darlington fiasco is a good example of where Ontario Hydro must be brought under control. The failure, until recently, of the majority of large municipalities to come on side with Ontario Hydro with regard to energy management programs is another example of the lack of direction we have had.
What Thunder Bay Hydro is suggesting is the scrapping of Bill 118 entirely, since it is a Band-Aid approach. What really has to be done in this country is to develop a true national energy policy. Given the void federally, we believe the efforts of the provincial government should be to develop a comprehensive energy policy for Ontario. This major policy direction should be comprehensive, cover all forms of energy and have a future orientation. It should be as non-partisan as possible.
To illustrate what it should not be, take a look at Ontario Hydro's 25-year demand-supply plan. While detailed, that large document simply takes three kinds of current electrical production and projects them into the future. Nuclear may be the best current option as suggested in the report, but the emphasis is on the word "current." This 25-year plan gives no credence to future technologies.
A recent survey of research projects for the next decade indicated that subjects such as superconductivity and cold fusion were in the top priority group. Bringing these two technologies to a usable consumer product level will eliminate or minimize the need for megaprojects. Individual home or area fuel cells, an advanced superbattery, will eliminate the need for much of what we see today in the electrical distribution systems. Efficiencies with new batteries that are almost developed now would mean that we in the municipal utility field might be no more than energy renewal centres, much like gasoline service stations today.
We do not know exactly what the future will bring, but we are positive it will be a lot different than today. We believe we must be ready to meet the future by having a solid energy policy framework in which to work.
If your committee does not prefer to look at the big picture because it is not your precise mandate, then we would support the MEA and fellow utility positions on the bill. We will quickly itemize those areas of concern:
1. Energy rates should not be used as a new source of tax revenue for the provincial government.
2. Policy directives should not be used to force Hydro to do things outside its current mandate.
3. Of most concern is the concept of fuel substitution. The market and the market alone should be the only reason people switch fuels. There should be no subsidies paid by the electrical customers in this province to have people change to another fuel. If it is that worthwhile to switch to gas, then do it without a subsidy from Ontario Hydro or let the gas company pay the subsidy.
4. Stop having Ontario Hydro and the Ministry of Energy compete in demand and energy management programs. Do we need incentives in this area beyond the obvious ones of saving watts and dollars if the technology is good and available?
5. Take the lead in using government buildings to be examples for energy-saving products. The new building here in Thunder Bay did not, to our knowledge, use energy-saving devices, for example, lamps, motion sensors, except a computerized system to turn off the lights at night, which for the most part has not worked.
Thank you for your time and attention.
The Vice-Chair: Thank you for your comments. I will start off this round of questioning with Mr Conway.
Mr Conway: Gentlemen, thank you very much. You appear to be two pretty rigorous cost-conscious fellows, so I want to ask you a pretty direct question. It really comes to my mind because in the 1991 OEB review of Ontario Hydro's bulk power rate increases for 1992 the subject came up to do with cost items outside the bulk power item, which is of course the overwhelming item that drives one's hydro bill.
The OEB hearings last year and the report drew our attention to salaries within the utility world, in this case primarily with Ontario Hydro. Very politely, the OEB seems to be suggesting that one could be forgiven if one came to the conclusion that salaries, benefits at our beloved provincial utility, were perhaps somewhat gold-plated. Now, happily, the new minister in his Rambo role is going to really take a very close and thorough look at this. He is Pollyanna when he gets into the supply question.
But I want to ask you what would a typical -- a lineman would be the person I would think of. What would you be earning if you were working for Thunder Bay Hydro? What kind of salary am I typically earning with some overtime thrown in?
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Mr Hebert: Base salary?
Mr Conway: I do not really want a base salary. I just sort of --
Mr Hebert: I am just going to give you the breakdown: a base salary of about $50,000 and, with overtime, probably $58,000 altogether, $8,000 in overtime. That is not benefits. That is just the salary.
Mr Conway: Because my friends in the third party -- I must say not my friend the member for Lanark-Renfrew but others; communities like Nipissing come to mind -- have been directing some of our attention to the cost structure within our utilities. What you are telling me is that typically I might be earning about $60,000 in rounded figures if I worked for Thunder Bay Hydro with 5 to 10 years experience.
Mr Hebert: As a power lineman, yes.
Mr Conway: As a power lineman. Thank you.
Mr Hebert: I guess there will not be hardly anybody working there if my prediction is true, both at Ontario Hydro and municipal utilities.
Mr McGuinty: Just to follow up on that a little bit, it is my understanding that Hydro has made allocations for a 4.2% increase in 1992. I may be mistaken, but I think that is right. In light of the current economic conditions, in light of the financial stresses under which ratepayers find themselves and in light of the recent negotiation settlement between the government and OPSEU, I am wondering if Hydro employees feel some kind of an obligation to accept less than 4.2%.
Mr Tocheri: First of all, our collective agreements will come up for renewal this spring. I think the recognition right across the province is that we are all going to do some very serious belt-tightening. If we are not prepared to do that, then we might as well start seriously considering where else we would rather live.
I would be concerned not so much about Thunder Bay Hydro rates and salaries, but about all the rates, compensations and costs that have gone into the cost of delivering power to our distribution system. Those are the ones I am going to take to be of concern and a lot deeper concern in the months ahead. We know what our workforce is worth and the kind of competitiveness that we have to face to recruit competent people. I can assure you it is not as though we do not have any turnover. We have had some significant turnover of our workforce.
We will be looking not only at our linemen, our management, our office staff and everyone else whose salary is being listed as a cost to deliver power to Thunder Bay. It is the responsibility of Ontario Hydro to ensure that what has gone into its costs is truly legitimate and fair salaries in this province. I know as a compensation professional with some 25 years' experience, I have always regarded Ontario Hydro as the Cadillac of Cadillacs when it comes to compensation. Whose responsibility that is to address in detail I am not certain.
Mr Conway: Does that Cadillac have an effect on your Thunder Bay Sedan?
Mr Tocheri: Let's put it this way. If I refer to others as driving a Cadillac, it may be because the grass always looks greener elsewhere, but I am not at all apologizing for or quibbling about the rates we are paying our Thunder Bay employees. We will look seriously and we will expect our entire workforce to be responsible for 1992, 1993, 1994 and until we can ensure that ratepayers can manage the kind of cost increases that are being --
Mr Conway: But has the Ontario Hydro Cadillac affected your Thunder Bay Sedan?
Mr Hebert: In the past it probably did but, as you may be aware, now there are a number of utilities including our own that have a power lineman rate, which is a pretty standard one across the province, that is higher than Ontario Hydro's.
Mr Conway: I did not know that.
Mr Hebert: Yes, that is true. There are probably about a half a dozen or maybe even a dozen in the province that are higher. All the Metro Toronto linemen rates are higher than Ontario Hydro's now. That was driving Ontario Hydro during its last negotiations. But the situation is that the nuclear operators are now the top ones at Ontario Hydro.
Mr Conway: But your lineman rate is not higher than Ontario Hydro.
Mr Hebert: Yes it is. I just said that we are one of them.
Mr Jordan: To follow up on my colleague's line of questioning there, the operation, maintenance and administration budget of Ontario Hydro, as it is frequently referred to, has been criticized as having too much going into operation maintenance and administration. Taking into account your statements on average salaries in the utilities, how do you feel Ontario Hydro should be bringing that budget down? Do you think with the present state of the economy and the growth of the system they should be looking at a reduction in staff?
Mr Hebert: I will give my viewpoint first. I think that is certainly one way of doing it. They had a large Cresap study done a couple of years ago and the intention was to look at getting rid of redundant levels in management throughout the organization. I do not think much happened in terms of their total numbers. People were shuffled around but I do not think too much of a reduction took place. That has to be looked at. It has to be looked at in our field as well, the municipal utility field, to make us as lean and as mean as possible -- so not just Ontario Hydro but the municipal field as well.
Mr Jordan: I have another quick question. Environmental hearings are going on at present regarding the 25-year demand-supply plan, now that the plan is basically being scrapped, if you will; it is going to be totally changed, as I understand it, because of the change in the economy and the fact, as was mentioned, that Ontario Hydro in its plan used the word "current" quite often, saying its research department and other departments were seriously looking at other means of supplying electricity to homes and so on.
Do you have faith in the environmental division and research division of Ontario Hydro and do you really and truly believe they will come forward with what is best for the people in Ontario, or do you believe we have to interfere, from a political aspect, with policy directives, without research being done but just with a philosophy or feeling we may have, and impose that on the utility? How do you feel about that approach?
Mr Tocheri: First of all, I hope Ontario Hydro recognizes its responsibility for research to address and put out to the ratepayers of Ontario just what is the prospect for the future. Where are the white papers? Maybe they are existent. I think that demands a public education program and a public awareness program where we can, as citizens, address where we would like to see energy development in the future, that it is not suddenly going to be another Darlington, and here is where we are going, and X billions of dollars are somehow going to have to be paid. All of us in our respective levels have a responsibility to ensure that the public is aware of what the alternatives and opportunities are and put that out in advance.
Mr Jordan: If I might interject, in all fairness to Darlington, we tend to associate the problem with the fact that it is nuclear plant, when in fact the problems are mechanical: The problems are in the shaft, in the tubing and in other things not related to the fuel. I think we should keep that clear when we criticize.
Mr Tocheri: We could go back and add Bruce and Pickering as well, if you wish. The fact of the matter is that when future technology is put before the public for understanding, there have to be responsible cost projections. That is where we are developing a severe malaise with respect to the credibility of commissions, boards of directors and governments: We never, ever seem to be able to live up to our cost projections. Then we are not fulfilling our mandate responsibly.
If I hear of a new technology that Ontario Hydro is putting forward for the year 2010, then I not only want to look at the practicality and the ethics and the environmental considerations, but I must also very seriously, based on past experience, look at the cost projections, because the track record has not been anything I could depend on.
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Mr Hebert: If I could answer that as well, I support nuclear as the best current option, but I think that is going to be supplanted with new technologies by the year 2020. If I were still there -- I would be retired by then -- I would probably not have a job. There would be very few people working in our utility, as I see it. That was the point of our paper. The 25-year demand-supply plan was simply a document looking at the past and projecting into the future. What we need is a future-looking document and that, I think, has to come from you folks in the Legislature. Unfortunately, the federal government does not seem to want to develop a comprehensive national energy policy. We need one. Let's do one in this province and get at it, and then I think you can have the proper kinds of plans.
New technology was looked at, basically, in that document. I wrote about that as soon as I got it because that is what I first recognized. All it did was take three current technologies and project them. That is not looking at the future. It is very difficult in this business, or in any business, with the way technology is developing, to develop a plan for 25 years down the road. It has to be a lot more flexible than what was looked at in the 25-year plan. I think that system should be scrapped. It is being scrapped for another reason, but I am wondering whether if the economy got going again we would not be back at the environmental table still going at the demand-supply plan.
Mr Jordan: Do you realize the degree to which that hearing is affecting the rates?
Mr Hebert: Sure. I know the costs from the Municipal Electric Association's standpoint, how much money we are putting in as an intervenor. I do not think it was done properly because I do not think the plan was the proper plan to bring forth. It takes the best, and I think when all things are said and done nuclear probably is the best current option. We like using "current." We are a current business.
Mr Jordan: I think Ontario Hydro did take it around the province and did give each municipality an opportunity to have input.
Mr Hebert: Right, but they were not going to change the basic direction of that plan. That is what I am saying: The basic direction is wrong. They took current and projected it. They should have been looking at new things such as superconductivity, what impact that will have.
Mr Jordan: Do you not think they are?
Mr Hebert: No. I wrote to them about it and they said no, that it is too new. Superconductivity is one. Cold fusion will be a fact; I think that will be developed. If I am right -- I may be wrong; I am not saying I am going to be right -- the need for distribution lines will not be there. We may get into electrical railways across Canada, which will mean electrical transportation in terms of rail car will be a lot faster and better. We may get a rail system back in Thunder Bay, in terms of passenger trains. All those kinds of things can happen. Those kinds of technologies are going to be here. They are just around the corner.
If you look to 2020 or 2015, as that plan did, I think a lot of those things will be in place. I see a smaller Ontario Hydro and maybe a lot smaller numbers in municipal utilities because there will not be the kind of delivery systems required. If we have fuel cells, area fuel cells or even in individual homes, we will not need a distribution system around so we will need less people to maintain it. As I said, I may become Murray Westgate, just giving you a fuel bundle as you come back to get it renewed. That is all I might be doing.
Mr Jordan: I feel the utility is much more aware of this than we could ever be internally through the Ministry of Energy. They have the expertise; we do not.
Mr Huget: Thank you again for your presentation. You do not look like Murray Westgate. I would like to make a brief comment on your references to Darlington, and indeed the connection between Darlington and the 11.8% or 12% increase in Hydro rates this year. I think you raised a very important point, and one that I think needs some clarification.
There is certainly a tendency on behalf of the opposition members of the committee, and perhaps others in the community, to lay the responsibility for that at the feet of this government. I think it is important to clarify that what we see now with Darlington and that $13.5-billion cost is indeed the nuclear chicken coming home to roost on policy decisions that were made to proceed on a nuclear route far before we were ever on the scene. While it is an unfortunate situation, we none the less have to deal with it.
I wonder what your views would be on some of the new technologies and some of the different types of initiatives and their relationship to Hydro. I am referring specifically to the new energy directions policies of the current provincial government and that relationship with Hydro; in other words, if it is in the best interests of the public in Ontario to explore alternative energy sources and to indeed do the types of things you referred to a second ago in terms of looking at all alternatives.
With the amendments to the Power Corporation Act, which I think have been announced largely as a result of discussions with the MEA, which really mean we are not going to expand the mandate but indeed proceed in a direction within the mandate, do you see that type of connection and relationship between government policy and Ontario Hydro as being healthy and in the best interests of everyone in Ontario, or what recommendations would you have around that?
Mr Tocheri: Let me make an initial comment. I would not want anyone to leave this room thinking that the Thunder Bay Hydro management or commission is in any way laying partisan blame with respect to Ontario Hydro delivery. If there is blame, then the commission, as elected people, will accept its share of the blame. What we are saying is that there is a responsibility in Ontario Hydro to ensure that all reasonable efforts are made to research and develop alternative energies for the future, and that the public has a right to know that long before the economic feasibility studies are achieved so that we are growing in our understanding and appreciation of what those energy alternatives are about, what the implications are. If that had been done with respect to nuclear energy, I am not sure that nuclear energy would be here today. If that had been done universally, I am not sure it would be here today. Maybe we would have said as a provincial community, as a national community, as a world community that nuclear energy was not a serious alternative.
But today Ontario Hydro's mandate must surely include the responsibility to research, and by research I am not talking about seeing what somebody else has down around the country or the world. It is the biggest utility in Canada and probably one of the world's largest utility providers, so we obviously rate a research and development component. Let's hear from them responsibly and then, before we agree to the go-ahead on development, let's be a lot more wary that we have responsible costing. My recognition of accountability, all partisanship aside, is that if you do not live up to your projections, then your head is on the block. I do not know whose head has ever been put on the block about the costs that have been delivered to Ontario ratepayers, but I would surely have expected that there was some serious accountability called for.
Mr Conway: I warn you that by that standard Adam Beck would not have lasted three months.
Mr Jordan: There would be a lot more unemployment than we have today.
Mr Tocheri: I would add that I do not think it responsible that Ontario Hydro should be expected to be in forms of other social responsibilities for this province. If this government, or any government in Ontario, feels it is a good community decision to do this or that, then it must be clearly addressable in terms of cost to electric power users, not to taxpayers generally. That is a responsibility of government, not of a utility commission.
Mr Huget: Briefly, again with the amendments the minister has announced in terms of making sure that indeed Ontario Hydro does not become another social assistance deliverer, if you will, and very clearly operates within its own mandate and no expansion of its mandate, would an amendment that contains enough language in that regard satisfy your concerns about the social-program aspect of Ontario Hydro?
Mr Tocheri: At this point, I would say that my view of the social component must clearly start with education to electric power ratepayers: understanding and, if you will, conservation. I believe we have a long way to go in achieving real gains, real economies through conservation. If those are social costs, then that is certainly my understanding of social costs.
I am very concerned about when we get into considerations such as whether we can keep a community viable by buying, establishing contract prices or agreeing to contract prices that then maintain a community. That is fictional. That will not last in the longer term. If that is a responsible social cost, it must be a cost addressed solely and completely by government, not by the Hydro commission, not by Ontario Hydro.
The Vice-Chair: I thank you for your presentation. As I have said before, we will forward the completed document to you.
Mr Conway: Thank Larry for some very good ideas.
Mr Tocheri: And do not forget our invitation to come back.
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JOHN STRADIOTTO
The Vice-Chair: Next I would call next Mr John Stradiotto. Please come forward for your presentation, at your leisure, sir.
Mr Stradiotto: Good afternoon, Mr Chair and members. Let me first thank you for the courtesy of giving me the opportunity to speak this afternoon. I have driven over 400 kilometres to speak to you and have taken a day away from my own self-employed business as photographer and guide in Quetico Park.
I am here from Atikokan and have no pretension to represent anyone else except my own family of four, particularly my two daughters, who are nine months old and five years old. I think we are talking for the most part about their future in these discussions.
I own Ontario Hydro bonds. The best credential I can have to come before you is that I consume power both in my home and as a separate property in my business. The focus I want to keep in my presentation is what is in the best interests of a consumer. Since I am consuming both in business and privately, I have a couple of comments to make on Bill 118.
I am not going to shoot from the hip. I am going to give you some background on where I am coming from. I have an ambitious vision. I believe, for what it is worth, that we can have negative growth in electrical demand in Ontario for the next 20 years. I think that is a possible goal.
I believe in energy ethics. I think Ontario residents are certainly less than moral when we look at the energy slobs that we are on the planet. I use that term not derogatorily in its worst sense but in its best sense, that we want to change. Morally, I think every citizen wants change.
I am a self-employed business person and I have a business ethic as well. I believe in market forces, as described in the earlier presentation, and I believe in competitiveness. I am in a cut-throat business. As a photographer, I submit images to an agency in New York and I compete with photographers from all around the world. This new stuff from the Porter commission is not new to me at all.
I believe in research and development and financial responsibility. I also believe in a social ethic, in the wise use of energy and getting out of life what is good, but not necessarily the good life. Jacuzzis and machines that cut up things in the kitchen were not what my mother used when I was raised as one of 11 children, and we turned out all right.
I also believe in common sense, doing what is easiest, what is cheapest, with flexibility to meet demands in the fastest and easiest way with the smallest capacity of energy put forward. That is how I survived with my business in northern Ontario when I came here in 1975, and we have made it. Our business prospered during the recession.
Generally, I support Bill 118. It is a step in the right direction. What is important, if you leave with any message, is that it is starting to create credibility when we hear these kinds of things happening. We have to return credibility to Ontario Hydro and its consumers. When I say "consumers," I am referring to consumers in the broadest general sense of the word because we consume air as well as power. When my children breathe, they are consuming Ontario Hydro just as much as switching on a light switch. If we want to talk about power as one thing over here, and social forces over here, and environmental over here, that is nonsense. My children consume Ontario Hydro in a multifaceted fashion and I hope that is reflected in what Bill 118 represents.
The key to planning in the 1990s I am sure will be credibility. Whether you are a politician or the head of Ontario Hydro you are going to have to have much more credibility. How we restore credibility with Bill 118 then becomes the significant question.
First, look at the issue of democratic accountability. Elected governments should give policy direction to Ontario Hydro. There should be no closed doors. Why? Because you need to change the behaviour of your consumers. You will not change the behaviour of your consumers without confidence and a sense of control and that sense of control will not come without credibility. You cannot get credibility behind a closed door.
No mandates are sacred. I hear from the Municipal Electric Association and others that we are diluting the mandate, that we are going away from what was intended for Ontario Hydro. If I were a Martian and landed here, I would say the mandate of Ontario Hydro was to create debt and waste as well as electricity. I would have a hard time knowing what the mandate was. Was the mandate to create waste runoff from coal mines or dust in coal miners' bodies and encourage that? Was the mandate to create tailings of uranium? Was that what was intended?
When we talk about going off from the mandate, it has always been off from the mandate as far as I am concerned. The mandate is a pretension. It is just a word on a piece of paper. What actually happened is what the mandate has been to date in truth and in fact. Criticism I have heard to date against Bill 118 is kind of weak. I hear scare tactics. I hear concerns about social programs being abused and used as a cash cow.
What about the Steve Roman uranium deal with Davis? How much more abuse can we have than we have had in our history, in truth? We are worried about future abuses. Look at the past track record. Give the other side a chance to punt downwind for a change. We have had the nuclear industry punting downwind up to this point. I think you get the tenor of what I am saying. We have had government subsidies to the nuclear industry since 1947, apparently up to $14 billion if I am correct, something in that direction, yet we are told we cannot help somebody who has gas heated housing to do something that is beneficial to all of us. We cannot do that but we can give $14 billion to somebody else.
Let's talk truth, not politics. In truth, these complaints of diversion of mandate or abuse of power or not giving subsidies to people who are not with an electrical service are complete nonsense when we start looking at the facts. Abuse always thrives in positions of power. You are not going to get away from that. You damn well know that better than I. Ontario Hydro's history is a history of power abuse. We would not be here today with our concerns and our debt and our waste if it was not. I do not run my business that way. If I did, I would be a shame to my children.
When we talk about the social programs at Elliot Lake, it is often thrown out as, "Look what they're doing," but that saved $1.2 billion on potential losses on the contract in the first place, which was a scam from day one, a backroom deal.
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I will move on to fuel switching. I have just purchased a property and I do not know why Ontario Hydro cannot lease me a solar heater. That opportunity should have been given to me. In this day and age, with the technology available, with the intelligence available in this country, that should have been put in front of me as a businessperson, saying, "This is one of your alternatives." It was not. That is a crime.
Loans and incentives for conversion for water and space heating are absolutely necessary. Why? Am I going to play the game now of bringing my expert on technicality before your expert on technicality? We both know -- it is obvious -- that it is cheaper and the cheapness is significant. As a business person I say, "Do it."
Second, it is a cleaner environment: We are going to reduce acid rain.
Third, we are not going to bring on costly nuclear stations at a cost of $20 billion or something. We are going to save 4,000, maybe 6,000 megawatts of power through conversion. Why should it be considered? If I was going to make that kind of saving in my business, I would be silly not to.
We are going to reduce peak loads because we are talking about space heating, which occurs in winter, the peak loading time as I understand it. The demand-supply plan that is currently considered has no business asking for expansion of capacity now, no business whatsoever.
Finally, the savings in the long run will go into the research and development the previous speaker spoke of, which we do not have enough of. This is a long-term view. This is not a three-year fix. We are in a big mess in so many ways.
I hear about market forces. The Municipal Electric Association talks about market forces encouraging a switch -- "Let the free enterprise thing happen" -- but it is not factoring the environmental costs into the bills. If you do that, if you take a cradle-to-grave analysis, give every cost, the social programs to miners for medical care and everything else right through to the end where they take care of the waste and it is returned back to its original setting as it was prior to entering that environment and put that bill on the tab, then we will see the market forces react. They are talking about false market forces. They have not factored the entire environmental cost into the bill. Therefore, the market forces are misrepresentative. That argument is entirely false. Bill us the real cost and the market will respond. That is the message.
If I can move on to building codes, I think that with Bill 118 we can restrict and discourage electrical space heating and water heating just as we discourage smoking and drunk driving -- by embarrassment. Use Bill 118 to embarrass people. It works very well.
New government housing should not be done on electrical. It is done on electrical for the same reason they say market forces determine building design. Sure, because you are talking about a baseboard heater being cheap infrastructure, but the fuel is expensive. So what is going to happen? The market force really is reacting to the infrastructure, not the fuel. Then the man who sells the fuel says: "It's cheaper. Look at the market forces." That is another lie. It is a false argument. Let's retain clear, succinct, morally sound, well-thought-out, comprehensive arguments if we are going to commit our tax dollars in our society to these things.
I do not see those arguments being made in a fair and realistic way in front of our family. Our six-year-olds in the next century will be disgusted with this record of performance. The person before us said heads have to go. If I were not here today, she would have a right to take my head off to. That is how seriously I see it.
The infrastructure is cheap but the power is not. We have to factor into the purchase the real marginal cost of replacing that power, to avoid long-term losses to the consumer. We have to plan for district heating where possible, so that a plant that may be having trouble with pulp and paper can produce heating for housing and get additional income from doing such without running to government -- commercial cogeneration. All these things you are well aware of.
I have to see Bill 118 as of potential value and paying a premium for renewable energy resources when they are purchasing that power. Why not put a 15% or 20% premium on solar or something else? Why not give a loan incentive for my business? I have the perfect example. One house has access to gas; one house will never get gas because it is on an island. I am told by the Municipal Electric Association, why have customers who cannot get electricity, like my island, use their bills to help everybody else? No argument made me angrier than that. It is ridiculous. Nobody consulted the consumer. They are speaking for consumers; they are making aassumptions. First of all, let us speak for ourselves. If we do not have access to electricity today, we still have lights. Do these people he is talking about not have lights? They have lights. Let us make our own speech.
What about the subsidies given to AECL through our general tax base? Then they say, "No, this is off the mandate." Money does not sleep in banks. Pension funds: We do not know whether my money in the Royal Bank is helping somebody out in Japan or in the United States expand. We have no idea. This business about Ontario Hydro's money going in the wrong direction is nonsense. That is happening globally depending on what is expanding where, if you really understand finances. Finally and most important --
The Vice-Chair: I am going to have ask if you could wind up, please.
Mr Stradiotto: I have 20 seconds to finish. We all gain environmentally. Job creation: Some 80% of construction in this province in the next decade will come from renovations. That renovation should be energy-efficient. People are spending $1,800 a year as it is; let's use Bill 118 to work. Most homes are poorly insulated. They need mass retrofit of the structures.
Education: Every Hydro bill should be a short course in energy conservation, a subscription course to it, with reliable information on alternatives, which I cannot get. I cannot get good performance comparisons.
In conclusion, history is not a rerun for slow learners; I did not made that up. That came from someone else much brighter than myself. We need competitive efficiency right now. The nuclear industry has been something of a financial-debt meningitis. Spare my daughters -- give me the financial pain now. Let the rates go up, but my bills will go down. The real cost would be if we did not act.
I thank you for your patience, and I welcome any questions you may have.
The Vice-Chair: I will allow one quick question from each caucus, starting with Mr Jordan.
Mr Jordan: I would like first of all to thank you for taking personal time away from your business and coming to give your individual views on Bill 118.
A quick question relative to the electrical load: You seem to be referring to heating as an ongoing part of your presentation. I wonder if you believe in air-conditioning of buildings.
Mr Stradiotto: For our part of the country?
Mr Jordan: Do you believe in air-conditioning for Ontario?
Mr Stradiotto: Not for northern Ontario; I cannot see it.
Mr Jordan: I am talking about the province of Ontario. I am talking about Ontario Hydro and Bill 118.
Mr Stradiotto: I do not quite understand the meaning of the question, to be frank.
Mr Jordan: The meaning of the question is that the peak of the utility is now almost becoming a summer peak due to the air-conditioning load.
Mr Stradiotto: I understand that, yes. But that is almost --
Mr Jordan: Do you believe in air-conditioning, or should we scrap it?
Mr Stradiotto: How does this relate to what we are saying here?
Mr Jordan: It relates to the requirement to supply the demand, which is no longer going to be the winter load; it is going to be the summer load.
Mr Stradiotto: You are saying the summer load will in the future exceed the winter load.
Mr Jordan: It may be right now. I do not have the latest figures.
Mr Stradiotto: And therefore that renders all the other statements I have made of no importance?
Mr Jordan: No. I just wanted to know how you felt about our supplying electrical energy for the purpose of air-conditioning. Do you see it as a necessity of life? Should it be discontinued?
Mr Stradiotto: If you are going to ask me a profound question, I am going to give you a profound answer. Let's do a comprehensive answer to this; give me the time to do it.
When we designed our urban centres, we designed them incorrectly. When we bring power, as we propose, from the north down to southern Ontario, we are aiding and abetting the destruction of the province by the expansion of urban centres, which are heat sinks. Our energy policy should prevent that kind of expansion from happening or we are going to get this air-conditioning need.
Mr Jordan: Maybe that should come under the planning department rather than Ontario Hydro.
The Vice-Chair: I am sorry, Mr Jordan, I have to move on. We are running overtime.
Mr Stradiotto: In comparison to the health of my child, air-conditioning is insignificant. That is the short and quick and dirty answer.
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The Vice-Chair: A quick one from Mr Huget, and then on.
Mr Huget: I, too, would like to thank you for taking what has been quite a bit of time and effort on your part to get here. Unfortunately, coming from southern Ontario into Thunder Bay today, the last thing on my mind is air conditioning, so I will move on to a very general question. Do you think there is anything inherently wrong with Ontario Hydro being more accountable to the government of the day in terms of energy policy on things like efficiency and conservation?
Mr Conway: Do you think the sunrise is a good idea?
Mr Stradiotto: I think it is inherently wrong that any significant organization with the financial power and influence on the environment, such as this corporation, would not be responsible to the government. I think the question speaks for itself. The alternative is Yugoslavia. It is a democrat or it is not a democrat, in terms of how society's organizations function. Therefore, it must be accountable. We cannot see the convenience of a friendship-sweetheart deal in using the resources. It is just not tenable. You have to change the behaviour of the consumer, and that consumer needs to trust. He does not get that trust without control. That shift and that paradigm must be there; it is absent at present. You will not get me, the consumer, to do what is necessary to compete in the world as long as I do not trust you.
If we want to use air conditioning for a hospital or for the elderly or for people -- it is the abuse. It is not, "Do you believe in this?" There are no black-and-white questions here. It is what is appropriate according to the circumstances, and will citizens sacrifice for the common good.
Mr Jordan: Freedom of choice.
Mr Stradiotto: Freedom of choice: If we have the freedom to annihilate ourselves by mutual greed, yes. If you wish to have that freedom, I will step in and say no, just like our soldiers did in the Second World War. I will stop at certain limits. There are no absolute freedoms. In fact, the freedom we have is to respond to the care and capacity of the environment. That is the only bottom-line freedom as animals; I have a shirt and tie on, but that is just a disguise. We are here and responsible to the basics of our biology, not to our political whims, corporate masters, the Japanese or anyone else. The bottom line is, in the history of the next century, my daughters will not be asking who discovered North America first, but can we breathe here. That is the bottom line.
The Vice-Chair: Thank you very much for your presentation. We will be forwarding a copy of the completed document to you.
Mr Huget: On a point of order, Mr Chairman: I noticed in the last hour or so that we seem to be getting into a habit of making interjections, one or two of them directed at witnesses. I hope we could better spend our time and not subject people who have come a long way to make a presentation to interjections and some of the less-than-courteous treatment we are subjecting ourselves to.
Mr Conway: I want to clarify the comment about the sunrise. It was directed at the questioner, certainly not at the witness. I was just observing that in the old days we would have called Mr Huget's last series of questions a sweetheart cross-examination.
The Vice-Chair: Thank you both, gentlemen.
ASSOCIATION OF MAJOR POWER CONSUMERS IN ONTARIO
The Vice-Chair: Would the Association of Major Power Consumers please come forward? Could you introduce yourself for Hansard?
Mr Brown: My name is Terry Brown. I am director of administration, Great Lakes region, for Canadian Pacific Forest Products. Canadian Pacific Forest Products is a member of the Association of Major Power Consumers in Ontario.
We would like to thank you for the opportunity to express some opinions here this afternoon. I would like to give you an outline of our company. Canadian Pacific Forest Products operates two major pulp and paper mills in northwestern Ontario. We are very concerned about the potential impact of Bill 118 and, in particular, its implications for the future cost and supply of electrical power.
Pulp and paper, as I am sure you know, requires large amounts of reliable electrical power and low-cost power. It is essential to our competitiveness in world markets. Canadian Pacific has two complexes in northwestern Ontario, one here in Thunder Bay and one in Dryden, 200 miles to the west, employing more than 4,000 people in total. We require 200 megawatts of electricity, with a value of some $60 million annually. This represents approximately 10% of our total product manufacturing costs.
Our concern for the future cost of power is increased greatly with some of the proposals in Bill 118. Areas of particular concern are the requirement for Ontario Hydro to carry out government policy directives, the issue of removal of directors' accountability, the changes to the issue of fuel substitution and, most important, the compromising of the principle of power at cost.
We are extremely concerned with Bill 118's proposal on the issuing of policy directives to Ontario Hydro that were not specifically related to Hydro's mandate and are encouraged that the government has announced that policy directives will relate to Ontario Hydro's exercise of its powers and duties under the act and not lead to an extension of those powers and duties.
Many individuals and corporations have over the years expressed the opinion that there should be some method of making Ontario Hydro more accountable to the ratepayers, but the issuing of policy directives directly by the government, outside the legislative process, puts too much discretionary power in the hands of government and risks ignoring the expertise and advice of Ontario Hydro. We are concerned that the relationship between the government and Ontario Hydro will result in government domination on key matters at the expense of the ratepayers, who will have no input into this process.
Directors of Ontario Hydro are responsible for their actions, and it has been their duty to protect the interests of Hydro's customers. Bill 118 relieves the directors of this responsibility with respect to policy directives as long as they act honestly and in good faith. It is not clear how one acts honestly and in good faith when carrying out an order with which one does not agree.
With the ability of the government to impose policy directives on Ontario Hydro, the directors' obligations to the ratepayers are being compromised, as they are no longer obligated to act in the best interests of the ratepayers. They are also being forced to accept that compliance with the policy directives is considered to be in the best interests of Ontario Hydro regardless of what they believe. The directors' responsibility must be maintained.
Ontario Hydro's mandate is to provide power at cost and should not include the promotion or support of alternative fuels unless it has a direct positive impact on increasing the supply of electrical power or lowering the cost of power. For industry to maintain the lowest possible manufacturing cost, each industry and plant must manage its own total energy consumption and costs and have the opportunity, without inconsistent government intervention, to maximize its cost savings. By maintaining the power-at-cost principle, industry will know the cost components of its electrical power and can take its own appropriate energy-saving actions based on the economic factors involved.
Having Ontario Hydro finance fuel-switching programs which do not benefit electrical energy is extremely unfair to electrical power users who may not benefit from these programs and have to bear the cost of others doing so.
Power at cost is the principle on which Ontario Hydro operates and this principle must be retained if Ontario industry is going to be able to compete in other Canadian and international markets. Low or lower-cost power is the reason many industries have located in Ontario and one of the elements which, in the past, contributed to the lower cost of production for the pulp and paper industry compared to other Canadian and US areas. Recent cost increases such as the 11.8% increase on January 1, 1992, and forecasts for similar or higher increases in 1993 and 1994 are unacceptable and devastating to our industry. It is essential that these increases be reduced and that no additional costs are introduced by way of negative influences on Ontario Hydro.
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Ontario Hydro, at the request of the government, recently added significantly to the cost of power with social initiatives at Elliot Lake and Kapuskasing, which will result in significant increase in cost to all the power consumers in Ontario. While both of these were cases of extreme need, Ontario Hydro is not the appropriate agency to have funded their programs.
Bill 118 permits the government, without the approval of the Legislature, to force Ontario Hydro into additional initiatives such as these, which will add to the cost of electrical power and therefore be paid for by power consumers rather than being paid out of government's general revenues.
You heard last week Canadian Pacific Forest Products' announcement of mill shutdowns in Quebec and New Brunswick. At this time, many of our mills are operating with a negative cash flow and this situation cannot be additionally aggravated by unnecessarily increased power costs.
The pulp and paper industry has been devastated with low prices and demand, a high Canadian dollar, massive environmental expenditures and increasingly obsolete facilities. It is vitally important that Ontario Hydro do everything possible to minimize increases in power costs. It is vital to the future of our industry and to the province as a whole that major industries are not forced to shut down as a result of increasing costs but are encouraged to reinvest and expand in Ontario.
While power costs in Ontario are no longer as competitive as they once were, it is essential that we do not become totally uncompetitive as a result of unfair costs to the power users. We believe Ontario Hydro must be able to maintain its mandate of power at cost and be encouraged to control the cost of electricity to support existing industry.
We request that you seriously consider our concerns in your review of Bill 118.
Mr Klopp: Thank you for your brief. There were a lot of things in here that I agree with and that I think this bill does. Page 4: Ontario Hydro financed fuel switching which does not benefit electrical energy. If it does have a place where it benefits, are you in favour of that?
Mr Brown: Yes, I think so.
Mr Klopp: I am too. I think this bill does that. Page 5: Elliot Lake and Kapuskasing. Unless I misinterpreted something, the significant cost, according to the way they figured that out, which was the old mandate and which they looked at -- not even with Bill 118 -- it is supposed to save electrical energy, which is me in southern Ontario and you here. Frankly it is spread around, over $1 billion. It did not cost; it is going to save over $1 billion. Did I miss something or am I wrong in that interpretation?
Mr Brown: I think there is some debate whether it saved money or cost money, and I believe the cost side is where we are coming from.
Mr Klopp: It costs me for a new tractor, but if it saves me money in the long run or whatever, it is a saving. I was told there was over $1 billion in electrical savings, period. Yes, it might have cost some money, but it saves a billion. We will have to argue that later.
In conclusion, you said here power at cost. I think everything has gone up in the 11% rate increase. I am on electricity because I was paid by somebody to get off oil two years ago. All these costs were before Bill 118. You heard the previous person talking about subsidies and credibility. Do you not agree that some of these things he referred to are in Bill 118?
Mr Brown: The programs specifically are not in Bill 118, but with respect to the changes to the Power Corporation Act, the previous wording included the words "electrical energy" throughout that section. Now there are opportunities in there for energies other than electrical and not impacting electrical, from our understanding, that are included, or could be.
Mr Klopp: But it reduces the need for electricity. For example, down in Leamington I understand the company, along with some other companies, helped a cogeneration plant for a tomato factory, but that will save Ontario Hydro X million dollars, which will help me and my bill and will undoubtedly help you down the road, will it not?
Mr Brown: Yes. If it involves a saving in capacity for Ontario Hydro or if it reduces the cost of hydro, then it is an acceptable change. If it is strictly related to other fuels, we see no role for Ontario Hydro in that activity.
Mr Klopp: They went to propane to produce their own electricity. It saves the other side. I think that is what it does.
Mr Cleary: You mention your approximate cost is $60 million per year for electricity for your two plants. The other thing you mention is about the plants closing in New Brunswick and Quebec. Will that assist you here in Ontario, that those plants have closed? Are you still having real problems in the pulp and paper industry? I am asking these questions because in the area of Ontario that I represent there is a Domtar plant and it is seen to be going through some pretty rough times at the moment and is not looking for any added costs.
Mr Brown: I can certainly tell you that the industry as a whole in Canada is in a desperate situation right now. If you are keeping track in the papers, you can see that we are just awash in red ink. Any additional problems that are going to aggravate our costs will certainly not help that situation.
To answer the first part of your question, the closures in Quebec and New Brunswick will assist our corporation as a whole but will not have an effect on our operations in Ontario. The operations in Ontario have to go through the same kind of review, and we are going through all kinds of cost-reduction programs at the present time and have been for the past year, and they will continue for some time. We have a very difficult situation right now because prices are down, the Canadian dollar is high and we are at an extreme disadvantage with our international competition, which is becoming more and more competitive with Canada. We are not doing as well as even our neighbours in the United States, so we have a long way to go.
Mr Cleary: I guess what I was trying to ask, and maybe I should have, was for you to compare your hydro costs in Ontario to the Quebec hydro costs in 1992. How would they compare?
Mr Brown: Ontario costs are higher than Quebec costs. In fact, Ontario costs are, I think, very near the top of provincial power costs in Canada. We are becoming a high-cost power province.
Mr Conway: If I could just ask on that specifically, do you know this year roughly what is the differential between power purchased in Ontario versus power purchased in Quebec for, say, 1991? Do you know what the differential is there?
Mr Brown: I am afraid I do not know what the differential is. I know Quebec is lower than Ontario but I do not know exactly what it is. Competing in the pulp and paper industry, we know that Alberta and British Columbia are also lower than Ontario and they are other key producing regions.
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Mr Arnott: I read on page 1 of your brief that Canadian Pacific Forest Products uses 200 megawatts of electricity and pays $60 million a year for it. That is quite a significant amount of electricity to be using. I am not suggesting you are in any way a glutton, but that is a significant amount of electricity being used.
Given that this is 10% of your total manufacturing cost, I would think you would have a very serious interest in keeping efficiency at a peak. One of the underlying assumptions of this bill is that major power users have a great deal of room to further enhance their ability to conserve. Have your facilities taken steps in the last five years, say, to decrease power usage?
Mr Brown: We certainly have. I might say just in beginning that in some cases you are not always reducing your power, because as you modernize you may have to go up, such as we did with our new thermomechanical pulping plant that has just started up this year. But we have been involved in energy reduction programs for the last several years and we are still working very hard on these. It is a big cost number. Since you pick off the easy savings first, you get a little less savings as you go along. There are still quite a number of savings and a lot of them using Hydro's incentive plans have been very helpful to us. Hydro has been very helpful. We think its service and so on in this regard has increased quite a bit in the last couple of years. We are a big user of incentive plans and are making a lot of savings.
Mr Arnott: Would it be very much a fallacy to suggest there is more you could be doing to conserve energy in your plants?
Mr Brown: I am sure there is more and we are doing it.
Mr Jordan: I would like to thank you, Mr Brown, for your presentation and bringing to the fore for this committee the problems that in perhaps a smaller way I am experiencing in the riding I represent, Lanark-Renfrew, in that it is the edge of the knife now on the cost of hydro relative to your type of operation, which is basically going to put them out of business.
On page 2 of your presentation you say you are relieved that the Minister of Energy has amended Bill 118 to the extent that the policy directives will be within the mandate of Ontario Hydro. But do you not feel that the mandate of Ontario Hydro is being changed by Bill 118, in that the bill states, "The directors shall ensure that policy directives are implemented promptly and efficiently," and that they shall not be accountable in having them implemented, even if, as you say, they disagree with them?
The other part is that it used to say the conversion of a space heating to an electrical space heating system. Now it reads, "The conversion of a space heating system to a system based on the form of energy that would result in the greatest energy conservation in the circumstances." This is a wide open field that the Ministry of Energy is now putting on to the Hydro bill and it should come out of maybe the Ministry of Industry, Trade and Technology or something, certainly out of the general fund, not on my Ontario Hydro bill. Do you see that as a change of mandate, even though the directives are going to be within the new mandate?
Mr Brown: Yes. They have said they are going to keep the directives within the mandate, but you are right that by removing the word "electrical" from the fuel substitution section, it certainly appears that we are looking at all forms of energy, or many more forms of energy than just electrical power. We would like to see Hydro's focus be maintained principally on electrical power so we will then have a choice in making our decisions between power and any other fuel. We should not be mixing up these things.
Mr Jordan: We are doing audits on buildings now, if I may say so, regardless of the fuel, and taking the responsibility and the time and the expertise to do it regardless of what energy is in there, but the cost of doing it is on the Hydro bill. It does not affect the gas bill. It does not affect my neighbour with oil, yet they came to his house and told him how to make it more effective energy-wise.
I say, let these other fuels participate in this conservation bit. Let them pay part of the price. I had a meeting with the vice-president of marketing for Imperial Oil. They explained to me that they would be only too happy to share in the cost of conservation but were never invited to do so. I suggest that this responsibility should not only be on the Hydro bill. I agree with conservation, but why are we holding Ontario Hydro responsible? The Minister of Energy speaks as though we only have one energy in the province until it comes to switching fuels. I am saying, let all three accept the responsibility.
Mr Brown: We would be only too happy if it would result in a lower power cost.
Mr McGuinty: Mr Brown, I want you to tell me a bit more, please, about the electricity costs in the forest products industry. Is that the kind of average, that electricity costs about 10% of your total operating costs?
Mr Brown: That is all the products we produce in northwestern Ontario, and it varies quite a lot from one to another. Thermal-mechanical pulping uses large, 25,000-horsepower motors for making newsprint, so that is a very high percentage. Kraft pulping is a much lower consumer. So that is an overall average there.
Mr McGuinty: One of the arguments people make quite regularly today is that we should be taking advantage of all energy conservation techniques. For instance, in your production, have you implemented any conservation techniques, energy efficiency programs of any kind?
Mr Brown: Yes. We have done that constantly over the years, reduction of fossil fuel costs. We burn very substantial amounts of bark, sawdust, shavings, that sort of thing. We also generate a big amount of our own power. Approximately 30% of our power we generate from steam that comes from those sources. We are involved in many of the programs supported by Hydro for efficient motors, numerous programs. It has been ongoing for years and will continue.
Mr McGuinty: How much is left to be done, do you think, in terms of just your own operation? From my experience and from hearing from different people, I have come to understand that most people manufacturing have explored most alternatives and taken advantage of almost everything that will lead to greater energy efficiency, as long as it is within their economic means and the payback period is not too long. From CP Forest Products' perspective, how far have you gone? Do you feel you have gone as far as you reasonably can? Are there more inroads still to be made in terms of cutting down your electricity costs?
Mr Brown: We have come a long way, and I think it is fair to say we have picked off the easier ones and the larger ones first, but there are still a lot of savings to be made and we are working on those.
Mr McGuinty: Where would your main competition be located? In the United States?
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Mr Brown: Yes. I guess in the pulp business our competitors are mostly from Canada and Scandinavia, in the quality of pulp we produce. The American South and lately Chile are coming on very strong in the pulp business. Chile is perhaps the lowest-cost producer that has entered the marketplace recently, so it is becoming a major force.
In newsprint, our competition is about half from the United States and half from Canada. We are fighting an uphill battle there with the recycling issue. We have put in recycling ourselves here, but so many of the American mills are much closer to the source of the waste paper. So we are looking at a further disadvantage as the world goes to more recycled fibre for its newsprint.
The Vice-Chair: I believe we have exhausted the time and then some, so we will leave it at that. Thank you very much for your presentation. It has been most insightful from the perspective of the large users. As with everyone else, we will be forwarding a copy to you when all is said and done here.
I believe the next presenter on the schedule is Mr Tom MacDonald from the Canadian Oil Heat Association. He is not here yet.
Mr Conway: Perhaps the parliamentary assistant could favour us with a short address.
The Vice-Chair: How be it if we call a short recess, at which time we might be able to stretch our legs. We will give Mr MacDonald until 3:30.
The committee recessed at 1522.
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The Vice-Chair: I am going to call just once. Is there anyone here from the Canadian Oil Heat Association? Hearing nothing, we will stand in recess until 7 pm.
The committee recessed at 1542
EVENING SITTING
The committee resumed at 1907.
ENVIRONMENT NORTH
The Vice-Chair: I call proceedings on the hearings on Bill 118 to order and ask that Environment North come forward and take a spot at the table. Please introduce yourself for the sake of Hansard and the members present.
Mr Bryan: My name is Mike Bryan. I am the chairman of the energy committee for Environment North. I would like to thank the committee for the opportunity to speak to you today. It is a pleasure to be here.
For your information, Environment North is a locally based environmental group. We have approximately 300 members, mainly in Thunder Bay and some of the smaller communities in northwestern Ontario. I am the chairman of the energy committee. I do not claim to have any real expertise in this field. I will not pretend to have that, but I hope we bring some common sense at least to the questions you are dealing with.
We will be talking only about fuel switching and not the other aspects of Bill 118. As environmentalists, we certainly approach this from the point of view of what is good for the environment. We think fuel switching does offer considerable potential in that area, first, by reducing peak power demand in the winter months and by reducing base power requirements as far as water heating is concerned, which goes on all year, of course.
We think the environmental benefits of that are fairly obvious, through more efficient use of fossil fuels. I am sure you are aware of the statistics here that high efficiency gas, for example, is 93% efficiency, as compared to coal-generated electric heating which would run at approximately 30%. You get much more bang for the buck; you get a lot more BTUs for the fuel inputs, if we go that way. Of course that also means less fuel will have to be used and less emissions of greenhouse gases.
Second, cleaner fuels, basically: Gas, even per volume, is a cleaner-burning fuel. It has less carbon dioxide emissions -- something like half as much as coal -- and of course considerably reduced sulphur dioxide emissions.
The other thing I would like to mention is that we hope there will be some opportunity to switch, in some areas at least, to solar and biomass energy. Again, there are real environmental advantages there. I think there are also some fairly obvious economic benefits to customers who switch to gas or biomass or whatever. They are the major recipients. I have one statistic here from the Ontario Ministry of Energy which suggests that high efficiency gas is 65% cheaper than electric heat. Obviously, the major beneficiaries in an economic sense are the people who will be doing the switching themselves. I think it is important to note, though, that all customers can benefit. Inasmuch as we can avoid the need for new generating facilities, that will hold rates down. I would like to deal with that in a little more detail, if I can.
Environmental groups have estimated there are 6,000 megawatts to be saved through fuel switching. That is probably an optimistic view, granted, but nevertheless there are very substantial amounts of electricity that can be saved. Just put that 6,000 megawatts in comparison with Darlington, which is around 3,500, and you get an idea of the potential here. You also have to consider the expense of Darlington: $13.5 billion. Obviously, if we can avoid in any way an expansion of our electric generating capacity and our transmission system, we should do it because it is going to save all of us a lot of money in the long run.
Part of the reason the rates are going up now is because of Darlington, and they will have to go up even more when the next station is built, if and when it is built. Obviously, Hydro bases its rates upon average power production. The incremental costs of places like Darlington are much higher than average and are just skyrocketing our rates. We should do anything we can do to avoid building another Darlington.
Another economic factor here, of course, is that by fuel switching we can avoid peak power use. Peak power is one of the more expensive types of power because you have a facility sitting there unused for the better part of a day. If we can avoid building that sort of station, we should.
Why should we have incentives? If this is such a wonderful idea, if it is economically beneficial to the people who are switching, why do we need incentives?
First, fuel switching is of benefit to all of us. That is the point I just made: If it holds down rates, we all gain, every customer in the system is going to gain. Therefore, it can be justified in that sense.
Second, the environmental advantages of fuel switching, which I have talked about in a little detail, accrue to society as a whole. They do not just go to the person who is doing the switching; they go to everyone. Therefore, society as a whole has an interest in encouraging fuel switching.
Last, and I think this is fairly important, unless incentives are offered, the householders are going to be looking at some capital costs up front in order to achieve that fuel switching. If we can use some incentives to get them to make that decision -- I am not an economist. I certainly do not know what level of incentive is needed. I would not pretend to know that. I do know that an incentive works in the stores; it should work for fuel switching as well. Obviously the more leverage we can get on those incentives, the better for everyone, but nevertheless, incentives themselves make sense.
We would like to see a fairly aggressive program of fuel switching. We think it should certainly include public education programs to let people know about why they should switch: both the environmental advantages and the cost advantages to the consumers themselves. We would also like the fuel incentives to be in place. We would not shy away from regulation in certain cases.
Regulation, I think, is not desirable if it can be avoided, but there are cases where it may be necessary. I would like to give you two examples where we think it might be useful.
First of all, in the case of public institutions of whatever sort, be they community centres, hospitals or university buildings, fuel switching represents a capital cost, but it also represents a saving on the operating budget. Those are two different pockets. Quite often it is very difficult in an institutional setting to free up the money for those capital costs, even if it is going to represent a saving on the operating side. It may be necessary in some cases to say, "You have to do this." In the long run it will save the institution money, but getting over that hurdle of finding the money in the capital expense pocket is the problem and it may be necessary to use regulation.
Another example where regulation might be necessary -- I stress "might" -- is in the case of tenants, who do not own the building. The landlord does not have any particular incentive to make the switch, because he is not paying for the electric heating. That burden falls on the tenant himself. The tenant does not have the choice of making a switch, so it might be necessary in that sort of case under certain conditions to regulate that switchover. I think incentives should still be available in that case, whether it is regulated or not.
How much should Hydro spend encouraging people to switch? Just using the Darlington case as an example, they are spending approximately $3,700 per kilowatt in order to provide the power from Darlington. It follows, using the estimates provided by Ontario Hydro, that it should be willing to spend up to $3.2 billion on fuel switching just for gas conversion in the residential sector alone. That gives you an idea. I base that figure on Hydro's estimate that fuel switching to gas in the residential sector could save from 870 megawatts to 2,120 megawatts. I use the low figure and multiply that times the cost factor for Darlington and come up with $3.2 billion.
I am not suggesting for a moment that Hydro should spend that much. If we can possibly get away with less, we certainly should, but that is what the next Darlington is going to cost us and that is what we should consider spending to encourage fuel switching just for gas and just in the residential sector.
We would like to see fuel switching tied to other programs to achieve the maximum possible environmental benefits. I think that is very important. If the taxpayer is going to pay part of the shot for this through incentives, the taxpayer should try to get the most bang for the buck in terms of protecting the environment.
We think conversion to gas should be done where feasible and, if incentives are going to be given, the person receiving the incentive should be required to use high-efficiency gas furnaces. Where conversion to gas is not possible, we would also look at wood, certainly biomass. That is a viable option in the north. It may not be in southern Ontario, but certainly in the north it is very viable, particularly in some of the smaller communities. We think the incentives should also be applied to that sort of biomass.
Other fuels, propane and oil -- only where gas or biomass is not viable, but we still think the environmental benefits and the economic benefits would make it worth while to provide those incentives. We would like to see those incentives tied to energy audits. If you want to convert, you have to have an energy audit done on your residence or your place of business and you have to comply with the major recommendations of that energy audit.
Certainly I hope there would still be incentives available for doing some of that work, for example, weather-stripping, caulking, insulation, whatever. I think it would be quite legitimate for Hydro to provide some degree of incentive for that work also.
In the case of water heating, if there is going to be an incentive to encourage people to switch, those people should be asked to buy a water heater insulating blanket. Again, we should get the most bang for the buck in terms of the environment.
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One question that arises, and this may be slightly out of your area, is future demand. What do we do about it? It is all very well to look at incentives for switching for people who are already using electricity, but there is still a lot of demand out there in the future. What are we going to do about it?
Hydro has estimated that presently 12% of the residential heating load is coming from electricity and that is expected to rise to 18% by the year 2005. That was in the demand-supply plan. Those figures may be somewhat out of date because of course the price increases have gone in since then. Nevertheless, there is a lot of demand out there. What are we going to do?
The reason for the demand is fairly obvious. From the builders' point of view, they want to avoid the upfront capital costs. We should be willing to simply proscribe the use of electric heating in buildings where gas is available. That is something we should not shy away from. It is to the benefit of everybody and I think we should be willing to take that step.
Another possible way, if you do not want to go the mandatory route, is to charge a hook-up fee for new electric heating. That would be based upon the per-kilowatt capital costs of Ontario Hydro's costs for new generation and transmission facilities.
British Columbia Hydro has already taken that step, at least in the rate application. They are now talking about charging a hook-up fee of $1,700 per kilowatt for new heating systems. In other words, if you want to build a house and you want electric heating and gas is available in your area, you are going to have to pay $1,700 per kilowatt to hook up your system, because that is really what it costs Ontario Hydro to supply your power.
If I can quote from Robert Franklin, the former president and CEO of Hydro, "If a builder installs 15 kilowatts in electric heat in a house in Ontario, Hydro has to spend $50,000 to build the capacity to keep that house warm." That is not a cheap heating system. As it is not a cheap heating system, the person who is getting that heating system should foot the bill.
The last item I would like to deal with is municipal utilities. I am quite cognizant of the fact that utilities are concerned that if demand drops their fixed costs are going to be shuffled on to a smaller load base and rates will have to go up as a result. That is a concern.
It is particularly a concern here in the north where loads are fairly static or even dropping compared to southern Ontario, where there is still some growth. What do we do about it? I do not really have a quick answer for you but I would like to point out one thing. While the rates may go up, the total fixed cost paid by the customer is not going up a cent. In other words, Thunder Bay Hydro's cost of operation is not going up a penny. Customers, in total, are not going to be paying any more. What is really going to be happening is simply a shuffling of the rates so that some people will pay a little less, some people a little more, but the total cost to customers is not going to go up if you look at customers in aggregate.
Second, that is simply fixed costs. If you look at consumption cost -- the amount of power that is consumed and the amount paid for it -- under fuel switching, that should go down considerably.
As far as Environment North is concerned, the bottom line is that fuel switching will save customers money, particularly the customers who do the switching. But I think the system as a whole will benefit and customers as a whole will benefit if we can stop building new plants. Of course, very important for us, the environment will benefit. For us, that is the bottom line.
Mr McGuinty: I understand the new legislation, Bill 118, if it became law, would permit Hydro to subsidize people switching off electricity to heat their homes with oil. This brings into question for me the environmental considerations here. If we are switching off electricity and going to oil, it seems to me that we are going to cause more damage. Do you know the percentage components that go into producing a kilowatt? If we think of Ontario as one massive grid and I flick on a light switch somewhere, how much of that kilowatt is produced by nuclear, how much by hydraulic and how much by coal-fired?
Mr Bryan: I know the major component is nuclear. I believe it is somewhere in the range of 60%. However, the point about space electric heating is that it is primarily peaking power, and peaking power is predominantly fossil fuel. If you are talking fossil fuel in Ontario, it is mainly coal. I do not have the exact breakdown for you. I think you would have to do a proper audit and see exactly when those heating systems were operating and then break down where the power was being supplied, but I do know it is definitely tilted towards the fossil fuel end of the spectrum and towards the coal end of the spectrum.
Mr McGuinty: With that in mind, do you still think it is environmentally beneficial to switch to oil from electricity?
Mr Bryan: Yes. There are a couple of factors there. I think the major one is simply efficiency. An oil furnace in your home may be burning at perhaps 60% efficiency, whereas coal, by the time it boils the water and runs through the generator with transmission losses, runs at about 30%. It is at least double efficiency for the oil system, so you are obviously getting a lot more BTUs for the input.
Mr McGuinty: Energy Probe makes the argument quite regularly that the single strongest motivational force is the market force, that if we are going to get people to switch from one fuel to another, we should let the market play itself out. In fact, that is what prompted me some six months ago to switch from electric heating to natural gas. I gather you disagree with Energy Probe.
Mr Bryan: No, I agree with them to the extent that market forces are extremely powerful. However, I think you have to look at the fact that Ontario Hydro is not operating on a market principle right now. They are charging average price for their power. They are actually losing money on what they are producing at Darlington because they are charging the average price for the Darlington power as opposed to the incremental cost. They are losing buckets of money on Darlington. If we jacked up the hydro rates to the incremental cost of production, you would be looking at an immense hydro cost, and I think people would be fuel switching so fast that you could not keep up with it. The fact is that Hydro right now is not based on that system. It is not operating on a completely market system right now, so that distorts the whole picture.
Mr Arnott: Thank you very much for enlightening us with your views this evening. I have looked over your comments and listened to you. I understand that you are a fervent advocate of the fuel-switching concept, but I do not understand why you think Ontario Hydro or municipal electrical utilities should be forced to pay for it. I would like you to answer that if you could.
Mr Bryan: I am speaking strictly about Ontario Hydro. I do not think it is a matter of being forced to pay for it; it is that it is to Ontario Hydro's advantage to encourage it. Obviously they are looking at growth, and in the DSPS they are looking at substantial growth over the next 25 years. Anything they can do to discourage that growth, anything they can do to avoid building new Darlingtons, is in the interests of the customer, all customers, because of that incremental cost factor. Particularly if they can use leveraging to get the customers to make part of the investment, and Ontario Hydro makes part of the investment and possibly the gas company makes part of the investment, it is terrific; it is a good deal for Hydro.
Mr Arnott: Some witnesses have come forward and indicated that the unit cost of hydro will be changed, and not to the advantage of Hydro. How would you respond to that?
Mr Bryan: Could you clarify that a bit? I do not understand.
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Mr Arnott: The unit cost of hydro, given that if fuel switching is successful there would be less hydro used, but because of the fixed costs that are inherent -- you have talked about fixed versus, I believe, variable costs. Have you done any calculations which prove that point?
Mr Bryan: Certainly the fixed costs of a municipal system are still going to be there. They will be borne by a smaller base. That brings up a rather interesting point about the rate structure itself. Perhaps the way we have been doing it for the last 30 years has been quite inequitable. I think it would be a very commonsense approach to break out those fixed costs on the hydro bills, because whether it is a large consumer or small consumer, you still have the same metering costs, you still have the same line costs in terms of connecting, you still have the same administrative costs, you still have the same billing costs. In other words, the fixed costs are virtually the same for a small consumer and a large consumer.
Perhaps we should be breaking out the hydro bills in a different way, as is done with gas, as is done with the phone bill, so that there is a fixed service charge on your hydro bill to cover the basic connection cost. That would be basically the municipal electric cost. Then on top of that there would be a consumption charge which would basically be a pass-through of Ontario Hydro's charge. I think that would be a much more equitable way of doing it and make sure that people really do pay for what they are getting so nobody is subsidizing anyone else.
The other point I would like to make -- I will just reiterate this; I made this point before -- is that while there is going to be a reshuffling of the rates and some people may pay a little more and some people a little less, the total fixed costs of that electrical system are not going to go up one cent.
Mr Huget: Thank you for a very informative presentation. Speaking about oil and gas fuels in terms of substitution for electricity, I think currently gas runs about a third of the price of electricity. What would be your sense of what is going to happen to gas prices, and what do we do if at some point in time gas becomes more expensive than electricity? Do you see that happening?
Mr Bryan: I wish I knew. I would be playing the stock market a whole lot more if I had a good idea what was going to happen with gas prices.
Mr Huget: Is it likely to happen? I will put it that way.
Mr Bryan: I think we just have to go on the estimates we received from the National Energy Board and the Ontario Energy Board and people of that sort. Certainly there is a gas bubble at the moment and prices are actually going down, I think to a lot of people's surprise. In the long run, the long run being 10 to 15 years, the expectation is that gas will go up more slowly than electricity or, at worst, be even with electricity, but the expectation at the moment is that it will not go up faster. I wish I had a crystal ball; I do not know.
The Vice-Chair: Thank you for your presentation. We appreciate it. I will definitely be letting you know the outcome of all this.
Mr Bryan: Thank you very much, again, for the opportunity to present.
KAMINISTIQUIA NEIGHBOURHOOD ACTION GROUP
The Vice-Chair: The next presenter is Kaministiquia Neighbourhood Action Group. Maybe Mr Ramsay can tell me if I pronounced that anywhere near correct.
Mr D. Ramsay: My name, or the place?
The Vice-Chair: The place.
Mr D. Ramsay: You have my name correct, and it is Kaministiquia.
Good evening. It has been a long day. I hope what I have to say will interest you. If it is controversial, maybe that is good, given the time of night.
I am a member of the Kaministiquia Neighbourhood Action Group, which is an organization that came together this past year to question and oppose a proposed 500-kilovolt hydro transmission line. The route, which is a part of the Ontario-Manitoba interconnection project to purchase electricity from northern Manitoba, would have disrupted a rural residential area that has already borne its share of transportation corridors.
My attempt to be involved in the decision-making process has led to my interest in Bill 118 and its implications for public accountability and fuel switching. I present the following information and concern on my own behalf, because time and limited resources did not permit me to consult with the 500 people in my neighbourhood who submitted their opposition to the proposed transmission line. I guess I should thank Hydro. It gave us an opportunity to get to know our neighbours and celebrate a small victory.
My understanding of Bill 118, An Act to amend the Power Corporation Act, is that it is meant to address two major issues: first, to address the accountability of Ontario Hydro to the government, and second, to allow the corporation to promote fuel switching.
I agree with the intent of Bill 118, which I see as a moderate beginning to seek the changes that are needed to ensure Ontario Hydro provides energy services at the lowest cost, while minimizing damage to the environment. However, it does not meet the public's need for more democratic control over Hydro policies. It is apparent from all the recent changes in governments internationally that people's expectations for institutional accountability can only be ignored with perilous results for those who wield and hoard power. Bill 118 needs to be emboldened to permit more public involvement in Ontario Hydro's and -- I would add -- the provincial cabinet's energy decision-making.
The task force on Hydro inquiry in 1972, the advisory committee on energy in 1972, the McKeough report in 1973 and the Porter commission in 1975 have all recommended that there need to be opportunities and methods to permit more public involvement in Ontario Hydro's decision-making.
The current opposition in the Legislature has stated publicly its support for accountability. Former Liberal leader David Peterson said in March 1984 that there was a pressing need to make Ontario Hydro more accountable to the public it is obliged to serve. Vince Kerrio, in a statement to the Toronto Sun on December 30, 1984, was quoted as saying Hydro was a runaway monster.
From my vantage point as a taxpayer and an Ontario Hydro customer, there are a number of reasons why I think the public has the right to be involved in decisions involving energy production, conservation and expenditures. I view the modest provisions of Bill 118 from this context.
First, Ontario Hydro accounts for 85% of all capital costs in the province of Ontario. It has incurred a debt of $30 billion, which results in $375,000 per hour in interest payments. The public that is responsible for paying this debt should have some influence in controlling its future increase.
Second, questionable decisions seem to have been made on inaccurate projections for both peak and reserve demand. In 1975, Ontario Hydro's peak demand projection for that year was 140,000 megawatts, when the actual demand was 16,000 megawatts. Although the estimates have diminished, it was not until 1983 when they were no longer double the actual use. These gross inequities are also reflected in project costs. Darlington began as an estimate of $2.5 billion. To date, it has cost $13.5 billion, and two reactors, when started, required $500 million in repairs.
Third, "Scientific evidence produced by British, United States and Canadian studies have shown increased health abnormalities in childhood leukaemia, pulmonary disease, diabetes, Down's syndrome and asthma to have occurred in the vicinity of nuclear reactors." This is a direct quote from the book called No Immediate Danger: Prognosis for a Radioactive Earth, by Dr Rosalie Bertell. Dr Bertell, a cancer research scientist who specializes in studying the effects of low-level radiation, has suggested that escalating radiation levels have to date caused 16 million casualties.
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Fourth, in the event of a nuclear generator accident -- I know, it is never supposed to happen, but in the event that an accident occurs -- the compensation Ontario Hydro has to pay to victims is limited by the Nuclear Liability Act to $75 million, even if Ontario Hydro is found responsible and even if it wilfully falsifies safety documents. I find this astounding. What private insurance company offers benefits in the event of radioactive contamination? I know mine does not.
Why then has Ontario Hydro been permitted to build new reactors in a densely populated area when the tremendous costs already experienced by the Chernobyl debacle are irreparable? In the case of the 10,000 people who are already dead, the 640,000 people who are displaced, the 100,000 patients at the Kiev Radiological Health Medical Clinic who have reported physical changes, when these changes are uncompensable why have we permitted this to occur and continue?
Fifth, in 1989 the Minister of Energy, a member of the Legislature who, as you know, sits in this riding, approved the Ontario Hydro request to sell tritium to United States pharmaceutical firms. This deadly byproduct of nuclear generation has a unique and irreplaceable role in nuclear weapons development. It serves as the trigger to the detonation of the bomb. Although it has a role in medical procedures, Ontario Hydro's plan to produce 2.5 kilograms a year far exceeds the worldwide benign use, which only needs 15 grams. Once this deadly substance is shipped outside Canada, despite the most stringent controls, there can be no guarantee for its peaceful use. Up to 40% of US tritium shipments sold to two British companies were discovered to have gone missing. This is quoted in an Energy Probe report.
Spokespersons from the Federation of American Scientists and Scholars, the Center for Defense Information, which is staffed by senior retired military officers in the United States, and the Natural Resources Defense Council have concurred that any export of tritium by Ontario Hydro, even to civilian customers, would permit the construction of an additional 100 nuclear bombs. I have documentation of their opinions to be forwarded to you with this brief.
Sixth, in October 1988, Ontario Hydro and the Atomic Energy Commission of Canada jointly offered a course in safe tritium handling to four United States firms that primarily manufacture nuclear weapons. These are the Livermore, the Sandia, General Electric and Westinghouse labs. This took place in Toronto. Only after the course was held and the public aroused did Ontario Hydro withdraw from further projects, but only after the public had become aware of what was going on.
Seventh, Ontario Hydro currently produces 60% of its electrical generation through nuclear power. In its 1989 report, called Providing the Balance of Power, it recommended the construction of 10 new nuclear reactors. Instead of being bombarded with images of nuclear medicine, would we the public have agreed to allow this dependency to have been created if the total picture of what nuclear power means had been presented, if we were aware that nuclear power residues pollute for 250,000 years, that the uranium mine tailings created to feed our reactors would cover the Trans-Canada Highway from Victoria to St John's two metres deep, that there is no scientifically proven safe method for permanent disposal for spent fuel rods that will be radioactive for 500 years, that the construction and the decommissioning costs for nuclear power plants far exceeds the value of the electricity created? The first Ontario reactor, for example, at Rolphton, which is 1/36th the size of the four at Darlington, annually costs Ontarians $12 million to produce the equivalent of $3 million worth of electricity.
Eighth, the development of nuclear power is undemocratic. Although Gallup polls report that support for nuclear expansion has decreased from 46% to 16% between 1978 and 1988, Ontarians, up to the present demand-supply hearings currently being held, have never been consulted as to whether they want nuclear power. There has never been a public inquiry examining all the consequences of the nuclear fuel cycle.
The permission of the people residing in municipalities where nuclear reactors have been built has never been sought. No public hearings regarding fuel rod waste disposal sites have ever been held. The environmental hearings at Darlington were waived before the reactors were built. Radioactive emissions from the nuclear power cycle are exempt from all environmental protection regulations.
People rightly applaud the democratic reforms in Eastern Europe, but were we told that the rise of democracy there and the concern for economics led to the cancellation and the closure of 25 nuclear reactors? Even the repressive government in China cancelled 8 of the 10 new proposed plants.
Ninth, all contracts signed by Ontario Hydro should be open to public scrutiny and input. The 40-year contract between Ontario Hydro and Denison and Rio Algom mines in Elliot Lake to purchase uranium have been reputed to contain guarantees regarding profits. The amendments in Bill 118 should disallow any future government from signing a private contract by ensuring that government directives are made public at the time of their issue.
Tenth, it is infuriating, as a member of the public, to see federal politicians spend our tax money equipping their personal residences with furniture, carpets and accessories generally economically unavailable to the public. When this practice is duplicated by the Ontario Hydro chairperson, who, again, was reputed by the Coalition of Environmental Groups for a Sustainable Energy Future to have requested $85,000 to redecorate his office and to install a security system in his home, it is equally infuriating. Anyone with a salary of $260,000 a year can afford to cover his own redecorating costs. These reasons provide evidence for my concern for the need for greater accountability.
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I have a number of recommendations that I would like to put forward that I think would strengthen Bill 118.
First, ways have to be found to increase Ontario Hydro's accountability to the government of the day. However, Bill 118 does not deal with how the government could be made more accountable to the public. It was the Davis government's directive that led to the 40-year contracts with Denison and Rio Algom mines. It was the Peterson government's directive that allowed Darlington to be completed. It is not enough to equate government accountability with the outcome of elections in matters of energy, since what could be started at the beginning of a term of office is hard to stop three or four years later.
Perhaps one measure to deal with this issue is to allow some elected members to sit on the Ontario Hydro board. One possibility would be to make a selection from among the elected municipal Hydro commissioners. I believe this would curtail the practice of every government appointing only people compatible with its interests to the Hydro board.
My second recommendation is that Bill 118 is insufficient to establish regulatory control over Ontario Hydro. There is a need for ongoing regulation of Ontario Hydro at shorter, regular time periods. Regulation should address rates, supply and demand management and financial decisions. I concur with the Coalition of Environmental Groups for a Sustainable Energy Future in its 1990 recommendation that the Ontario Energy Board should be replaced by an energy services commission equipped with regulatory authority.
My third recommendation is that the environmental cost to produce electricity by Ontario Hydro has to be made visible for all generating methods. An open and complete presentation of these costs would allow the public to compare and re-examine some of its own misleading assumptions. This could also perhaps provide the basis for its decision to substitute fuels.
Personally, when I built my own home, I chose to heat it with electricity 10 years ago because I presumed it was cleaner, because there were no exhaust gases involved. I did not have a chimney, so I thought it was clean. I did not realize that I had only part of the heat source in my electric furnace, that its operation was dependent on the generation of electricity elsewhere and that this was where the pollutants were created. I lived this myth of superiority over those who had combustible furnaces because I could not see the pollution I was responsible for.
A comparison of the yearly sulphur dioxide, carbon dioxide and nitrogen oxide emissions per household as measured in kilograms indicates that heat generated by electricity, whether created 90% or 60% by fossil fuels, creates the most emissions when compared with that created by natural gas or light oil heating fuel, and again I have a chart for your examination.
My fourth recommendation is that fuel substitution in the long term has to be enhanced by research and development dollars made available to private citizens and corporations in order to explore renewable sources of energy that produce heat and power with less cost to the environment.
I do not regard it as a victory when we are switching from electricity to gas and oil. I think we have the ability, the knowledge and the resources and we certainly have the kind of climate in parts of Ontario that would permit us to be using renewable energy sources. I would like to see money put into a research and development budget to permit this to go on.
My fifth recommendation is that Bill 118 should enhance the opportunity for governments to direct Ontario Hydro to act as a socially responsible corporation. Although much criticism has been raised regarding the present government's decision to direct Ontario Hydro to provide $140 million to the community of Elliot Lake, I believe this was a fulfilment of a social obligation.
When it became apparent that to continue the contract first established by the Davis government for the purchase of uranium would cost $1.2 billion more than purchasing uranium made anywhere else in Canada, this government made a sound business decision to end the agreement. The $140 million should be seen then as a severance package for a community that will need to deal with the social and financial turmoil that has resulted. It is inappropriate to call this a bailout. If those in the local MEA oppose this bill because of this provision, they should reflect on what their reaction would be should Ontario Hydro be directed to close its coal generation station here in Thunder Bay. Would they not expect Ontario Hydro to offer a severance package to the community here?
My sixth and final recommendation is that the concerns raised by the Municipal Electric Association regarding Bill 118's provision to direct Ontario Hydro to promote fuel substitution must be placed in the context of the 4,676 megawatts Ontario Hydro has estimated will be saved by fuel substitution. The money gained from not having to invest in generating this amount of electricity could be used to partially offset the economic hardship this fuel-switching promotion may cause the MEAs.
Since the capital cost of supplying a kilowatt of power is $3,300, as the previous presenter made known -- and I believe an argument from the former chairman of Ontario Hydro, Mr Franklin -- a reduction in the need for 4,676 megawatts represents a considerable amount of money. If we look at this from another angle, the Darlington plant is capable of providing 3,500 megawatts. It cost $13.5 billion to build. Therefore, a reduction of 4,676 megawatts in relation to not having to build another nuclear reactor is quite substantial.
The 1991 Ministry of Energy publication Home Heating and Cooling: A Consumer Guide indicates that gas heating, based on 1991 prices, is 65% cheaper than electricity. Given that Ontario Hydro has announced a possible 44% hike in rates over the next three years, would the Municipal Electric Association deny the savings that fuel switching will provide for consumers? I am one of those rural Ontario Hydro customers who has no access to natural gas. I do not feel that my contribution through my electric bill, which may subsidize fuel switching for others, is a loss to me. I rather look upon it as my contribution to conservation and a reduction in demand.
Mr Huget: Thank you very much for a very informative and thought-provoking presentation. I have no questions for you other than that in your recommendation section you certainly raised some very interesting points. I wonder if there is anything you want to elaborate on in terms of public accountability or involvement.
Mr D. Ramsay: I guess the first thing that interested me about Bill 118 when I heard about it was that there was an attempt to ensure that government directives would be followed by Ontario Hydro. But as I thought more about it and as I looked at the history, I thought, "But it was government directives that led to the 40-year contract in Elliot Lake, so how will this possibly make any improvements for consumers?" I feel Bill 118 is a small wedge, but it needs to be expanded to ensure that there is what I would call the democracy of energy decisions in this province.
We are in a terrible situation financially. We are in a terrible situation when it comes to not having a cleaner environment because of the choices we have made in the past. I feel the public could certainly not do any worse job than what has been done so far by the experts.
Mr Huget: You mentioned strengthening the bill and that it does not go far enough. Are there any specific ideas you have to strengthen it? What I am hearing you say is that this is not nearly tough enough.
Mr D. Ramsay: No, it is not. I think it is a good proposal, but it is modest. The most important thing that would strengthen it would be to allow elected representatives of the public to share the power on the board. One of the ways to do it, and it may not be the easiest, but because we have elections every three years for Ontario Hydro commissioners in each municipality, we should find some sort of system to ensure that some of those commissioners could be appointed to the Ontario Hydro board once they have been elected by their constituents. That would give us a direct route to Ontario Hydro. If one of my commissioners happened to sit on the board in a three-year period, I would feel quite comfortable in having someone I could approach to raise issues with, whereas right now I am feeling the public is out in the cold. They do not have access to the Ontario Hydro board.
Mr McGuinty: I want to pursue your idea of elected commissioners. You are probably aware that Bill 118 provides for an absolution from liability of the directors as long as they do what they are told. Of what benefit would it be to us to have elected commissioners if they are required to do whatever the government asks them to do, which, as you well know, can sometimes by motivated by political reasons?
Mr D. Ramsay: I think the history of Hydro shows that.
Mr McGuinty: I guess what I want to draw your attention to is that provision in Bill 118 which provided for an exemption from liability for directors. Do you think that is a good thing or a bad thing?
2000
Mr D. Ramsay: I know locally in our own city council there was a decision that became made known to the public this past week where we lost a quarter of a million dollars. It was a decision that came about because, in terms of housing development, the council had listened to the not-in-my-backyard syndrome and as a result was not able to develop this land, and we lost a quarter of a million dollars.
The city councils, of course, are not liable for that loss. One part of me said they should be and maybe they would be more careful in making the decision. The other part of me said we have to be reasonable; sometimes decisions get away on people without their knowing. I am not sure what the balance can be.
If we have people sitting in elected positions -- politicians do -- they make decisions that are very costly: $30 billion of debt with Ontario Hydro. I guess no elected official would ever be able to make good on that kind of mistake. Maybe we have to look at other ways of disciplining people on boards who are not handling their responsibilities in a way that suggests they are carrying out their duties sincerely.
We talked about provisions of recall of politicians, for example. I believe the Reform Party has brought this out federally. I am not sure that is workable, but how do we make you as a politician more accountable? If I was your constituent and you made a decision that was very costly, how could I make you more accountable for that without of course causing you to sink into absolute poverty? That is a conundrum, but perhaps in a democracy we have to struggle with finding ways to help people become more accountable.
Mr Conway: Can I just have a brief supplementary there? I am intrigued by your local example of the city council and the housing development and the NIMBY problem, because I cannot imagine an area where it would be more applicable now than in energy. One of the great things about the conservation ethic, which I am as willing as anyone to embrace, is that you do not have to do anything. That is really helpful.
You know, I have a county that has been carved up six ways to Sunday with hydroelectric plants, and I look at them in great wonder today thinking, could we build any of these in 1992? I think the answer would be no. There would be absolutely no way the big power dams on the Ottawa River would be constructed today because of "not in my backyard" or "not without displacing my recreational interest in that waterway." I was just interested in what you said --
Mr D. Ramsay: Could I just make a comment on that for a moment?
Mr Conway: Just let me finish very briefly. What advice then do you have to the city council, using your analogy? Were they wrong in not overriding? Would you contemplate the possibility of an elected municipal council's right to override a passionately felt NIMBY commitment on a housing issue or perhaps an energy project in its backyard?
Mr D. Ramsay: I guess I can be -- what is it? -- the Detroit Lions quarterback today and sort of think about what moves I could have made yesterday. I think part of the problem is that as an outsider it is easy for me to make a judgement and say, "You should have done this," not being aware of all the stresses of the moment when the decision was made. But you raised the issue of, should an elected council override the concerns of a passionate and vocal group who are saying "not in my backyard" for this project?
I would like to separate for you those two issues, because when we talk about people, there is never a just case for saying we should deny any person access to our neighbourhood, no matter what his situation is. However, when we talk about technology and development, there are just cases and health cases for saying no to those developments in our neighbourhood when they compromise the health of people, when we do not have all the evidence we need.
I think you are right; probably some of those projects that you presently have in your riding would not be constructive. In fact, we have from an Ontario Hydro spokesperson that the Ogoki diversion that occurred up in Lake Nipigon would never have been built today according to the standards we have now set, because we know more and we realize more how we damage the environment that way.
In hindsight it seems easy to say I would not have done that now, but on the other hand, when we have more information, which I think we have really grown with now, when we are asked to make decisions regarding Ontario Hydro projects, we are going to have to say some hard things.
Mr Conway: Again, it is just a rhetorical observation and I appreciate the testimony. I particularly liked your comments about some mechanism in the process to allow the public to know immediately upon the government's issuing a directive. I think that is a very helpful suggestion. The difficulty I have, I must say, with some of your argument is trying to contemplate the circumstances whereby and wherein an elected government, locally or otherwise, could ever proceed with a positive development in energy or otherwise where you had a typically divided opinion.
Let us imagine a substantial majority on the development side but a passionate commitment on the part of a minority who felt, rightly so, that their particular interests were being prejudiced. Do you contemplate any development ever occuring in a democratic environment in that kind of situation? You do not need to answer; it is one we will continue to think about, whether it is energy, garbage or a variety of other contentious public issues.
The Vice-Chair: I will allow you quickly the last word on this.
Mr D. Ramsay: The only thing I can think to say in a moment that really strikes me, and I am sure this must strike each of you as well, is: $375,000 per minute. That is the interest on the Ontario Hydro debt we are paying. I have talked to you for 30 minutes, 30 times $375,000. I think this is the strongest argument for finding ways to have more public input into Ontario Hydro decisions.
The Vice-Chair: Thank you very much for coming in with such an interesting description of Hydro, past and future.
The Vice-Chair: Is the Ontario Lumber Manufacturers' Association in the room? With the committee's indulgence, can we give them five minutes? We will stand in recess for five minutes while we await their arrival.
The committee recessed at 2007.
2012
ONTARIO LUMBER MANUFACTURERS' ASSOCIATION
The Vice-Chair: The next presenter is the Ontario Lumber Manufacturers' Association. Introduce yourself for the sake of Hansard and then start your presentation.
Mr Auld: My name is Mike Auld. I am president of the Ontario Lumber Manufacturers' Association. Our association represents the province's sawmill industry in the public forum. As such, I would like to offer my remarks on Bill 118, An Act to amend the Power Corporation Act.
As we understand it, the bill is proposing fundamental and significant changes in the relationship between the government and Ontario Hydro. As proposed, Ontario Hydro would become an indirect taxation arm of the government. The provisions of the bill would allow the government to issue binding policy directives on Ontario Hydro, forcing Ontario Hydro to advance whatever the government's policies are, whether it be a social agenda, an economic agenda or even a Hydro agenda, and all of this at the expense of the industries consuming electricity.
Ontario Hydro has traditionally and historically operated on the premise of providing power at cost. This attracts investment and creates jobs in Ontario. The premise is extremely important to the forest industries in northern Ontario, where the majority of our sawmill activity is located.
The public conflict over the issue of nuclear power generation is the basis for the proposed amendments to the act. While this government has for many years opposed the province's nuclear generating capabilities, Ontario Hydro has traditionally supported this form of electricity generation. Nuclear power generation is proven as the least expensive, most environmentally sound method for producing large supplies of electricity at affordable prices. To reiterate, our forest resource-based industries are absolutely dependent on the affordability of electricity. We need affordable electricity to remain competitive in North American and world markets. If we are not competitive, we do not exist, we lose our employees and we leave Ontario. It is very simple.
In our minds, the principle of power at cost is the central focus of this bill. If it is the intent of the government to have Ontario Hydro become a welfare agency of this government, with the related costs borne by the consumers who pay for the electricity, we are definitely against this. We see that the bill as proposed will strike down the traditional formula of power at cost. With the new ability to issue binding directives on Ontario Hydro, the government will have created a new social welfare arm of itself. Again, this will be at the expense of the people who pay for the electricity.
Power at cost is basic to the foundation of Ontario's being the industrial heartland of Canada. To encourage manufacturing to establish here, many factors are considered by entrepreneurs, but it takes only one significant disincentive to blind a viable business opportunity to Ontario. To have the entrepreneur seek another, more favourable business climate is not in our best interest as citizens of Ontario. In Ontario's fragile economy the abandonment of power at cost is a most unwise decision. Abandonment of power at cost will not encourage industry to come here and it is going to have industry that is already here looking around for alternatives. I do not think this is what we want and need in Ontario right now.
If the principle of power at cost is struck down, if the uncertainties of electrical supply fail to be addressed now, more job losses will result. The provincial economic wealth will evaporate as manufacturers leave Ontario for other jurisdictions. It does not take a very observant person to see what is happening in today's economy, and we do not need more of this in Ontario.
An Act to amend the Power Corporation Act gives too clear a signal to investors that the government of Ontario will not encourage them here. On behalf of our industry, the Ontario lumber manufacturers, I urge you to take every opportunity, to make every effort, to re-establish the principle of power at cost.
2020
The Vice-Chair: Thank you very much. We will start this round of interaction with Mr Conway.
Mr Conway: Mr Auld, thank you for your presentation. Earlier today we had a representation from the pulp and paper sector where it was indicated in an answer to my colleague the member for Ottawa South that in that sector, at least in the one case before us, the hydro bill, which ran into the tens of millions of dollars, was roughly 10% of the total cost of manufacturing the product. Can you give the committee some idea of what the current electrical bill would be for a sawmill in northwestern Ontario and what 35% to 40% on that bill might be?
Mr Auld: Off the top of my head, I cannot tell you exactly what it is. All the machinery in the sawmill is driven by electricity. It is very substantial.
Mr Conway: Would it be your estimate that the electrical bill, as a percentage of the total cost of manufacturing sawn lumber, would be in the neighbourhood of 10%? I do not know the answer. I think it is significant, but I do not know what the answer to that question is.
Mr Auld: It is very significant, because every piece of machinery in our sawmills is driven by electricity. We use other methods to dry our lumber, but to drive the machinery -- the breakdown machines which make a log into lumber, the planers which dress the lumber so that it is marketable and saleable, the bull edgers -- all the machinery is driven by electricity, so it is very important to us that we have the best rates possible. Right now, we are having a very tough time remaining competitive. We have a lot of problems and we do not need another one stacked on top of us right now.
Mr Conway: Can you give me some idea of the comparative costs for electricity in this part of northwestern Ontario relative to the Minnesota-Michigan rates across the line?
Mr Auld: I cannot.
Mr Conway: Do you know them to be higher or lower in Ontario than the nearest American point of operation?
Mr Auld: My understanding is that our power at cost is very competitive with our American colleagues. Exactly what it is, I cannot tell you.
Mr Conway: A 30% to 40% increase over the next couple of years, particularly in terms of your recessionary environment for lumber generally, would not be a welcome sign, I take it?
Mr Auld: Where are we going to get the money? Our industry just does not have any resiliency right now to absorb extra costs. I know this is a hearing about the Power Corporation Act, but we have the countervailing duty running against us right now. We have a recession in the pulp and paper market, and those people buy 40% to 45% of the product we make in sawmills. Lumber last year went through the most terrible recession it has ever had. Right now, the lumber does not cover our costs. We are struggling to survive, and we have been for two or three years. If you want to raise our costs, one of these cost raises is going to sink us.
Mr Conway: Given the fact that the price of electricity is rising everywhere for the reasons people have talked about both in this forum and in others, how much activity is there in the sawmill sector in northwestern Ontario to look at some different means of perhaps generating electricity?
Mr Auld: We would be very interested in having Ontario Hydro very closely investigate how it can utilize our bark, our sawdust and components of our manufacturing process that we cannot sell right now. I am sure you are familiar with bioshell. I think it would be a great advantage to Hydro and to our industry to find out if there is a way in which what are now wood wastes -- energy being trucked away to the dump -- can be used to generate power.
Mr Conway: Is there any activity in the sector led by either individual sawmillers or groups of producers? Surely, given these rate pressures you have been experiencing over the last few years, somebody out there in the good free-enterprise world is looking at those very options. You are not just waiting for Ontario Hydro to do that, are you?
Mr Auld: If we used our wood wastes to produce electricity, to make it worthwhile we would have to have Ontario Hydro as a customer, because we produce far more than we would consume in our sawmills. Second, it takes a substantial amount of money investment to do that. As I mentioned a few minutes earlier, we are desperately short of money.
Mr Conway: One final point: I am interested in knowing whether any forest sector operator in northwestern Ontario is now engaged in either experimentation or the production of electricity onsite at his or her operation.
Mr Auld: There is none now in northwestern Ontario that I know of. We are very interested, but we have the major problem our industry faces right now: no money.
Mr Huget: A couple of quick questions: On the last page of your presentation you say, "An Act to amend the Power Corporation Act gives too clear a signal to investors that the government will not encourage them here." I assume by that you mean investment. Picking up on Mr Conway's point, in terms of energy conservation and energy efficiency and cogeneration schemes and the like, you stated, and rightly so, that this is a big part of your operating costs. The Power Corporation Act is meant to do the types of things around energy conservation and energy efficiency that will in fact end up being a positive aspect of the bottom line of a business. If this act encourages energy efficiency in business, encourages energy conservation in business, I am a little confused as to how that could be viewed as a disincentive to invest, when I think that the proper and wise use of energy in anyone's business does something to the bottom line and it is usually positive. I would like your views on that.
Mr Auld: Quite frankly, increases in costs do not do anything for anybody's bottom line. That is our fear. If you abandon the concept of power at cost, then we are in trouble. As for the other things you mentioned, yes, we are very, very much in favour of that. We are not asking to be subsidized to do it, though; we just want to do it. We want to figure out how to do it. I am not asking for Ontario Hydro to subsidize lumber manufacturers any more than I want to see Ontario Hydro subsidize anybody else at the ratepayers' expense. That is our basic premise, as you noticed through my brief: We are looking for retaining the principle of power at cost. This is our number one concern with the amendments as proposed.
Mr Huget: If I understand you correctly, you feel this bill will take away that principle of power at cost and in that way become a disincentive in some way, shape or form to investment here.
Mr Auld: If this bill, the way we read it, will drive up costs to pay for other activities unrelated to the generation of electricity, then we are dead against that. That is the way we read it right now.
Mr Huget: Those other activities include energy efficiency programs to assist consumers and industries and energy conservation programs. Many of those programs are in place now and many industries are taking advantage of them. Would you consider that as being part of an unacceptable driving up of costs?
2030
Mr Auld: Anything that drives up costs for purposes other than electricity generation is not in the best interests of our industry, because we use so much of it. If you use the money we pay for power for other purposes than power, then we are paying for something we are not buying and that is a big problem. Especially in today's environment, it is a big problem.
Mr Huget: I was referring specifically to energy efficiency programs and things like cogeneration and the use of your wood waste, which I would view as being related to the production of power.
Mr Auld: If it is not economically feasible then I do not think we should do it until we find a way to make it economically feasible. We are all private industry in the Ontario Lumber Manufacturers' Association, and we have had two or three really tough years. The entrepreneurs in this industry are broke and there is an overriding principle that we have to face, that is, banks will not finance losses. If our hydro bill goes up to finance other things, we are in trouble. Because of the blows we have had to take over the last two years, we cannot take too many more. There have been too many closures in our industry and in the pulp and paper industry, our sister industry, and we just do not need those blows.
We are not against energy conservation or any other things like that. We just do not want to subsidize it. That is the state we are in. We have high ideals too, but we have to live today, right now, or we will not be here tomorrow. Driving up our costs is very, very difficult.
This fuel increase which was put on at the first of this year did not help us a bit, because who is going to pay for it? Our customer does not say: "Your fuel costs went up. Yes, we're going to pay another $20 or $30 per thousand for lumber." They do not say that. They say: "There are not too many houses around. How about taking a $20 or $30 cut?"
That is the world we live in. It is a commodity market and supply and demand. Unfortunately, we have not been in too much demand lately, but we employ 12,000 people across northern Ontario when we are running, and most of the people our association represents were born and raised in northern Ontario. They are northern Ontario entrepreneurs and they want to stay in northern Ontario. When times get tough they do not rush away. Then again, let's not force them away either, because they were born opportunists and if things get so bad in Ontario that they cannot make it, they will go. As an employee and a resident of Ontario, I would like to see them stay. Do not drive our rates up.
Mr Klopp: I think the whole intent of this bill is actually to get the rates so that they are not going up. You mentioned nuclear power generation as the least expensive and most environmentally sound. As one who was a firm believer in nuclear energy back when I was taking it as my major at school -- I remember going to Douglas Point -- I was most sure it was.
I do not know if you heard the previous speaker, but he drove a point home that I learned after about six years of questioning nuclear energy about the other costs, the tailings, and Ontario Hydro people could not tell me totally about that. In fact, we had graphs today showing that 7% to 9% of the last increase in hydro rates is directly related to the fact that we are now getting into the true cost of the new nuclear plants coming on stream. That I will give as a statement whether you want to agree with it or not, but I can show you my hydro bill. I live in rural Ontario and it has gone up considerably, and I think it has to do with that.
In fact, you brought up a little earlier that if Ontario Hydro could show you an incentive to figure out a way to use your wood chips efficiently to produce electricity --
Mr Auld: Not wood chips. We would like to market wood chips to the pulp companies.
Mr Klopp: Whatever. Something you cannot use.
Mr Auld: Bark, sawdust, that kind of stuff.
Mr Klopp: It has to be energy efficient. Part of the bill says it has to be an alternative energy supply to produce whatever power you need, electricity or whatever, to save Hydro having to build other plants, keeping the cost of electricity at a more stable rate and maybe not having to go up 11% or 12%. Do you not think that would be a good idea?
Mr Auld: Again, you must understand the environment in which we operate. We sell a commodity at whatever price we can get for it. No matter what our ideals are and what is a good idea, it does not generate any more money to pay for our ideals. We have to be efficient.
The unfortunate part in our business is that we sell a product on a free market and the free market does not pay for a lot of different programs which do not put money into the bottom line of a company. If they do not and we are subsidizing it or paying for it in our rates, where does the money come from? We do not have the ability to generate it -- that is the problem.
Mr Klopp: You agree, then, that if it does not work you do not do it. I was at a fairly big tomato plant in southwestern Ontario and it went cogeneration with incentives from Ontario Hydro. I could have said that day, because I was there on behalf of the Ministry of Agriculture and Food, "I am subsidizing this with my electricity bill." But as the other chap pointed out a little earlier, by this company getting a grant of some sort and being most energy efficient, which will pay back in 20 years or whatever -- they have their plans made -- it is saving me on my electrical bill. Instead of being 11% and going up, it might have been 12.5% this year.
That is the tradeoff, and for your industry maybe there are other places we can save money if it is energy efficient and all that, which is in this bill. They are not going to do things haphazardly. For those who cannot use electricity or alternative energy sources, it might keep your rate going up only 1% a year or, heaven forbid, Ontario Hydro might stabilize its flat rate down the road.
Mr Auld: If they subsidize some guy to generate hydro, it does not cut your hydro bill. But if, instead of Ontario Hydro spending the money for a plant, it invests its cost, at cost, in some alternative, that is a different story. The subsidization is the part the ratepayer cannot take. If it is at cost, good enough, but if it is subsidizing some other activity not at cost, then it is a problem. That is my point.
Mr Jordan: Relative to Bill 118, the two main concerns you have throughout your presentation are the loss of power at cost and the uncertainty of supply. I am pleased to find those two major points outlined in your brief as two major effects of Bill 118 because those are the two major points that made Ontario the industrial province it has been during the last 60 years. That is my concern and the concern of our party, that Bill 118 is going to lead us away from the very successful policy that has kept Ontario strong. Thank you for bringing that out.
Mr Auld: Without certainty of power, it is pretty hard for an industry that depends upon it to make the investments.
The Vice-Chair: Thank you for coming before us. It was an interesting presentation. I know everyone enjoyed your answers to the multitude of questions. With that, the hearings are adjourned for today. I remind everyone from the committee, it is 11 o'clock tomorrow morning in the lobby for the next trip out.
The committee adjourned at 2040.