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Provincial government moves ahead on privatization
of electricity
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by Michael Erskine
TORONTO---In the debate over the selling
off of Hydro One Inc., Ontario's public electricity provider
only one fact is generally agreed upon by all sides: the cost
of electricity is going to rise significantly. Proponents of
the deregulation of the electricity industry in Ontario are
adamant the rise in electricity bills would be worse if the
utilities were to stay in public hands. "I think over the long
haul you will see that prices are lower than they would have
otherwise been under the monopoly system," said Ontario Energy
Science and Technology Minister Jim Wilson. "We are keeping
our promise to open the electricity market to competition,"
said Premier Mike Harris during the December 18 press conference
to announce the May 1 date for the sale of Hydro One Inc., in
what will be the largest privatization of a public company in
Canadian history. "Opening the market will lead to more choice,
greater savings and better customer service for the people of
Ontario." Opponents of privatization of the electrical market
point to the disastrous results of California's deregulation,
the 600 per cent rise in Alberta's electricity bills during
the past year and the precipitous rise in electricity rates
in Ontario's neighbour New York State, which currently has rates
averaging 1.5 times more than Ontario (for example latest average
energy costs available at press time were 13.8 cents (US) per
kilowatt in New York, compared to 9.145 cents (Can) in Ontario),
as poignant examples of what Ontario consumers can expect to
reap from what opponents claim is an ill-conceived ideological
foray by the political right. Premier Harris counters that other
jurisdictions, notably the United Kingdom, Pennsylvania, Sweden
and Australia have successfully privatized their electrical
utilities. Opponents are quick to point out that none of the
countries cited have the energy rapacious and wealthy United
States as a neighbour, and that Pennsylvania has reaped benefits
from selling excess energy to its more power challenged neighbours.
Britain was blessed with a dramatic over-supply of production
facilities when it privatized, a result of years of socialist
government spending, and this has been credited with having
a greater impact on lower prices than any economies brought
about by the private sector, and those prices are still too
high to suit British business interests. Job reductions at British
plants are estimated to have hit 42 per cent, but the savings,
which should have amounted to 3 to 7.5 per cent, have not materialized,
according to CUPE officials. CUPE claims that most of the savings
were absorbed into the corporate bottom line. In the meantime,
the British market has consolidated into a small handful of
large suppliers, and there have been allegations of price rigging
and gouging, much like the situation which prompted the original
nationalization of the industry in Ontario. Nonetheless, the
British system now exports a large portion of its power generation,
allowing the redundant and excess capacity which was previously
underutilized by nearly 50 per cent to now operate at full,
and arguably more efficient capacity. The original timeframe
for the privatization of the electric power industry in Ontario
was delayed over 18 months by the concerns raised by the California
and Alberta situations. A number of states and provinces in
North America which were contemplating de-regulation of their
markets have either placed their projects on hold or have abandoned
them altogether in the wake of last summer's news reports of
blackouts and power shortages in California's newly privatized
system. The provincial government has decided to push forward
with its privatization plan, expressing confidence they will
be able to avoid the pitfalls which assailed California and
New York. It was a Progressive Conservative government in 1906
which originally oversaw the nationalization of the electricity
industry in Ontario. The action came as a response to the consolidation
of power generation into the hands of a small group of companies,
resulting in a near monopoly situation, a number of price fixing
scandals, and the prevailing perception at the time that electricity
generation would require resources beyond the capability of
private enterprise. The natural need for huge capital outlays
for power generation plants and the near globally accepted belief
that certain industries, such as power generation, communications
and rail transport, functioned better and more efficiently as
monopolies, led to the consolidation of power generation into
the hands of the provincial government and began a hundred years
of cheap electrical power in the province. That low cost of
energy has been cited repeatedly as one of the prime reasons
Ontario became the juggernaut of Canadian industrial development
and has been one of the cornerstones of preserving the Progressive
Conservative hegemony which dominated the province's politics
for nearly all of the 20th century. The Tories giveth and the
Tories taketh away. The need for massive reform of the energy
sector has been recognized by all of the main political parties
in Ontario, but when it comes down to what form those changes
should take, any sense of agreement quickly evaporates. Ontario
Hydro was generally perceived to be beyond the control of its
supposed political masters, and it had embarked upon a number
of grandiose initiatives including an ill-fated nuclear power
generator construction program begun in the 1950s and which
continued well into the late 1970s. Ontario's nuclear power
plant fleet was heavily castigated for poor performance and
safety concerns by a 1997 report commissioned by Ontario Hydro
itself. The report resulted in the shutting down of seven of
Ontario Hydro's 19 nuclear reactors and led to the resignation
of Hydro CEO Allan Kupcis, who accepted responsibility for the
disastrous destruction of public confidence in the utility,
despite being the person who brought the issue to light. The
natural arrogance of huge public monopolies and the supposed
inefficiency of the public sector brought about a general call
for reform and reorganization of Ontario Hydro. The Harris government
initiated the final process in its preferred approach on April
1, 1999 with the implementation of reforms under the Energy
Competition Act, 1998. The legislation ended the hundred-year
monopoly of Ontario Hydro, shattering what was arguably the
largest corporation in Canada into five separate companies,
Ontario Hydro Services Company Inc. (now known as Hydro One
Inc.), Ontario Power Generation Inc., Independent Electricity
Market Operator, Electrical Safety Authority and the Ontario
Electricity Financial Corporation. Each of the five companies
focuses on a different segment of the business of providing
Ontario's power. Hydro One Inc. is in charge of the transmission,
distribution and retail assets of the former Ontario Hydro.
It is the body which most people would now associate with the
old Ontario Hydro, these are the folks who are most likely sending
you your electricity bill, and the company which the Harris
government will be selling on May 1, 2002, in the largest public
sale in Canadian history. Ontario Power Generation (OPG) provides
between 80 and 90 per cent of the power generated in Ontario,
and under the provisions of the Energy Competition Act it must
lower its dominance in the market to 35 per cent in the next
10 years to provide competition. Unlike Microsoft, Ontario Power
Generation's primary drive will be to reduce its market share.
OPG held the largest chunk of the mortgage on Ontario's power
generation systems, with a whopping $21 billion in debt. Although
some critics of the old system point out estimates were that
as much as 40 per cent of the electricity bills of Ontario consumers
went to pay down that debt, much of the debt is reflected in
the assets of the corporation's power generating and distribution
network; nuclear power plants, telephone poles and hydro meters
are not cheap. The bottom line is that whatever portion of our
hydro bills went to debt payment, those bills were still a lot
lower than the electricity bills of people living in non-regulated
markets. But proponents of privatization believe that energy
bills under a not-for-profit system would eventually rise above
those in an open market. Ontario Hydro raised its prices 40
per cent between 1990 and 1993. New York has seen double digit
increases in electricity prices almost yearly since it de-regulated
and began operating under market forces, no clear evidence appears
to prove either side conclusively right, but New York electricity
rates are substantially higher than Ontario's. OPG has been
the source of a great deal of criticism over the progress it
has been making towards its divestiture goal. The recent leasing
of the Lake Huron Bruce Nuclear Power facilities to British
Energy PLC has come under fire for its generous terms, barely
one-tenth of the value of the facility according to some estimates.
The British Energy deal will see the cost of decommissioning
the nuclear power plants (one of the most expensive portions
of the cost of the plant) and the disposal of nuclear waste
remaining as the public's responsibility. Concerns that the
bulk of the cost associated with the creation of the asset will
be paid by the public through a special levy on Ontario consumers
are also important to note. The Ontario Electricity Financial
Corporation holds much of the debt originally guaranteed by
the government, some $38.1 billion. This debt will be paid by
$8.2 billion in moneys owed to the new company by Hydro One
Inc. ($4.8 billion), OPG ($3.4 billion), and the provincial
government ($8.9 billion). The Ontario Electricity Financial
Corporation, a non-profit corporation, will provide the risk
management, cash management, banking and accounting services
to manage and retire the outstanding debt and derivative contracts
of the old Ontario Hydro. These services will be provided at
"cost". The debt left over after the payments from Hydro One
Inc. and OPG will be retired by payments-in-lieu of taxes by
the successor companies (essentially OPG, as arguably Hydro
One will be paying taxes after it is sold off to the highest
bidder) and a special "Debt Retirement Charge" will be levied
on the bills of Ontario electricity consumers. This debt repayment
charge will only be levied against consumers in Ontario, purchasers
of power from other provinces or the United States will essentially
be buying Ontario electricity cheaper than Ontarians. The Ontario
Electricity Financial Corporation is also responsible for the
maintaining of contracts with non-utility power generators who
currently provide Ontario with six per cent of its power needs.
These contracts are expected to pay generators more than the
market price, according to the Ontario government website. Nonetheless,
The Ontario Electricity Financial Corporation expects to sell
the power on the open market and recoup some $4.3 billion. The
Independent Market Operator was also set up as a nonprofit corporation.
It will be responsible for ensuring reliability and fairness
in the market. It will be in charge of ensuring there is enough
power to meet Ontario's needs from one second to the next and
will act as the "spot market" for wholesale distribution of
Ontario's power, taking in bids and offers of electricity and
handling the billing and collection of wholesale accounts. The
Electrical Safety Authority will oversee the safety and regulatory
aspects of the old Ontario Hydro, including electrical inspections
and health and safety programs. The Electrical Safety Authority
is responsible for the enforcement of the Ontario Electrical
Safety Code. Concerns about privatization has met with mixed
response by labour. While the Power Workers Union of Ontario
and the Society of Energy Professionals, which represent the
workers at the Bruce facility were in favour of the purchase
of the Bruce facilities by British Energy PLC, the Canadian
Union of Public Employees, which represents many municipal utilities,
including Toronto, have come out strongly against privatization.
Bruce Silano, president of CUPE local 1, which represents Toronto
Hydro workers, said, "The government is going in a direction
contrary to where the majority of citizens want to go. Poll
after poll show citizens don't want choice when it comes to
electricity, they don't want competition and they don't want
privatization, they want reliable and affordable power." The
Ontario New Democratic Party has come out strongly against any
kind of privatization program. "The Conservatives are letting
exporters of Ontario's energy off scott-free when it comes to
paying for stranded debt. That means Ontarians will pay more
for the power we generate than people in neighbouring U.S. states,"
said NDP leader Howard Hampton. "Privatizing and deregulating
Ontario's power system is a dirty deal for the people who work
for manufacturing companies. It will make our business less
competitive by giving a break to U.S. competitors and cost much-needed
jobs." Mr. Hampton noted that the decision should have been
left up to the people. "Every citizen, from homeowner to factory
owner, should have a say on whether our power system remains
in public hands or is sold off to the private sector," he said.
"The Conservatives have no right to sell off Niagara Falls until
the people decide. There is no going back once this happens."
Mr. Hampton pointed out the Initial Purchase Offering for Hydro
One Inc. will provide a $250 million windfall for Bay Street
stock brokers. "But the rest of Ontario will pay the price in
higher rates and lost jobs." Industry analysts have pointed
out the terms for the stock offering are exceedingly generous,
with commissions which, although normal for complicated initial
purchase offerings in the private sector, are far too high for
as uncomplicated an offering as the sale of Hydro One Inc. is
likely to be. Globe and Mail commentator Eric Reguly has asserted
that the two per cent commission being offered to the salesmen
of Bay Street should be more properly negotiated down to a more
reasonable one per cent. His analysis of the privatization offer
has led Mr. Reguly to make less-than-charitable observations
on Mr. Harris' future job prospects on Bay Street. It would
appear Mr. Harris and his probable successor, Tory leadership
candidate Ernie Eves, may be simply trading places. Some analysts
and commentators have been suggesting that the sale should,
like Britain's, be conducted by the utility itself and that
Ontarians, who it is argued built the company into what it is
today through its tax dollars, should be given first crack at
any stock offering. There are no indications whatsoever that
this idea has even made it to the discussion table. The Tories
themselves are reported to be divided on the issue, with leadership
candidate Mr. Eves calling for a debate among Tory contenders
for the premiership on the matter. The actual results will be
a fait accompli before any new Tory leader steps into the traces.
According to the Toronto Star's Queen's Park correspondent Ian
Urquhart, concerns about the pressure on a strictly for-profit
corporation to sell power into the lucrative American market
and to invest in ancillary products, would be likely to far
outweigh any concerns about keeping prices low in Ontario. That
issue has been a major concern for some Tory supporters, indeed
it rumoured to be an contentious matter in the Liberal ranks
as well. The issue of a tax leakage into the Federal coffers
was also pointed out by Mr. Urquhart as a Tory concern about
privatization. A tax paying Hydro One would be paying some of
its taxes to the Federal government, instead of paying all of
its profits into Ontario's coffers, resulting in $3.8 billion
less available to pay down the debt. Hydro One says the amount
would be closer to $2 billion. "It was not significant enough
for us to worry about," said Mr. Wilson. In the official party
line, the Liberal Party of Ontario would also sell off Hydro
One, according to their Queen's Park Report, but they would
do it slowly and insure the sale was to a wide number of investors.
The Liberals claim the Tories have created a "fiscal mess" with
their handling of the province's finances and that they are
in need of a "quick" cash fix to cover it up. The Liberal plan
would also entail introduction of tough new legislation aimed
at keeping energy costs down and to prevent unwarranted price
hikes. The Liberals would also require companies provide for
Ontario's energy needs first, before selling into the American
market. "The Liberal Plan is not about rewarding a few friends
at the expense of families. Nor is it about incurring massive
debt and higher taxes," said the report. "You can count on the
Tory and NDP electricity plans to deliver both." Consumer protection
legislation was cited as one of the main causes of the California
fiasco, as suppliers were unable to pass increased energy costs
onto consumers when the price of natural gas for generating
plants and the cost of energy to meet shortfalls on the spot
market increased at a far greater pace than the legislation
allowed the utilities to charge their customers. Ontario, as
a net exporter of energy, would be unlikely to run into that
problem. The Liberals would also ensure that the consumer levy
to pay down the "stranded debt" would not be permanent. Without
such assurances, Sean Conway, Liberal energy critic called the
charge "one of the biggest tax grabs in history." The Sudbury
Star reported that the chair of the Ontario Energy Board, Floyd
Laughren, indicated in a letter to Energy Minister Jim Wilson,
dated December 17, that utilities in Ontario were still not
ready to deal with an open electricity market. Despite numerous
deadline extensions, only 89 of the province's 94 utilities
have filed the necessary documentation for privatization. Of
those 89, only 21 have indicated they are ready. While over
80 per cent of the market is served by utilities which have
indicated they are ready to proceed, the remaining 18 per cent
of the province's electricity consumers will be left at a distinct
disadvantage when the markets open up. The Ontario Energy Board
is scrambling to put contingency plans in place to try and deal
with the problem. The lack of preparedness means that many customers
who have signed retail contracts with electricity brokers will
not be able to get power under those contracts. The selling
of one hundred years of building Ontario's infrastructure has
received surprisingly little debate considering the massive
impact potential it has on the public (and private) purse. The
privatization of Ontario's energy market must also contend with
the North American Free Trade Agreement. Critics have noted
that under the terms of the agreement, Ontario will unlikely
be able to legislate an Ontario-first policy in the market after
privatization has occurred without incurring penalties and a
court challenge which the province would most likely lose. The
privatization of the electrical market in Ontario is undoubtedly
a one-way trip. Unlike the original Tory takeover of the fledgling
electricity market at the turn of the century, the cost of re-purchasing,
or indeed the difficulty of re-regulating the market would prevent
anyone from moving forward. To make such a momentous decision
as the privatization of Hydro One, based primarily on a blind
faith in the power of the invisible hand of the market, and
especially with a strongly divided Caucus, let alone the misgivings
of the public, would seem to fly in the face of the most treasured
of Premier Harris' election slogans: It is a revolution which
seems to lack 'Common Sense.'
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Golf
Club's foreclosure date looms closer
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by Diana Smith
MANITOWANING ---With less than a week to go before
the Business Development Bank of Canada's deadline for foreclosure
on the Mnidoo Valley Assiginack Wikwemikong Golf Club, the Club
has yet to find backers to ease its financial situation. The
Business Development Bank of Canada (BDC) has given the Course's
Board of Directors until this Tuesday (January 15) to come up
with a solution to the $1 million debt owed to the Bank. Foreclosure
is imminent, and according to Board President Brad Ham no solutions
have been found yet. "Our Treasurer Wally Manitowabi is working
on it." According to Mr. Manitowabi, "The Board is working on
putting a proposal together to give to the BDC sometime next
week and is not prepared to make any further comment at this
time." The BDC had a study conducted this summer by a company
called Hospitality Plus to identify ways to improve the profitability
of the golf course. The study, handed to the board members just
prior to an emergency meeting of charter members on December
19th, suggested three options were available. The Board could
simply let go of the property, find two major investors to bring
the debt down to where it was manageable, or sell equity (net
worth) memberships in the golf course. If the BDC forecloses
on the Club, it will be sold in order to pay down as much of
the $1 million debt as possible.
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Bioreactor
controversey
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by Tom Sasvari
KAGAWONG - Investigating the use of a bioreactor
at the dump is designed to improve the township site and benefit
the community, is the message Billings Township Council has
given to those concerned about the new system, which has been
installed on a trial basis. "We are trying to do whatever we
can to improve things, and benefit the community. We don't want
to do anything that might be detrimental to our dumpsite. We
know how valuable the site is," stated councillor Rick Rusk,
at Billings last council meeting. Concerns had been raised by
members of the public at the meeting, and through a letter signed
by eight residents, which council reviewed. The letter reads,
"There has been some concerns raised about the landfill bioreactor
that is being implemented in our community. Part of this concern
is due to the fact that council will not release any information
to the public about this issue. The only thing that has been
said is that it will not cost the taxpayers anything. As concerned
residents, we believe that any decisions that will be made on
this issue, whether it be on a trial basis or whatever, should
be made only after the taxpayers have a chance to voice their
questions and concerns. "Therefore, we are requesting that a
public meeting be held to allow for a public discussion with
council on this issue. We also ask that this be held at a time
in the evening when the public can be there and not during the
working day." "There have been some concerns raised about the
landfill, and the installation of the bioreactor on a trial
basis. The concerns have been raised due to the fact that people
feel all the information hasn't been released to the public,
only to say that this won't cost the township anything," said
Reeve Austin Hunt. He pointed out those residents who signed
the letter are calling for a public meeting to be held so they
can get more information and answers to concerns. It was pointed
out by councillor Sharon Alkenbrack that council had previously
passed a resolution to accept the new system as a demonstration,
for a trial basis, with no costs to the township. As well, councillor
Jim McLean said Rick Gagnon, of Gagnon Renewable Services, is
putting together a video on the system and how it works, to
be presented at a public meeting to be held in the near future.
"I want to know how the idea first evolved and when a committee
was set up and holes were drilled in the ground and land was
slashed when no one seems to know what is going on," stated
councillor Pat McColman. "We talked about this before at council
meetings," said Mr. Rusk. He said the Ministry of the Environment
(MOE) will not provide the township final permission for the
new system until all stringent regulations are met. The township
has to wait 90 days for Laurentian University to test the new
system set up by Gagnon Renewable Services. He also told the
meeting that the province has provided funding for this testing,
as "the government feels this project is worthwhile." "On a
positive note, when the dump shack burned down the cost of putting
in hydro was expected to be $5,000. Now, there is hydro at the
site with this new system, and even if the system doesn't work
we have hydro up there for about $1,034," said Mr. McColman.
"We aren't going to do anything to jeopardize anything. We have
dump privileges that are exclusive to us here, and that is why
it is important the MOE is on line (with the program) before
we actually start anything," said Mr. Rusk. Mr. McColman said
an agenda and schedule of what has to be done, how the system
works, and what responsibilities the public still has to be
made. "This isn't the way to operate when we are running a million
dollar operation here," he said. However, Mr. Rusk said this
is because of the participation of the MOE and Laurentian University.
"The MOE will want to see that the bioreactor is functioning
properly and test results have been done before they give final
approval," said Mr. Hunt. Mr. Rusk explained garbage items put
in the bioreactor are broken apart, using a rolling mechanism,
and bio-additives called 'bugs' break down the garbage without
giving off gasses. "The garbage comes out of one end of the
machine like a cement mixer," he said. A letter should be sent
to Mr. Gagnon asking for a public meeting to be scheduled, said
Mr. Hunt, who told the meeting, if the bioreactor system is
found to not work, then the township won't enter into a final
agreement for the system. "I'm not worried about the costs of
this. But when you burn garbage it can cause cancer. The MOE
has given approval on things that killed people 20 years later.
They are not always smart in what they do," said Rob Seifried,
one of the members of the public who attended the meeting. Mr.
Rusk was questioned as to when the three month test period will
begin. He noted that this will begin once the permit is approved.
"It has to meet certain criteria before the ministry will give
approvals." "I can't believe that no one really knows how this
is done," said Ed Foster. Several other concerns were raised
such as how materials will be removed from the dump site, and
it was felt these questions should be posed to Mr. Gagnon at
the upcoming public meeting. "The MOE is coming out with new
regulations, for instance there will be new regulations concerning
farms and where manure can be placed," said Mr. Rusk. "This
bioreactor can be one of the things that can resolve these problems.
This is new technology right now, but it might end up being
a regular thing." "What happens if this doesn't work and we
end up with tons of garbage?" asked Mr. Foster. "We won't. That's
why Laurentian has been involved and is doing testing. We have
enough materials at our own dump to recycle this through the
bioreactor to know what the exact capacity of it is," replied
Mr. Rusk. He noted there will be very little flow, and if anything
happens there won't be any leachate in the materials. As well,
there are test wells all around the dump site, he said. "Everything
has to be done properly under the Ministry's jurisdiction,"
he said. Mr. Hunt said, "If the new system works, what we envision
is prolonging the life of the dump for many more years. Right
now, the site has an expected life span of 30 years, but already
with things we have done this is probably up to 40 years now."
The materials that come out of the bioreactor after breaking
up the garbage can be removed and used elsewhere, such as for
fill, in gardens and for compost," added Mr. Rusk, who said
the proposed system has proven to be successful at Disney World,
in California. "They can also add carbon or nitrogen to bring
the compost up to better value to use," said Mr. McLean. "That
is why Laurentian is doing tests to get the right formula in
place." He added that the public meeting to be put on by Mr.
Gagnon in the near future will be prominently advertised.
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