[A-List] Canada: Ontario energy crisis

["Michael Keaney" <michael011@xxxxxxxxxxx>]

Ontario seeks way out of energy policy turmoil
By Bernard Simon in Toronto
Financial Times: March 7 2006

The province of Ontario, Canada?s industrial heartland, is on the brink
of an energy crisis, in spite of exhaustive efforts to decide on its
future energy supplies.

Over the past two years, three high-level commissions have proffered
advice. Responding to the most recent report, the Liberal government
last month organised public meetings in 12 cities. And every household
has received a brochure with its latest electricity bill, inviting
further comments.

Glenna Carr, chairman of the Independent Electricity System Operator,
which oversees day-to-day power operations, summed up the crisis
recently by saying the agency was striving for a ?reliable, efficient,
effective, transparent, accountable, credible and competent? regime.

?Now before you ask whether I am still asleep or dreaming or had
something extra in my coffee this morning,? she said, ?let me qualify
this by noting that I have not given a timetable to arrive at this
destination.?

Energy policy has been in turmoil since 1998, when a former Conservative
government broke up Ontario Hydro, a long-standing monopoly, in a first
step towards market-related pricing and greater private-sector
involvement.

Those plans were thrown off track four years later when the Tories
aborted the planned privatisation of the former transmission arm of
Ontario Hydro after political protests and a court challenge by trade
union and environmental groups.

The government retreated further by imposing a retail price freeze when
rates shot up during an unusually hot summer. Investment in new
generating and transmission capacity evaporated, even as politicians
declared that the August 2003 power blackout across a large swathe of
North America required Ontario to become less dependent on electricity
imports from the US.

To make matters worse, Ontario Power Generation (OPG), the generating
arm of the defunct Ontario Hydro, poured more than C$1bn ($870m, £500m,
?735m) into attempts to repair four reactors at the Pickering nuclear
power station east of Toronto, shut down in 1997 for safety reasons.
Only two are back in service.

The upshot is that the province now has less generating capacity than it
did in the mid-1990s. The transmission network has also been neglected.

?For 95 of the past 100 years, the policy was cheap power, and it
succeeded,? says Adam White, president of the Association of Major Power
Consumers of Ontario, representing 60 companies. But ?in the past five
years, what was once a competitive advantage is no more?.

However, Andrew Roman, partner at Miller Thomson, a Toronto law firm,
says big industrial users share the blame for encouraging the
authorities to interfere with market pricing. ?What we have is the
government playing a larger and larger role, risking taxpayer dollars,?
Mr Roman says.

Donna Cansfield, the province?s energy minister, said in an interview:
?Right now, my main interest is just providing stability in generation.?

To mollify industrial users, the government has announced it will cap
electricity charges for large consumers for the next three years. The
subsidy will come out of dividends paid by OPG to help reduce C$34.2bn
of ?stranded debt? and other liabilities that the government took over
when Ontario Hydro was broken up. A special debt-reduction charge is
also added to household electricity bills.

Mr Roman warned that if the stranded debt continued to grow, it could
threaten the province?s overall credit rating, as happened with Ontario
Hydro?s debt in the 1990s.

Ms Cansfield expressed confidence that current policies would both lower
the debt and hold down prices to industrial users. With steel and forest
products industries, among others, struggling to adjust to a strong
Canadian dollar, the challenge was ?how we transition Ontario to a more
stable market?, she added.

That task is further complicated by the Liberals? promise to close all
coal-fired power stations by 2007. The Ontario Power Authority, a
planning agency that conducted the most recent study on generation
options, recommended that the coal plants be replaced by natural-gas
stations and by renewable sources, such as wind and hydro-electric
power.

But with coal still providing about a fifth of the province?s energy,
critics warn that Ontario could be left dangerously dependent on costly
natural gas and on imports. The closure of the biggest coal-fired
station has been delayed until 2009.

The power authority study concluded that without new investment, the
supply shortfall would reach 24,000 megawatts, or four-fifths of current
capacity, by 2025.

Ms Cansfield said the government would make its recommendations by
mid-April. Regulatory hearings and reviews of individual proj-ects will
follow, making it unlikely work on big new power stations will begin for
several more years. 

Some small projects ? mostly based on wind power ? are currently under
way. But, as Ms Cansfield puts it, ?you can?t turn the Titanic around in
a heartbeat?.


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