IPPSO FACTO, August 1996,
electronic edition
Excerpts from the magazine of the Independent Power Producers' Society of Ontario

Volume 10, No. 4, August 1996

Please note that various photos, charts, graphs and illustrations associated with the orgiinal text may be omitted from the electronic version. Contact IPPSO for hardcopy.

What's In This Issue (Selected topics only)

Ontario's power surplus evaporating

Macdonald report receives near-universal praise

Hydro clamps down on municipal electric utilities

Renewable energy program delayed

IPPSO responds to proposed tax changes

Hyundai joins Canadian power partnership

Macdonald meets nearly universal praise

Toronto: Responses to the Macdonald report bore uncanny similarities, often from parties who do not usually have identical viewpoints. MEA (Municipal Electric Association) Chair Bob Davey said the MEA "commends the Committee for the work it has done - especially in heeding the MEA's call for sound and reasonable restructuring measures... In many respects, the report's recommendations reflect the advice provided in the MEA's January 1996 submission to the Committee."

IPPSO President Tom Brett said, "IPPSO supports all the major recommendations of the Macdonald Committee, and we admire the courage and directness of its tone. Although we have concerns about the report's lack of specifics with respect to timing and environmental issues, we urge the government to move quickly to implement Macdonald's recommendations."

AMPCO, the Association of Major Power Consumers in Ontario, said, "the recommendations of the Macdonald Report are very similar to those proposed by AMPCO. While AMPCO may differ in its views on some details, such as the Report's proposed mandatory electricity pool, it strongly endorses the fundamental proposals for change contained in the Report. AMPCO sees the implementation of the Report's recommmendations as a major first step in the establishment of a truly competitive electricity market in Ontario, a change that is required if Ontario industry is to meet the competitive challenge of increasingly open markets."

The Green Energy Coalition, (GEC) which represents a number of environmental and sustainable energy groups, also had positive things to say about Macdonald's recommendations. David Poch, Counsel for GEC, said "Given the constraints of Macdonald's marching orders, the GEC was pleased to see that he acknowledged the importance of retaining sustainability goals, and that he specifically suggested mechanisms for incorporating a method to fund energy efficiency and other societal goals in the transmission and distribution components." Poch adds that, like IPPSO, "The GEC was pleased with Macdonald's recognition of the important role that regulation will play, particularly during the transitional years."

The Consumers Association of Canada (CAC) also agrees that "A new regulatory framework is required to ensure equity between customer classes," says Peter Dyne, of the CAC's Energy Committee. CAC is stresses that "the government now has to say what it intends." Additionally, CAC is concerned that "the report is not readily understandable by the majority of citizens," and that there is little information on how market-based pricing will affect consumers' bills. CAC says "There can be no benefits to consumers until Hydro's debt is reduced. The government has to explain and justify stranded asset charges."

Ontario Hydro and its labour unions are the only major groups voicing fundamental opposition to the Macdonald recommendations. Ontario Hydro's official statement on June 7 called the report "an important step to a competitive marketplace." Hydro CEO Allan Kupcis said the utility was encouraged that the Committee recommended retail access. "Hydro was one of the first in the province to argue for choice on behalf of electricity consumers and we appreciate the fact that the Committee has agreed with the wisdom and inevitability of that approach," he said. He was more guarded however, about Macdonald's other recommendations such as the break up of Ontario Hydro into competing entities. Later it appeared that Hydro was actively opposing Macdonald in private meetings.

The MEA released a special supplement to its "Circuit Breaker" publication in June, comparing its recommendations to Macdonald's. The only area of direct disagreement mentioned was with respect to the number of wholesale buyers. Macdonald recommended multiple buyers, and the MEA recommended a "single purchaser," being the power pool. IPPSO Executive Director Jake Brooks believes this difference is more illusory than real: "As long as you have regulated transmission with no bilateral physical contracts, you can achieve the same objectives as a single purchaser model achieves. Cost pooling can be enforced where it's justified, and we won't have the danger of complacency developing within the monopoly purchaser."

The MEA publication noted that it had only "partial" agreement with Macdonald in three other areas:

Retail access: The MEA rejects this, while Macdonald rejects it for the moment, supporting it when practicable

Cost Pooling: The MEA appears to support complete pooling of power costs (although it does accept some attempts to link rates to cost causality) while Macdonald recommends pooling of transmission costs, and leaving generation cost pooling up to future regulators.

Obligation to Serve: The MEA wants the obligation to serve and supply transferred to local utilities, which Macdonald supported. However, Macdonald also recommended an eventual move to retail access, which almost certainly goes along with the removal of any obligation to supply.

London and Ajax decisions coming soon

Ajax, Ontario: A motion for summary judgment is expected to be argued October 8 in the case of Ajax Hydro, one of two municipalities being sued by Ontario Hydro for purchasing small amounts of independent power. (See IPPSO FACTO, June 1996, page 1.) The decision will be particularly important because it could set a precedent on several questions related to municipal rights to purchase from sources other than Ontario Hydro.

Ontario Hydro has asked the Ontario Court, General Division, for an injunction preventing Ajax Hydro from purchasing about 11 MW from a waste-wood fired cogeneration project, and also preventing London Hydro from purchasing about 3 MW from a local district energy energy facility that includes cogeneration. Ontario Hydro claims that if these purchases are allowed to be completed, its cost of power will increase and all ratepayers in Ontario will suffer. Ajax Hydro's defense notes that "the 11 MW of load in issue is trivial to the plaintiff, (Ontario Hydro) whose 1995 load was approximately 25,000 MW."

Ontario Hydro is claiming that it can force the municipal utilities to buy from it because there are expired contracts for exclusive supply that are still binding. Ajax argues that "because the plaintiff did not obtain an extension or renewal of its formerly exclusive purchase agreement .. the relationship became simply one of customer and supplier." Ajax also disputes Hydro's claim that it is the trustee and exclusive agent of all municipal corporations and public utilities in Ontario with respect to the supply of electric power.

In addition, there is a dispute over whether Ontario Hydro has any obligation to serve the independent-minded utilities, should they be allowed to purchase from more than one supplier.

Ajax and London believe that they are legally allowed to buy from any supplier of power, and that they are in fact obliged to purchase from the lowest cost supplier that they can find. In each case, the cogeneration facility would be the lowest cost supplier, rather than Ontario Hydro.

London Hydro's statement of defense includes more detail on the expired contract with Ontario Hydro, which concluded on December 19, 1939. London Hydro is also filing a counter-claim asking among other things for a declaration that "London Hydro is not required to take electrical power exclusively from Ontario Hydro." London Hydro alleges that "In the period following December 5, 1995, Ontario Hydro embarked upon a campaign of interference and intimidation with a view to causing London Hydro, Trigen-London and Trigen Canada not to proceed with the cogeneration facility."

Whatever decision is handed down in this matter, independent power producers and others will very likely take the issue to the Ontario government, because the Ontario government is now considering options for restructuring the Ontario electric system. For further information, contact IPPSO.

See also article "Hydro thwarts competition from its own MEUs," elsewhere in this issue of IPPSO FACTO.

"Competition will happen anyway, but if we wait, the transition will be much worse"
Timing of implementation becomes topical issue

Toronto: Given the widespread support for the major recommendations in the Macdonald report (see cover story) for many observers, the focus of discussion has apparently begun to shift to questions of timing and process. "Consumers and the environment are paying a very high price for every day of delay," according to IPPSO Executive Director Jake Brooks. He believes that the government now has a "window of opportunity" through which to act, because it takes at least three years after the introduction of legislation before the effects of competition are really felt in the marketplace.

AMPCO (Association of Major Power Consumers in Ontario) Executive Director Arthur Dickinson is more direct. He has warned the government that severe job loss could result if restructuring is not started immediately. He says "Competition and restructuring will happen anyway, but if we wait it will be much worse." AMPCO and many others believe that as electricity markets open up south of the border, job-creating industries will be forced by sheer economics to relocate to jurisdictions with competitive power markets.

AMPCO observes that the Macdonald report "demonstrates that competition could be in place by January 1, 1999." However, AMPCO's detailed assessment of the Report concludes that "the process is too long. The experience of other jurisdictions shows that there is no reason why the restructuring cannot be completed by the Spring of 1998, providing the government embraces the Macdonald Report's recommendations quickly."

In response to concerns raised by IPPSO Executive Director Jake Brooks at a July 22 meeting (see story elsewhere in this issue) about the timing of implementation, Donald Macdonald noted that in his report "a certain timetable was suggested." He cautioned that the government has to deal in the realm of the possible, and that restructuring the MEUs could be particularly slow. He concluded this comment saying "I would think it would take at least two years to bring on legislation."

Later, under somewhat more pointed questioning from Energy Probe analyst Tom Adams, Macdonald said, "It would be preferable for the government to go ahead at an early date and declare their intentions ... It would be undesireable to have uncertainty hang over."

Banker and columnist Robert Blohm was even more pointed about timing: "There is no time gentlemen. Nearly every jurisdiction has set January 1998 as the date when these changes move forward."

When Brooks questioned the report's discussion about reviewing existing NUG contracts, Macdonald noted that "We are all heirs to those mistakes and they have to be paid for in the same way as other types of generation."

Macdonald also noted his view that MEU self-generation projects should not be able to escape the stranded asset retirement charges, even though they might not use the bulk transmission system directly.

David Poch of the Green Energy Coalition (GEC) later expressed the GEC's pleasure that Macdonald recommended that all customers should pay their share of the stranded assets charges, "which suggests that industrial consumers won't necessarily be excluded from paying their share of the nuclear mortgage." In GEC's view, Macdonald left all questions pertaining to environment and sustainable development open for subsequent discussion.

Macdonald responds to stakeholders' questions

by Alex MacDonald

Toronto: There was standing room only at a roundtable discussion on the Macdonald Committee Report, at the Centre for the Study of State and Market in University of Toronto's Faculty of Law on July 22. The meeting brought together privatization / competition advocates in a very Macdonald-positive discussion. Speakers generally concentrated on the issues that need to be considered to expedite implementation of the Macdonald report.

Following is a summary of pertinent points from the discussion. Participants included Michael Trebilcock of the University of Toronto's Faculty of Law, Les Viner of Tory Tory DesLauriers & Binnington, Jake Brooks of IPPSO, John McNeil of Scotia McLeod, Karl Wahl of Hydro Mississauga, and Neil Freeman, a public policy consultant and adjunct professor of political science at the University of Toronto. There was no official representation from Hydro, the MEA, the unions, or the environmental community.

Competition Issues

Michael Trebilcock (Faculty of Law, U of T, head of the Centre for the Study of State and Markets) pointed out that 70% of generating capacity (nuclear and Beck) would remain in state ownership. "Will the remaining, privatized, facilities be capable of rendering this market competitive?" he queries. (His view of the British experience with two private generating enterprises is that there is a "duopoly" and that it is not fully competitive.)

Macdonald: Some of the very large contributors, particularly base load (nuclear) will be at a much lower cost than some of the marginal bidding. At the margin however, there would be substantial competition and we think that this is going to exercise control on what the overall cost would be.

Ownership

Les Viner and Karl Wahl asked if it is feasible to put the nuclear facilities in private hands.

Macdonald: "There is a deep seated concern in the province about the nuclear system, not only with regard to the day-to-day operations, but also as to what happens, in the long run, with the spent waste, every gram of which still rests on the site of the various nuclear stations; what happens, in due course to the disposal of the equipment which may have been effected by radiation when the plants are taken out of operation; and, always, the overriding concern, and God willing not, that there might be a catastrophic accident.

"In all of those cases, there seems to me to be no doubt about the fact that, whoever owns it at a particular time, the provincial government will be held responsible for those three particular concerns, and it seems to me that those concerns should remain under the jurisdiction of the provincial government so that it would remain accountable for them.

"Privatization (of nuclear assets) has taken place in the United Kingdom after a period of 5 - 7 years. That may well be the British view on this particular matter. I'm prepared to stake my political judgment on the fact that the Ontario opinion would not share the UK opinion on that particular question."

Political Issues

Neil Freeman, (Political Science Professor, at University of Toronto, and author of "Politics of Power, Ontario Hydro and the Government, 1906-1995") felt that the Report's recommendations for restructuring the distribution system (to merge Ontario Hydro Retail with the consolidated MEUs) have the potential to cause the government political difficulty because of the inter-regional inequities that will result.

"Save for large industrial customers, the new share ownership companies (formed by the break-up of Ontario Hydro Retail) are granted a monopoly on purchasing power in the jurisdiction. In a largely rural country, with some urban centres, the MEUs and the municipal council will have little incentive to join the new company because the urban customers will have to make up for the loss of rural rate assistance.

"Many MEUs, and possibly their municipal councils, will be resistant to the new plan, with the MEU seen as the defense of the local interest. Since the Minister is the share owner of the new companies, she will be individually responsible for the consequences of how the distribution companies unfold. This may be more political responsibility than any minister will want to assume."

Macdonald: "That's their problem, not ours."

Regulation and Timing

Jake Brooks of IPPSO proposed that the government set a date immediately for a cap on Hydro's capital spending program to prevent the pool of stranded assets supported by a charge on transmission from growing. "IPPSO members have accepted a share of the liabilities resulting from Hydro's past mistakes through a charge on all transmission users to retire the historic debt. This is necessary to serve customers and taxpayers. That said, it is flatly unreasonable for us to be required to accept liability for future Hydro investments. Why should our members be expected to pay transmission charges to re-hab a station so that it can compete with us?"

Brooks also felt it important that market regulation be introduced as soon as possible. "Hydro is playing Australian rules competition. They have launched lawsuits against MEUs to prevent them from seeking other sources of power. They are engaging in predatory pricing through load retention rates and threatening customers with exit fees. These conditions make the introduction of private equity into Hydro unworkable and therefore strangle competition. Who would risk investing in any Hydro asset if Hydro controls market entry?"

In response, Mr. Macdonald recognized the need for timely action but said that the Committee didn't want to put the provincial government in a strait jacket. They have a heavy legislative agenda. It will take at least two years for any effective changes to the Hydro legislation to be enacted and brought into law.

Finance Issues

"Our reaction to the indicated values was one of shock," said John McNeil, Managing Director, Scotia McLeod. A nuclear asset value of $10.5 billion involved a write-down greater than most people expected. The indicated hydraulic asset value of $4.6 billion was a smaller increase than many of us expected. Asset value of fossil at $145 million versus a current book value of over $3 billion, gives rise to concerns and questions.

"I should stress, I'm not saying it's wrong," he said. There many ways of determining value and none of them are universally accepted as correct. McNeil used cash flow as an example.

Ontario Hydro generates a lot of cash. If you look at value multiples, using an asset value of $24.7 billion, Hydro is valued in Macdonald at 4.5 times cash generation. This is a low multiple that needs to be explained. Using the Hydro base case value ($37.6 billion) the multiple is 6.7 - 6.8. The Canadian average is 6.3. The US averages are higher (Duke Power - 60% nuclear - has a multiple of 8).

He thought debt assignment in some cases seems a little low. The transmission entity, being a monopoly, should be able to carry a higher level of debt. He also felt a forecast long-term interest rate of 8% was low.

McNeil's final point was that the Report's valuation included revisions of the useful lives of the stations upward and substantially. This is hard to understand since nuclear is already amortized over 40 years and a number of the plants will be shutting down well before 40 years. Many observers in fact predict that competition will lead to earlier nuclear retirements. (See article about Michael Margolick's paper elsewhere in this issue of IPPSO FACTO.)

NUG Contracts

Jake Brooks objected to the proposal that NUG investors be asked to accept discounts on their contracts because they are a burden on Hydro's financial position. He suggested that, if NUG investors are asked to accept discounts, such discounts should apply equally to bond investors. "An investor is an investor is an investor."

Macdonald: "There again, whatever the errors in judgment that occurred at that particular time, we are all the heirs to those mistakes and I think they have to be paid for in just the same way as the errors of over capacity of other kinds." (This would appear to contradict the Report p.113, "We recommend that non-utility generators be offered the opportunity [sic] to opt out of their existing contracts, with partial compensation")

Questions and Answers

John Wilson, Ontario Hydro Professional Society:

"Wouldn't we be looking at a large, fully integrated utility if Ontario is going to compete in the North Eastern North American market?"

Macdonald: "I believe that a very large institution does not necessarily mean a more economic institution. I really am not persuaded that having very big institutions is going to be in our interest."

Blair Peberdy, Toronto Hydro:

"If Toronto Hydro was to self-generate, and therefore not use the transmission grid, would it still have to pay any stranded assets charge?"

Macdonald: Yes

photo: Donald Macdonald seemed to enjoy learning that the IPPSO annual conference is being called "Life After Macdonald." Left: IPPSO Executive Director Jake Brooks. Right: Donald Macdonald, author of the Macdonald Report.

graphic from Macdonald report

Whither the obligation to serve?

One of the most important recommendations in the Macdonald report was also one of the most subtle. Mr. Macdonald recommended that the "obligation to serve" be transferred from Ontario Hydro the municipal utilities. The "obligation to serve" is the legal duty to provide transmission, distribution and power services to grid-connected customers of electric power in Ontario. Exactly how this is defined is rather complicated, but in general terms it means that Ontario Hydro now, and perhaps the municipal utilities in the future, have to do everything reasonable to make sure power is delivered safely and reliably to everyone within a reasonable distance of existing power lines in Ontario.

The obligation to serve is important because it forces a utility to look after every customer to a certain minimum standard of service, rather than just looking after the larger and more profitable customers. Public utilities the world over, whether privately or publicly owned, generally operate under some kind of legal duty like the "obligation to serve." Because upholding such a duty carries with it certain costs, the serving utilities usually are allowed to adjust (i.e. raise) their overall rates to allow them to recover the added costs incurred from serving the more difficult to serve customers.

However, now that price-based open competition is approaching the electricity market, the obligation to serve will have new complications to deal with. How should a utility respond when it has been instructed to raise its prices in order to provide widespread public service, and then finds cheaper competitors in its backyard, and these competitors have no "obligation to serve."

This problem is one of the most compelling reasons for unbundling, or breaking up the utility into separate transmission, distribution and generation companies. The generating companies can compete, based primarily on price, while the transmission and distribution companies can be charged with the responsibilities of providing widespead service, at specially-adjusted prices if necessary.

Perhaps the unspoken issue behind the Macdonald recommendations is that a company which is given an "obligation to serve" is very likely to be given a legal monopoly of some sort or at least some kind of protected market. The public can not allow such a company go out of business. However, a company in the generation business is likely to operate on a purely competitive basis, and can possibly go out of business if it makes serious business mistakes.

Macdonald's recommendation to transfer the obligation to serve to the municipal electric utilities (MEUs) suggests that they will inherit an important public service function, and the corresponding protected market, a version of which Ontario Hydro now enjoys. If Ontario Hydro is no longer under any obligation to serve, then it will be hard to justify giving it any sort of market protection. In theory, this could mean that Ontario Hydro could be competed out of business. This is why Macdonald's recommendation is so radical.

Potentially this problem could be solved by splitting up the obligation to serve into two components: Obligation to provide transmission and distribution service and obligation to supply the commodity of electricity. The MEUs could have the first and Hydro could have the second. Of course, there are many other options as well.

Not Enough of a Good Thing

By Scott Stevens

After taking a detailed look at the benefits of gas fired co- generation in Ontario, the first question that comes to mind is "Why is there so little of such a good thing?"

The answer, it turns out, is not economic viability, lack of gas supply, lack of demand for new power generation, nor a lack of knowledge or technical capability. Rather, the reason relates to the policy and institutional barriers surrounding power generation in Ontario.

At last count, there was about 1,870 megawatts of installed and committed non-utility generation (NUG) in Ontario (Ontario Hydro, 1994). About 1,375 megawatts or 73% of this capacity is gas fuelled, predominantly co-generation.

The benefits of gas cogen are substantial. In addition to the benefits of Ontario's electricity system that are associated with all NUG projects (system diversification, reduction in transmission costs and reduction in line losses), gas fired power generation offers both social benefits (environmental) and substantially benefits Ontario's gas distribution system.

By extrapolating data from the 3 main types of cogeneration in the Consumers Gas franchise area, fuel savings from heat recovery and overall CO2 emission reductions can be estimated for the province.

Heat recovery from each MW of cogeneration results in the displacement of about 25,600 GJ of natural gas annually, or about 35,000,000 GJ province-wide. This heat recovery, in combination with the displacement of coal-fired electrical generation for more than 75% of the year, results in annual CO2 emission reductions of about 4,400 metric tonnes per MW, or about 6,000,000 metric tonnes provincially.

In terms of benefits to the Province's gas distribution system, gas fired generators typically achieve close to 100% capacity factor and very high reliability (+/-95%). Consequently, power projects tend to achieve the highest load factors on the entire gas distribution system. Adding this high load factor capacity to the system is achieved at a lower capital cost per incremental system cost than the existing system average.

Consequently, adding power generation load results in increasing the revenue over cost ratio for local distribution companies (LDC's), thus reducing gas transportation costs for all Ontario gas customers. The revenue/cost ratio improvement is also true on the TransCanada PipeLines transmission system.

Using Consumers Gas' system as an example, the total power generation gas volume on Consumers' system commencing January 1997 will be 533 million cubic meters/year or about 6% of Consumers' total volumes of almost 9 billion cubic meters/year.1

Doubling or tripling this gas load up to 12 or 18 percent of Consumers total load would significantly improve Consumers' revenue/cost ratios, benefitting all of Consumers Gas' rate payers.

At present, total gas-fired power generation represents only 7.7% of Ontario Hydro's total reliable capacity of about 24,000 megawatts.

For a power generation fuel as clean and economical as natural gas, it is clearly not nearly a high enough share of Ontario's generation mix. A very good case could be made for increasing the natural gas share of generation in Ontario to somewhere closer to the 20% range (5,600 megawatts) based solely on the argument of appropriate diversification of fuel supply. The benefits to Ontario from improving the diversification of our electric supply and increasing the efficiency (revenue/cost ratio) of our gas distribution system would be substantial.

But it is not economic, operational or environmental factors in Ontario that are restricting the growth of gas fired cogeneration. Rather, it is the policy and legislative barriers that prevent Ontario power customers from purchasing this clean, cost effective power in a competitive market.

So, if gas fired cogeneration is such a good thing, why isn't there more of it?

1. The Whitby Co-Generation Project scheduled to commence commercial operation January 1997 will add 110 million M3 to Consumers' current 423 million M3 of annual power generation load.

Dear Mr. Harris: Don't let Macdonald die

Now that the Ontario government's review of issues in the electric sector is in, the spot light shifts to the Ontario government, and how it responds to the report's far-reaching recommendations.

Although the issues are complex, figuring out what to do now is not. What would you do if all the major stakeholders agreed that structural change is necessary, and on almost all of the steps needed to implement that change? What if all your advisors and experts across the continent agreed that change is being forced by developments outside Ontario's borders, and that the timing for your action in Ontario has to be sooner rather than later? What if you had just received a report from your own blue ribbon panel confirming what all the others had been saying?

Wouldn't you agree that all these signs suggest that the timing for a bold, clear initiative from government could never be better?

Fortunately, the Ontario government does seem to be preparing to act promptly and decisively on this question. Minister Elliott is inviting stakeholder input over the summer, based on Macdonald's recommendations. There is talk of a white paper being issued shortly thereafter. Private meetings between IPPSO and senior policy officials in government confirm that electric sector restructuring is being closely considered for the government's current agenda. Members of the PC caucus turned out in force last month to assist the efforts of IPPSO's waterpower committee in redressing their tax problems. (See story elsewhere in this issue.)

However, there is a fly in this ointment. Ontario Hydro and their new-found allies in the Power Workers' Union are trying to derail the Macdonald recommendations. This was predictable. Any change to an overprivileged monopoly will probably be detrimental to the interests of its current staff and management. No one wishes ill on any of Hydro's staff of course, but the introduction of true competition will have to affect some of the more comfortable.

It is important for those who understand the energy sector to get the message out to our political leaders that this is not the time for procrastination. The time to act is now. Any further delay will be costly.

Please Premier Harris, don't let the Macdonald report gather dust. He was asked to do a job, and he performed admirably. Now the energy market, the energy consuming industries, the public and the environment need you to turn the report into reality. It won't be easy, but you can count on all the support and help we can give you.

- Jake Brooks, Editor

Government to consult on restructuring

Toronto: Ontario Minister of Environment and Energy Brenda Elliott has made it very clear that now is the time for people concerned with Ontario energy policy to come forward and state their views. She met with IPPSO and a dozen other energy sector stakeholders in early June, to begin gathering viewpoints.

In the Ontario legislature on June 10, Ms. Elliott explained the government's interim response to the Macdonald report: "(We) will consult over the summer, ... we ask all of our MPPs to meet with their constituents. They can use the Macdonald Commission as their framework for discussion. They can bring their ideas back to the government, and once we have had an opportunity to hear some feedback on this we will come forth in the fall with a plan to determine how next to proceed." In response to questions at the Macdonald report press conference June 7, Elliott said much the same thing.

It is widely expected that the government is now developing options for legislation to restructure the Ontario electricity system. They will probably release a white paper this fall outlining the general direction of proposed legislation. The white paper will integrate the Macdonald recommendations, the feedback received on them from constituents this summer, and the government's own thinking. Then, after receiving further feedback on the white paper, the government will be free to introduce legislation early next year. In effect there will be four different consultation processes: the Macdonald Committee, the summer 1996 consultations now underway, the white paper, and legislative hearings.

IPPSO members and others involved in energy policy are strongly advised to contact their local MPP in the next few weeks, and express their view on the Macdonald recommendations, restructuring, and independent power. If you would like assistance in this effort, or co-ordination with others in your area, please contact the IPPSO office.

Hydro thwarts competition from its own MEUs

Lincoln, Ontario: Ontario Hydro has thrown its weight behind a potentially precedent-setting attempt to stop Municipal Electric Utilities (MEUs) from competing to serve Ontario customers. Numerous MEUs are proposing to extend their service areas to city boundaries - rationalizing their territories, and in the process competing with Ontario Hydro Retail. This is in accordance with Bill 185, 2-year old legislation designed to help MEUs rationalize their service areas. Unfortunately, Ontario Hydro is also the regulator of MEUs and can set up roadblocks to any who try to take market share from its retail sales arm. "This is disturbingly similar to Ontario Hydro's attempts to prevent others from competing to gain market share on the generation side of the business," said IPPSO President Tom Brett. "The regulator should not have the power to make decisions affecting the competitive position of its own subsidiary, in distribution or in generation."

It is perhaps an ironic relic of Ontario law-making that Ontario Hydro retains regulatory authority over the MEUs, while there exists almost no regulatory authority over Ontario Hydro, even though it actively competes in several areas of the electricity business, Brett notes.

Although the Macdonald report recommended disbanding of Ontario Hydro Retail, and making MEU (Municipal Electric Utility) boundaries coincide with municipal boundaries, Ontario Hydro is going to court to prevent at least one MEU from doing exactly that.

Bill 185, passed in December 1994, encourages municipal utilities to extend their boundaries to line up with municipal boundaries. Generally, this would tend to transfer customers from Ontario Hydro Retail service to an MEU's service. It seemed like a non-controversial idea at the time, and the Bill produced relatively little debate before its passage. But late last year, Ontario Hydro apparently decided to get serious about the loss of customers this could mean for its Retail operation. Ontario Hydro Retail is a very small portion of Ontario Hydro's business, and is not thought of as very profitable, given that it serves mostly rural and very widely dispersed customers.

The Town of Lincoln passed a bylaw in December 1994, in accordance with Bill 185, to extend service to the entire municipality, to become effective July 1, 1995. The Power Workers Union (PWU) and the Niagara North Federation of Agriculture appealed the bylaw. The appeal went to the OMB (Ontario Municipal Board) and was defeated. The Federation ceased its involvement at this point, but the Power Workers' Union appealed to the Divisional Court. Lincoln Hydro General Manager John Alton said, "We were elated at the time the original bylaw was passed because Ontario Hydro chose not to appeal when it first went for review." However, now that the Divisional Court has ruled unanimously in Lincoln Hydro's favour, the Power Workers' are appealing again, this time to the Ontario Court of Appeal. And in a shocking move, Ontario Hydro recently applied for and received status to intervene in the third appeal, against Lincoln Hydro. Ontario Hydro had expressed no interest in getting involved in the case before this point, even though it had legal rights to get involved at the two previous levels (OMB and Divisional Court).

There are 11 municipalities who have passed bylaws to rationalize their territories based on Bill 185, and nine have been appealed. The two which have not been appealed are only partial boundary extensions. Ontario Hydro has vigourously tried to dissuade these two, according to some reports, but has not appealed them formally.

It is clear that Ontario Hydro has not really co-operated with the spirit of Bill 185. The utility appears to be prepared to oppose any MEU that tries to extend its service territory. The Lincoln case is being viewed as the precedent.

"It's a shame that there's no customer-driven process to make decisions like this," says IPPSO President Tom Brett. "If customers could choose their service supplier, we might have a more competitive system." Brett notes however, that the boundary changes now being proposed were approved indirectly by customers - they were approved by municipal councils, who are elected largely by ratepayers.

In another development strikingly similar to anti-competitive practices on the generation side, Ontario Hydro is quietly offering special discount rates to discourage municipalities from competing against Hydro. For example, in the Lincoln case, Ontario Hydro Area Manager Warren Lane went to a Lincoln Town Council meeting on December 4, without consulting Lincoln Hydro, to offer the UR2 rate to certain Lincoln customers. The special discount UR2 rate would only be available if the Lincoln Council voted to dissolve the Lincoln Hydro Electric Commission. This practice is very similar to Ontario Hydro's Load Retention Rates, which discourage competition by offering subsidized rates to would-be competitors on the condition that they cease their competitive activities. The Lincoln Town Council incident was particularly shocking because Mr. Lane had met with Lincoln Hydro officials earlier the same day, to notify them that they would be responsible for some rather expensive environmental assessments that they previously knew nothing about. There is some reason to believe that the environmental assessments were made necessary only because of some environmental problems created by Ontario Hydro, not Lincoln Hydro. The implication some took from this was that the assessments might not be a problem, if Lincoln chose not to proceed with its boundary extension.

Lincoln Hydro has noticed that its other dealings with Ontario Hydro have been getting more difficult since it began to take a competitive stance with Hydro. It took 8 months for Hydro to respond to Lincoln's rate proposal, a highly unusual delay. Hydro required inexplicably detailed information submissions from Lincoln. At one point Ontario Hydro, acting as the regulator, refused to look at Lincoln's rate submission because it said the MEU hadn't provided a copy of the boundary extension study. However, Ontario Hydro (the retailer) had been in possession of the study for some time. Lincoln Hydro officials are concerned additionally that if they give Ontario Hydro (the regulator) information required for the regulatory process, that the same information could be passed on to Ontario Hydro (the competitor, or the intervenor) to use for a different purpose.

Similar to the experience of many would-be generators, municipal utilities have found that Ontario Hydro can produce an impressive list of new fees, charges, requirements and responsibilities for the MEU to meet, at its sole discretion. These fees and other requirements could potentially be used in a discriminatory fashion to punish MEUs who compete too aggressively.

"What do you do when your mandatory wholesale supplier and your regulator declares itself to be in competition for your market?" asked one MEA official. "Clearly, Ontario Hydro is trying to use its legal monopoly to acquire as much market control as possible, before things change for it," said Brett.

OEB External Advisory Committee started

Toronto: IPPSO has been invited by the Ontario Energy Board to take a seat on the OEB's new External Advisory Committee (EAC). Marie Rounding, Chair of the OEB, struck the EAC to provide stakeholders in OEB matters with an opportunity for direct input on OEB procedures, guidelines and other process related issues. The EAC will not address substantive issues that are before the Board.

The initiative comes at a time of anticipation of significant changes to the OEB's role in oversight of Ontario Hydro. It is anticipated that the EAC will help keep the Board apprised of developments in the energy industries, and keep stakeholders apprised of the OEB's consideration of various procedural tools for dealing with emerging issues.

IPPSO Counsel Ian Mondrow praised the initiative as "a very positive and useful process". Mondrow says that the OEB's role and methods in regulating Ontario energy matters will have to change in the coming years, as the markets change. This committee, Mondrow says, will provide the Board with the benefit of the experience of players in the industries which it regulates, and provide the players with an understanding of the regulatory challenges facing the Board. "A very positive feeling came out of the first meeting, and I think all of the participants were grateful to Ms. Rounding for setting up a formal process through which they could offer their input as the Board starts to address some very fundamental issues of regulatory procedure and effectiveness. There was a real sense that the Board will be taking a pro-active role to meet the challenges facing it and the industries over which it exercises jurisdiction in the coming years, and that the input of its stakeholders would be valued", Mondrow said.

The EAC is to meet quarterly, and includes representatives from CENGAS, CAC, IGUA, AMPCO, MEA, IPPSO, GEC, Pollution Probe, Energy Probe and HVAC Coalition.

Board of Trade favours competitive electricity

Toronto: The Metro Toronto Board of Trade recently established an "Electricity Industry Task Force," designed to "develop the most appropriate position for improving the competitiveness of electricity for all businesses in Metro and the GTA." John Bech- Hansen of the Board notes that its members tend to be much smaller power consumers than AMPCO's members, being more of the commercial rather than industrial type of consumers.

Members of the Board's Task Force include David McFadden of Smith Lyons Torrence Stevenson & Mayer, John Brooks of Toronto Hydro, Adrian Herschell of The T. Eaton Company, two IPPSO directors, and many others.

As reported in the February issue of IPPSO FACTO, the Ontario Chamber of Commerce and the Sarnia Lambton Chamber of Commerce issued similar statements on January 22 decrying Ontario Hydro's load retention rate offers. They said, in part, "Special incentive rates which have been subject to full public review and which benefit both the utility and the consumer should be made available, providing these rates do not discriminate against customers of the same class or type. Ontario Hydro should not be permitted to use this as an invitation to buy out Non-Utility Generation (Co-Gen) projects being built or contemplated by their customers."

Hydro gunning against gas

IPPSO asks OEB to block anti-competitive discounting

By David Bright and Stephen Salaff, Ph.D

Toronto: Figuring prominently at Ontario Energy Board hearings into Ontario Hydro's proposed rates for 1997 were the utility's plans to expand its monopolistic, anti-competitive electricity pricing regime, by lowering some rates for certain customers and reducing prospects for significant amounts of new non-utility generation (NUG).

Hydro claims it is merely attempting to enhance the efficiency of its idle system capacity by retaining load, although this was challenged by IPPSO and others during the hearings.

Rather than offering its customers retail choice in the type of electrical generation they consume, as is increasingly being offered by United States utilities, Ontario Hydro's rate structure appears to lock its customers into the consumption of environmentally and economically questionable nuclear and coal generation, and postpone customer choice. Hydro should instead allow its customers to choose clean renewable and high efficiency forms of generation, and speed up the introduction of retail choice.

The Hydro strategy seeks to prevent "peak clipping" by its customers, the reduction of utility peak without shifting the demand on Hydro's system to off-peak times and thereby reducing system peak. Hydro places a new emphasis on preventing clipping by municipal wholesale customers.

Hydro hopes to prevent the implementation of high efficiency load displacement non-utility generation, which could involve a substantial shift of consumption from electricity to natural gas fuel. Hydro thereby seeks to retain customers and to utilize the still considerable excess generating capacity on its system.

To prevent peak clipping by municipalities, Hydro's main strategy is to change the current "demand charge," which is what municipalities pay Hydro for the wholesale power they subsequently retail to municipal customers.

Hydro estimates that some 2700 MW of peak clipping NUG is the technical potential which could be operated by or for Ontario MEUs - this is the amount that Hydro's "load retention" policies and rates seeks to prevent being built.

This 2700 MW was derived by assuming a capital cost for new peaking generation of $700 per kilowatt, and a fuel cost of $4 per MBTU, and a minimum rate of return before tax and financing of 15 percent. This was applied to a representative group of MEUs, and then estimated for all MEUs in the province.

Hydro feels threatened by the potential of efficient NUG. Peak clipping "is leading to behaviours that endanger the integrity of the power pool," according to John Fox, Ontario Hydro's executive vice president and managing director of the customer services group, who appeared at OEB hearings which began June 17 in Toronto.

"As to the pricing signal provided to the municipal electric utilities, we have found that the current demand energy structure is encouraging what's known as peak clipping, and to such a degree that our ability to maintain our commitment to no average price increase is endangered. And we feel obliged to try and correct that," Fox said.

Similarly, Hydro's main submission to the OEB indicated the "existing demand charge does not reflect current system conditions and encourages utilities to take aggressive action to control their monthly maximum demand. This behaviour, known as peak clipping, increases costs to all other Hydro customers. For 1997, Hydro is proposing (a standard wholesale price) for municipal electric utilities that sends a more accurate price signal and reduces the incentive to peak clip."

Hydro has proposed to recover half of its "demand charges" from peak period energy prices for 1997, while the other half will continue to be collected with demand charges. Off-peak prices for 1997 would remain the same as 1996 off-peak charges.

In practical terms for 1997, the new energy charge province- wide would be $486.7 million in the winter and $324.5 million in the summer.

Fox indicated that peak clipping investments by MEUs could be "a capital investment in a generating unit that would be operated on peak to reduce the overall peak seen by Ontario Hydro. It could be a contractual arrangement with a party who already had existing generation who would agree to run it at a certain time."

The change in the charge would make it "economically less attractive to MEUs to make a peak clipping investment," according to Fox. "To the extent that a larger portion of their bill is tied to their peak demand, a reduction in the value of that demand reduces the incentive to make the investment or reduces the return on the investment or reduces the savings available if the reduction is achieved through some other contractual vehicle."

Asked what else Hydro could do, Fox indicated, "I suppose we could ask the courts to review the matter in the context of the agreements with the utilities, but the reality of the timing to get such a judicial review would leave us with the problem fully bloomed, so we have elected to take a more direct route."

In addition, there are several new pricing arrangements with Ontario municipal electric utilities that Hydro is proposing before the OEB, the "Residential Retention and Expansion Price" (RREP) and the "Commercial Retention and Expansion Price" (CREP), to retain customers on the Hydro system and to prevent them from using natural gas fuel.

"Hydro's wholesale customers are facing significant difficulties in maintaining residential load," indicated Hydro's tariff sheet for the RREP. The RREP gives Hydro's wholesale customers "the incentive and financial resources to retain and expand sales to residential customers" through a wholesale pricing mechanism which provides a rebate for residential sales above a forecast baseline.

The CREP would operate in a similar manner for commercial customers. However, some MEUs have indicated the proposals are of little use to them.

These new subsidizations could be added to Hydro's existing, widely-criticized "Load Retention and Expansion Price" (LREP), which is still in effect.

The LREP allows the utility to negotiate secret electricity discounts "to attract and retain load from new and exisitng direct industrial customers or large users who have a bona fide alternative to service from Hydro or its wholesale customers." Via the LREP, Hydro has been paying its customers to prevent shifting production or relocating plant to a competing jurisdiction; preventing fuel switching and self generation projects; and influencing decisions on plant expansion or new plant siting.

LREP will reduce the electricity rates for a total of 2730 gigawatt-hours of electrical energy for some 13 of Hydro's industrial customers in 1996 and 1997. This corresponds to 255 MW of demand in 1996 and an additional 181 MW in 1997, for a total of 436 MW. Of this total, about 54 percent represents high efficiency self-generation. This reduction is a major loss to the environment, the Ontario NUG industry, and those it employs.

There is also a major cost to Hydro and its ratepayers for this intervention. Hydro's revenue forecast for this energy is $138 million, "and the impact on non-participants (is) $65 million" according to interrogatory 2.15.27, indicating that Hydro is paying a net subsidy of some $65 million to support LREP for these customers. Hydro claims it will make up the losses by way of cost reductions and efficiency gains, savings which some ratepayers fear may not materialize. The LREP deals are subject to a secret third party review, but are not open to public scrutiny or review.

The IPPSO final argument to the OEB made 13 recommendations critical of these and other Hydro rate proposals, of which the first three are:

1. The Board should advise the minister to direct Hydro that, pending industry restructuring and any new legislation associated therewith, Hydro is expected to provide full information in its filings with the Board, and to comply with the directions of this Board, so as to ensure the continued integrity of the rate review process.

2. Hydro has not discharged its onus of demonstrating the prudence of its 1997 rate submission and the appropriateness of the impact of the submission on the financial and operational contingencies facing the corporation. The Board is obligated to advise the Minister that the Board has no basis on which to evaluate the prudence of Hydro's 1997 rate proposal, and that the record of this hearing provides insufficient basis for approval of Hydro's submission.

3. The Board should reject Ontario Hydro's discount pricing options based on short-run marginal costs...due to:

- The potential that these options will undercollect the costs of supplying power.

- Their potentially anti-competitive impacts.

The Board should recommend that in future Hydro base its discount pricing on appropriately reviewed long-run marginal costs.

For details, see the summary of IPPSO's Final Argument in the Financial / Technical Supplement to this issue of IPPSO FACTO.

New supply needed in 3 years

IPPSO questions surplus assumptions

Toronto: At the Ontario Energy Board (OEB) hearings in to Ontario Hydro's 1997 rates this summer, IPPSO raised questions about some of the underlying assumptions supporting Hydro's estimation of its capacity surplus.

IPPSO found that if either of Hydro's nuclear stations at Pickering A or B were out of service for any reason, that the capacity surplus is completely gone as of this year. Even if both stations perform to Hydro's predictions, the surplus will be gone in a little more than three years - by the beginning of the year 2000. Since it can take up to three years to bring new capacity on line, IPPSO has argued that it is time for Hydro to start looking at proposals for new supplies of independent power.

"Given that the entire Pickering station went out of service in a completely unpredicted fashion this year, you have to be concerned about whether this could happen again," said IPPSO Executive Director Jake Brooks. "It seems prudent to me think about providing for such eventualities." In fact, Ontario Hydro's annual report acknowledges that it has not been able to meet all of its expectations for "secondary" energy sales in the last year, because of "lower energy availability."

In the meantime, Ontario Hydro is spending millions of dollars on load retention rates and other programs which discourage energy efficiency and renewables. These programs are predicated on Hydro's contention that there is a solid surplus of capacity in the province, and may be wasted public money if the surplus unexpectedly turns into a shortage. Hydro is even proposing new rates to discourage peak shaving. (See article on OEB hearings, elsewhere in this issue of IPPSO FACTO).

The hearings were limited in scope partly because Ontario Hydro opposed intervenors' efforts to examine certain areas. Hydro objected for example to any discussion of its load forecast, or the economic model which it uses to produce a number of its predictions.

Ontario developing smog plan, asks for electricity sector input

Toronto: The Ontario Ministry of Environment and Energy held a workshop on June 19 and 20 to discuss its proposed strategy for reducing smog in the province. Stakeholders in various industries, including electricity generation, were invited to take part and give input toward the strategy called "Towards a smog plan for Ontario."

The strategy is part of a national plan initiated in 1990 by the Canadian Council of Ministers of the Environment. This plan focuses on the Windsor to Qu‚bec City corridor, the lower Fraser Valley and the southern Atlantic region. These areas are identified as the highest ground-level smog zones in Canada.

Smog is a combination of atmospheric pollution that causes respiratory problems, reduced agricultural production and other problems. It comes from a variety of pollutants, mostly nitrogen oxide and volatile organic compounds. The main source of these pollutants are automobiles and fossil fuel combustion - largely coal-fired power generation.

Ontario's plan calls for 45% reductions of nitrogen oxides (NOx) and volatile organic compounds (VOCs) from 1990 levels by 2015. It also calls for a minimum 10% reduction from 1990 levels of inhalable and respirable particles by 2015, the establishment of inhalable and respirable particle ambient air quality criteria in 1997, the development of a comprehensive Ontario particulate reduction strategy in 1998, and ongoing negotiations with the United States to obtain agreements on NOx and VOC reductions that are compatible with Ontario goals.

Negotiations with the United States is seen as being crucial to any Ontario smog management plan as over half of the NOx and VOC emissions that contribute to smog in the province originate in the American midwestern states. Of the emissions originating in Ontario, about 15% of NOx is directly related to power generation, primarily in the burning of fossil fuels. Since fossil fuel- generated electricity is used in Ontario primarily to meet peak demand periods and for export markets, the success of the electricity sector in meeting smog management plans is going to depend on several rather unpredictable variables. The performance of nuclear generating stations will be a major one. Continued long shutdowns of reactors, such as is currently the case at Pickering, will mean a higher use of coal-fired generation to make up the lost capacity.

Another factor will be the end result of the restructuring of Ontario's electricity sector. If the recommendations of the Macdonald Committee are adopted by the Province (see cover page story this issue), there will likely be a much larger role for non- utility generators (NUGs) in the province. Since NUGs tend to use cleaner, more efficient methods of electricity generation such as natural gas-fired cogeneration and small hydro, an increase in this sector will likely lead to reduced NOx emissions in Ontario.

To date, Ontario Hydro has committed to reduce annual NOx emissions by at least 37 kilotonnes by the year 2000, or 40% of the 1985 level. Ontario Hydro has actually achieved this reduction target in 1993-95.

Macdonald study predicts nuke closures, recommends set-asides

Toronto: A study commissioned by the Macdonald Committee on the environmental impact of competition predicts more coal and less nuclear power in Ontario. It also recommended that government use portfolio requirements or "set-asides" to ensure minimum amounts of renewable energy. Although Macdonald did not specifically endorse these findings in his report, he did suggest that it was up to government to implement something very much like the study's recommendations. The study, "Electricity Competition in Ontario: Environmental Issues," prepared by Michael Margolick of the ARA Consulting Group, was probably considered some of the most authoritative advice received on environmental matters by the Macdonald Committee.

In his summary "Environmental Impacts of Competition in Ontario," Margolick said: "If the electricity industry is made competitive in Ontario, without environmental mitigation measures or policy supporting energy service market development, the environmental impact is likely to be significant and negative. The following effects are expected:

1. Coal-fired power plants would be life-extended and perhaps operated at higher capacity factors.

2. Probable earlier decommissioning of some nuclear plants would reduce life-cycle environmental impacts associated with fuel production, plant operation and waste production. However there would be incremental pollution from replacement fossil-fuel energy. It is difficult to speculate on the effect on the environment from potential changes in nuclear waste disposal and plant decommissioning procedures and safeguards, as this depends primarily on how much money is made available through special, government-ordered funds, and on the type and degree of public/government oversight that will exist, regardless of plant ownership.

3. With either cost-of-service/rate-of-return or price-cap performance-based regulation, energy service markets will diminish, with a corresponding negative consequence for energy efficiency and conservation. Revenue-cap performance-based regulation in a wholesale system will remove the main barrier to energy efficiency and conservation, but they are unlikely to increase without utility incentives, or separate funds or funded financing agencies.

4. Absent targetted measures, new investment in renewables will disappear outside of a small number of rural sites. First, the commercial prices for most renewables are higher than cost of a gas-fired turbine. Second, renewables are capital intensive and need long-term contracts, high debt-equity ratios and long-term financing, while competitive markets tend to short-term contracts, and higher equity-and-shorter-term financing. Third, the intermittent nature of wind, and to a lesser extent small hydro, effectively precludes much of the resources from bidding even a day ahead in a power pool, without special dispatching provisions. Fourth, the open market will underestimate the financial value of renewables as a hedge against fuel price variations.

5. Specific regulatory conditions are needed for development of small-scale, high efficiency cogeneration in the commercial and institutional customer market, even where investments are economic from a provincial perspective.

6. Transmission lines may be built that would not otherwise have been constructed. This could occur if differences between regulations create commercial opportunity for generation at times or in locations of high marginal transmission cost, in the absence of economic need (arbitrage)."

Margolick's conclusions include the following:

"There is strong evidence to suggest that DSM spending will not continue without specific policy instruments in a competitive environment. Furthermore, to ensure that DSM programs provide the highest level of societal return, governments also need to manage how DSM funds are distributed across customer groups and among program types. The degree of regulatory supervision required for effective DSM varies with the type of basic price regulation. There is an unfulfilled requirement to co-ordinate DSM funding with appropriate PBR of wholesale utilities and/or wires companies.

Effective deployment of energy efficiency requires a shift to market transformation and design-related DSM, away from direct customer incentives. These activities can perhaps more effectively be located outside of the electricity supply industry altogether.

Renewable energy development, above commercial levels, will only continue with subsidy or trading advantage (special pools, mix requirements, feebates, etc.). Renewables supply commodity electricity, which places them in direct commercial competition with non-renewable supplies. While remaining integrated utilities see benefits in distributed renewables, in order to save T & D costs, there is little opportunity for firms just generating electricity for re-sale.

Competition has raised the profile of stricter pollution controls and standards, but progress is slower than the market's ability to shift among generation sources, thereby affecting emission levels. Emissions caps and trading allowance programs appear to be effective mechanisms, once they are in place."

Margolick performed an extensive review of environmental, energy efficiency and renewable energy measures used in other jurisdictions. His conclusion was clearly in favour of set-asides, or "portfolio standards" such as those practiced in several US states. In his own words: "We recommend resource mix requirements. These can be applied to either generators or utilities in a wholesale framework, but only to generators in a retail framework. We believe imposing the mix requirement on buyers (wholesale) would be more effective, especially if there is a rationalization of the MEU sector. The smaller suppliers of renewables would be less able to support the transaction costs if imposed on sellers.

Sellers would not be obligated to own power plants according to the mix requirement, nor would buyers be obligated to directly purchase power accordingly. The portfolio obligation would generally be satisfied by secondary trading in financial contracts. Renewables could be required to bid through a main pool or even a separate pool, but it might be more effective and simpler, for the foreseeable future, for brokers or utilities to obtain renewable electricity through long term contracts arising from competitive bidding.

The mix requirement could be specified in a variety of ways:

1. minimum percent renewable energy (excluding existing Ontario Hydro hydraulic and existing wood waste plants);

2. maximum percent fossil-plus-nuclear energy;

3. maximum "carbon content" per kwh;

4. minimum supply efficiency;

and so on, including combinations of these. Because renewables, (other than Ontario Hydro hydro and existing wood waste plants) are such a small fringe - they can almost be lost in the "rounding error" of total demand and of other sources - it may be best to specify #1. Specifying a certain percentage of renewable energy would induce more renewables investment than specifying an equal percent of capacity in the mix, since the operating rates of renewables are lower than the expected average of non-renewable plants.

Many issues would need to be worked out, such as the possibility of including high-efficiency gas cogeneration, treatment of imports, and so on. The environmental advantages of small-scale generation of any kind tend to be offset by the complexity of including them in financial systems: one contract could cover 2000 MW of nuclear or coal, but each small-scale plant incurs its own transaction costs. Mix requirements could generate a thriving broker/aggregator industry.

Finally, it would be preferable to start off with a small, but significant renewables requirement in advance of the existing surplus clearing. There are concerns that if nothing is done until after the surplus clears, the industry will disappear and be reluctant to re-appear.

If the mix requirement concept is acceptable in principle, there should be research on rate impacts and "playing-field tilting" as a function of percentage requirements. This would support any political negotiations over the required percentage(s). The customer perspective on this issue is likely to be somewhat different than for the energy efficiency charge. In that case, customers' average electricity bills would be expected to go down. However, there is not direct cash benefit to customers if mix requirements raise electricity prices."

Margolick's reasoning in terms of coal-fired power is as follows:

"While most of the debate over the environment and restructuring has focused on loss of opportunity for DSM and renewables, the most significant near-term environmental impacts in North America of open access of any kind - probably by an order of magnitude in the next decade - will occur through extension of the economic lives of old, inefficient, coal-fired power plants whose operating costs are less than the full costs of new gas-fired (or renewable) technologies. Owners of old plants will tend to keep them running, and priced low, to exclude new market entrants. New plant unit cost will rise with capital risk and required degree of equity financing in an unregulated generation market, thereby extending the time during which operation of existing plant costs less. Older coal plants tend to produce greater air emissions of all kinds than new coal plants or any other form of electricity generation. While sulphur dioxide emissions are capped by the US Clean Air Act amendment of 1990, there are no analogous caps for NOx or CO2. Open access in the United States could also cause an increase in the operating rates of these plants, by freeing up formerly un-accessed transmission lines for inter-state/inter- utility trading. They are now running at capacity factors averaging only 44%, compared to 60% for plants meeting New Source Performance Standards. Total CO2 emissions from coal-fired generation in the US could, by one estimate, increase by 43 million tons - 15% of the President's Climate Change Action Program goal, while NOx emissions might increase by 500,000 tons per year - 25% of the US Clean Air Act Amendment target - for just a 3% increase in coal use. Calculations based on FERC's Draft Environmental Impact Statement on wholesale transmission access suggest a CO2 increase in the 60 to 137 million tonne range by 2010."

His assessment of the prospects for nuclear power includes the following: "Another important effect of open access is likely to be earlier mothballing of nuclear plants. To the extent that retired nuclear capacity is not surplus, it will probably be replaced by electricity from coal plants or new gas units, thereby increasing NOx and CO2 emissions and bringing forward decommissioning dates (and costs). Nuclear plant operating costs are low: less than 2 cents/kwh, making money mid-day when the price is 3 cents will also per force be operating and losing money at 3:00 AM when the price is 1 cent. A recent study by Moody's Investors Service estimates that at least ten nuclear units in the US (out of a total of 109) might be retired early under open access and that more would be retired if trends in nuclear capital additions continue."

Margolick also appears to favour systems to encourage small- scale high efficiency cogeneration and fuel cell applications: ".. from an environmental perspective, any regulatory framework should facilitate the development of small-scale (say sub-5-MW) gas cogeneration within electrical distribution systems. The appropriate regulatory structure should, as in the case of DSM, not disincent such investments through revenue loss to distribution utilities from self-generation. On the positive side, it would be appropriate to consider:

- standardized interconnection requirements;

- time limits for decisions by distribution utilities of interconnection requests, and reviewable reasons for decisions;

- restrictions on special load retention rates;

- standard tariffs for grid back-up and purchase of generation above site requirements;

- mechanisms for joint optimization of gas and electricity distribution system plans;

- revised municipal building and safety by-laws not unduly restricting on-site power generation and back-up fuel storage;

- (within a wholesale framework), a special simply-regulated class of generator that permits a private firm within a distribution utility's service area to generate and sell power and heat to multiple end-users sharing a common site, but only to end- users sharing that site; and

- increased small-power engineering and maintenance training, incorporated within a portfolio of building technology training programs."

Long Sault closes financing

Toronto: Financing has just closed for the 14 MW Long Sault hydro project in northeastern Ontario. It has taken several years to develop the project. The wait was worth it however, as the principals received $45 million over a 31.5 year term from a syndicate of insurance companies with additional subordinated debt financing provided by Ontario Energy Corporation. Such long term financing improves the project's economics.

Project owners are Algonquin Power and N-R Power and Energy, an affiliate of Nicholls Radtke. Access Capital acted as Financial Advisor.

Waterpower

Tory MPPs crowd IPPSO waterpower meeting

Toronto: More than two dozen Ontario MPPs and advisors turned out to hear IPPSO Director Dave Kerr and others talk about the municipal tax problem facing Ontario waterpower producers. The occasion was a special breakfast meeting organized by IPPSO at the Sutton Place Hotel on June 20. "I've never seen so many politicians interested in energy issues in one place," said IPPSO Executive Director Jake Brooks.

Dave Kerr, who is a principal with Algonquin Power, explained how municipal tax rules unfairly discriminate against waterpower producers in Ontario. (See IPPSO FACTO, March 1995, and elsewhere.) "The parliamentarians were very receptive to our concerns," Kerr said. "Clearly, our representations are starting to be heard now, and the release of the Macdonald report probably helped stimulate some interest in this subject right now."

Also speaking at the meeting was Bud Carruthers of Great Lakes Power and Dave De Montmorency of Rapid-Eau Technologies.

Rob Sampson, Parliamentary Assistant to the Minister of Finance was scheduled to be a guest speaker, but travel problems forced him to send another representative from the Minister's office. Doug Galt, Parliamentary Assistant for the Minister of Environment and Energy was also in attendance.

IPPSO plans to meet with many of the interested MPPs over the next few months, hopefully along with waterpower producers from their ridings. For further information on how to get involved in these meetings, contact IPPSO.

Iroquois falls close to completion

Iroquois Falls: The 75 MW gas and wood-fired cogeneration plant at Iroquois Falls is getting close to completion. Fred Brown of Northland Power reports that the plant is "expected to go into startup and acceptance tests in August."

Iroquois Falls was one of the plants caught in Ontario Hydro's 1992 NUG "freeze." After extensive negotiations, Ontario Hydro agreed to let the project proceed, albeit at a much smaller scale than originally planned.

Northland logo

Project Profile

Brock University cogeneration system a quiet success

St. Catharines: Relatively few of the professors and students working on the campus of Brock University are aware that their university is heated, cooled, and powered by a cogeneration system that reduces pollution and saves them $130,000 per month. Since the system went into operation in 1994, there have been no significant problems of either a technical or business nature. In fact, the University won an award in 1994 for "excellence in using the best energy choices available and being flexible enough to evolve as technology changes."

The story of Brock University's cogeneration system goes back to the late 1980's when a need for thermal storage was first identified. Central to the University's energy flexibility is the 440,000 gallon water storage tank, which allows heating and cooling energy to be stored for hours or even days at a time. Thermal storage of this type provides a number of benefits:

- it reduces peak demand on the heating and cooling systems, so that they can be sized smaller and run at higher average capacity

- it allows the production of heat or cooling to be done when it is most economical, and to be delivered when it is most needed

- it facilitates multi-fueling, which is an added form of flexibility

- it provides an emergency backup should there be a temporary loss of energy supply from outside the University

- it provides a ready host for cogeneration and absorption chilling, efficient technologies made even more efficient when their output can be stored.

Before 1991, the University was heated and cooled electrically. This was leading to peak demands of almost 10 MW, and exhorbitant power bills. The installation of the thermal storage tank, along with a 3.5 MW gas boiler and a hydronic heating piping system was the first major improvement. Already in place were 2 - 1000 ton electric centrifugal chillers, and electric space heating, each with their own distribution systems. The new thermal storage and distribution lines were less expensive to operate, but allowed the old systems to be kept in place as backup. In fact, they have hardly ever had a reason to go back to the old systems since.

Cogeneration was a second phase. It reduced their electricity costs, as well as producing efficient, reliable and inexpensive heating and cooling. "The combination of thermal storage and cogeneration has provided Brock with energy self-sufficiency," says Steve Deri, Brock University's Physical Plant Project Engineeer. In fact, the University does have the ability to completely "island" itself, technically isolating itself electrically when required. More often however, the local utility, St. Catharines Hydro, is purchasing kilowatt-hours, under an ongoing arrangement with Ontario Hydro. Mr. Deri provides this willingly. "Electricity is a byproduct of the heat as far as we are concerned," he says.

On really hot days, the 1000-ton absorption chiller doesn't do all the chilling - the electric chillers are used as a backup. But both absorption and electric chillers make use of the thermal storage system. During hot periods, they store up chilled water at night. The tank can store a day's heating in the winter, or a half day's cooling in the summer. The only time they have gone back to using electric heating was during two brief periods when gas supply was curtailed. And this was only because they had opted to purchase less expensive, non-firm gas supply contracts. Only a relatively small part of the system is run on more expensive firm gas contracts.

The cogeneration equipment consists of eight Caterpillar 3516 gas-fired engine / Kato generator packages provided by Toromont. There is also an Alfa Laval heat exchange system, Trane absorption chiller and Baltimore Air Coil cooling towers. Maximum power output is 6.56 MW, and thermal output is 22,620,000 BTU/hour. The University's peak power demand is 5.9 MW. The heating system has a Vapourphase boiler to recover exhaust heat.

The entire system is essentially unmanned. The physical plant operations require some engineering attention, but that was the case even before the new facilities were installed. One of the mechanics on Deri's Physical Plant staff now has the added responsibility for cogen engine maintenance. But overall, there is little or no change in staff requirements because of the cogeneration system.

Reciprocating engines were chosen over turbines because of their ability to operate modularly, and the fact that maintenance can be performed by mechanics without stationary engineering certification. (One man working alone can lift the engine head off, Deri notes.) Staff are able perform regularly scheduled maintenance on each of the engines during peak hours without significant loss of performance or overtime costs. They do their own oil changes and other regular maintenance, so there is only a small service contract with the manufacturer, Toromont, mainly concerned with emission control. Wintertime efficiency is about 80%, with a year-round average of 70 - 75%. The system makes extensive use of electronic controls, so that Deri feels he is able to design a "smart maintenance program," which exceeds the value of traditional preventive maintenance programs.

The initial idea for the project came from Ontario Hydro. Hydro helped with the original thermal storage plans. Ironically, when Ontario Hydro changed its attitude about cogeneration in 1992, the project was delayed and new costs were added. The management looked at installing fewer engines and making other changes. But in the end they proceeded with the plan, despite Hydro's change of heart. Apparently the system could have been on line a year earlier, had Ontario Hydro not raised its new objections.

There were some other problems in getting the concept and the design cleared. Brock staff had to satisfy the Ministry of Environment with respect to emissions. In addition, the Niagara Escarpment Commission was concerned about noise and vibration levels, among other things. Brock was successful in meeting all these concerns, and is now proud to point out that noise studies have found no noticeable difference before and after the installation of cogeneration.

Some of the credit for Brock's quiet success with cogeneration must go to the engineering firm of Sandwell Inc. Sandwell performed initial feasibility studies in 1990, and helped see the project through to successful completion. Sandwell were early advocates of the reciprocating engine approach.

Interestingly, this project makes economic sense even without the use of any tax-driven financing. The work was entirely financed by the University with bank financing. Total cost for the system including cogeneration, storage tank, chiller, new transformer, switchgear, building modification, and installation fees, was $7.5 million.

One suspects that the professors and students at Brock appreciate the quiet.

photos:

The 440,000 gallon thermal storage tank can hold up to a day's worth of heating in the winter.

Steve Deri, Brock University's Physical Plant Project Engineeer, monitors output of the cogeneration system.

Seven of the eight Caterpillar 3516 engine / Kato generator sets used in the cogeneration system. Each one is capable of generating 820 kW.

Toronto Centre expands country's largest PV system

Toronto: The Bloorview MacMillan Centre for physically disabled children and young adults has built a 5 kW photovoltaic (PV) canopy over its entrance and bus-loading zone. This expands on an existing 75 kW system on the roof of the building built between August 1992 and March 1994 (three installations of 25 kW each).

The new canopy was unveiled on Earth Day, April 22, 1996 and received 75% of its funding from Ontario Hydro's Renewable Energy Technology (RETs) Program. The remaining 25% of the estimated $50,000 cost of the project was paid by the Centre through money raised at local celebrity golf tournaments held several years ago.

Originally, just a plain canopy was planned to protect students from the elements as they boarded and dismounted from busses. The Centre provides a 120-bed in-patient hospital and educational facilities for about 100 students. However, with Ontario Hydro's assistance, it was decided to use the opportunity to expand the Centre's PV capacity.

"Without Ontario Hydro's assistance, the canopy would just be a structure that keeps rain and snow off the school entrance," says Rudy Amrein, Director of Building and Environmental Services at Bloorview MacMillan. "Instead, it works for the building by generating electricity. Every time we make improvements to the facility we approach them with a commitment to increasing out energy efficiency." By taking this strategy, Bloorview MacMillan has managed to keep its utility costs for 1995/96 as low as in 1985.

Brian Kelly, Director of Environment and Sustainable Development at Ontario Hydro, praised the partnership between Ontario Hydro and Bloorview MacMillan, saying, "Partnerships like these are essential for Ontario Hydro to meet its commitment to make renewable energy a part of the electricity supply in the province."

photo

Award-winning "Eco-efficiency manual" gives energy advice

Cannington: The Economic Developers Council of Ontario (EDCO) recently won an award for its Eco-Efficiency Resource Manual, developed by Thompson Gow & Associates. The resource manual provides information and resources on the important role of eco-efficiency as a key component in local economic development, with a focus on small to medium-sized companies. The manual covers areas such as water, materials, energy, management tools and advanced concepts with case studies and resources. The American Economic Development Council awarded EDCO first prize for its work on the manual. Partners in the project included: Industry Canada, the Great Lakes Pollution Prevention Centre, the Air & Waste Management Association - Ontario Section, MOEE's Pollution Prevention Office, Ontario Environmental Training Consortium, MOEE's Industry Conservation Branch and Consumers Gas. After regional training workshops are completed this summer, the remaining manuals will be available through EDCO for $40 apiece. For more information, contact Gladys Schmidt, Ph. (519) 787-1255.

Atlanta Olympics a showcase for energy efficiency and renewables

Atlanta: The centennial Olympic games that took place in Atlanta from July 19 to August 4 included a demonstration showcase of renewable energy technologies, as well as examples of energy efficiency at the game's venues.

The US Department of Energy teamed up with various companies and non-profit organizations in renewable energy to set up demonstration projects at various sites during the games, demonstrating renewable technologies. Some were technologies that are currently commercially viable and available to customers, others are in development, but near the point of being commercially available.

The demonstration projects include: photovoltaic (PV) systems, solar thermal dish Stirling generators, a solar thermal pool water conditioning system, geothermal heat pumps for space heating/cooling and water heating, energy saving building techniques, fuel cells, and an energy education and training centre.

Several thousand PV modules were installed on the roof of the Georgia State Aquatic Centre, where all swimming and diving events took place. The 340 kW of peak electrical power they provided made the aquatic centre the world's largest building-integrated PV system. The centre also included a solar thermal pool water heating system.

Many of the vehicles used during the games operated on natural gas, electricity, alcohol and hydrogen. Some of these were on loan to the Atlanta Olympic organizers, some were purchased by the City of Atlanta for public transportation and city services, including natural gas fuelled buses built in Winnipeg.

The specially-built Ocoee canoeing and kayaking venue in Tennessee had all of its electrical energy provided by fuel cells, producing power from a chemical reaction of fuel and oxygen. These fuel cells are small, highly-efficient, quiet and emission-free, making them a promising future source of power. Ballard Fuel Cells, based in Vancouver, though not connected to the Olympics, are a major North American developer and manufacturer of fuel cell technology.

Besides the visible demonstration projects, the main Olympic venues in downtown Atlanta are also served by an extensive district cooling system that made many of the venues bearable to the tens of thousands of spectators attending the games in the sweltering heat and humidity of mid-summer Atlanta.

While Atlanta's experience in district heating goes back to 1900, much of the original system was abandoned in 1995 due to poor profits, disinterest and differing political priorities. Many downtown buildings are now heated and cooled by electricity or gas.

However, most of the Atlanta Olympic venues, located within a 1.5 kilometre radius in central Atlanta, are served by three institutional and private steam and chilled water systems.

The Georgia Tech and Atlanta University sites, home to swimming, wrestling and various team events are both cooled by central steam and chilled water systems. The athletes' village at Georgia Tech is also served by this system. The Georgia World Congress Centre, home to gymnastics, boxing and much of the media, also has central hot-water and chilled-water systems controlling temperatures in its various buildings. Atlanta's Hartsfield International Airport, the world's busiest airport, also operates a district heating and cooling system for the main terminal and four concourse buildings. The newly constructed Olympic Stadium, replacing Fulton County Stadium adjacent to it as home to the Atlanta Braves, also has an 800 ton chilled-water system serving the team facilities, media rooms and luxury boxes.

Although these Olympics are being promoted by organizers as the greenest ever, RDA Engineering President David Wade says that Olympic games, due to their temporary nature, generally are not planned with energy efficiency or alternative sources of energy in mind, and are unlikely to become a torch-bearer for the cause of renewable energy. RDA worked with Georgia Tech to expand and upgrade its district heating and cooling systems, first built in 1923 and 1965 respectively.

"If the world decides to build a city where all future Olympics will be held, it will no doubt be served by district heating and cooling," says Wade. "But until then, don't look to the Olympic Games as a catalyst for district energy. While millions of dollars are spent constructing temporary facilities, security and crowd control, energy infrastructure is simply not a consideration when staging a two week event. The efforts of Olympic hosts are focused on a two week time period, not the long term."

Ontario EA amendments

Toronto: Environment and Energy Minister Brenda Elliott has introduced amendments to Ontario's Environmental Assessment Act. The amendments call for entrenchment of the public's right to provide input to the process; improved issue-identification and resolution mechanisms; better direction for stakeholders on the type of information to be included in EA documentation; strict timetables up-front for key steps in the decision-making process; and harmonization of Ontario's EA process with federal legislation to facilitate approvals. The Minister also recently introduced proposed regulatory standards for new landfills under the EA Act. The proposed standards deal with requirements for the location, design, operation and closure of sites. Source: RCO Update, Vol. 16, No. 4, July 4, 1996.

Hydro News

Pickering woes continue

Pickering, Ontario: Ontario Hydro's troubled nuclear power station at Pickering has caused serious public relations problems for the utility. The station has been largely closed for repairs for more than 3 months. A recent story in the Toronto Globe and Mail reported "staff who disregard safety regulations and can not perform basic tasks adequately."

Top management has been changed at the station: Ken Talbot was appointed station director and Allan Holt is the operations manager. Both men are seasoned senior Hydro officials, perhaps the most effective individuals the organization has to offer.

Pickering's operating license is up for renewal at the end of this year, and there are concerns that the station may have to operate under new licensing restrictions in future. Problems of corporate culture such as those reported in the Globe, can lead to such restrictions, even if the station is technically sound.

Pickering produces 20 per cent of Ontario's electricity and any serious impairment of its operation like the recent problems could lead to power shortages, if the problem occurred during peak demand time in winter. See The Toronto Globe and Mail, July 20, 1996.

Nucleonics Week reported additional unrelated problems at Bruce Unit 1 and Darlington Unit 1, causing the units to be out of service for all or part of the month of May.

Hydro delays RETS

Toronto: Ontario Hydro has acknowledged that its internal decision-making is causing delays in the Request for Proposals element of its RETS (Renewable Energy Technology Strategy) program. The program is designed to acquire about 125 MW of grid-connected renewable energy capacity in the next five years. It is a central part of Ontario Hydro's sustainable energy program.

24 project sponsors were shortlisted under the RETS program earlier this year, and this resulted in 17 final bids with a total nameplate capacity of 49.5 MW. Ten preferred candidates were selected from this group and their proposals forwarded to senior management at Ontario Hydro for approval.

However, Ontario Hydro's Director of Environment and Sustainable Development Brian Kelly wrote to IPPSO in late June, advising that "In late May our senior management considered the staff recommendations but made no decisions or judgments on the make-up of the Preferred Candidates List." In the meantime, Hydro staff are proceeding with bid evaluation for the remaining technology category of the RFP - medium-size wind farms. Preferred Candidates from this group will be recommended to senior management by the end of the summer as part of a complete package of projects.

Ironically, the public utility in the Australian state of Queensland recently announced commitments to purchase significantly more renewable energy capacity, even though it's grid is about one- fifth the size of Ontario Hydro's. According to Wind Energy Weekly, "The Queensland Transmission and Supply Corporation (QTSC) has called for the supply of 200 MW of electricity by the year 2001 from Queensland's sugar mills and has also committed to encouraging the development of other renewable energy sources with plans to purchase 400 MW of capacity by 2010, according to a report from the U.S. Department of Commerce. Total generation for the State of Queensland is 6,600 MW. The state government will call for tenders early next year for the supply of renewable and alternative energy to produce 200 MW of power progressively over the next decade."

Hydro tries again to keep safety reviews secret

Toronto: In November 1995, Ontario Hydro turned down a request by the Globe & Mail newspaper under the Freedom of Information Act to release performance and safety reviews it conducted at its nuclear generating facilities (see IPPSO FACTO, February 1996, p.17).

The Globe took the matter to the Ontario Information and Privacy Commissioner, however, who ordered the utility to release the reviews. Ontario Hydro had claimed that the peer reviews, done by their employees in confidence, would, "Generate unjustified negative opinion that would affect the economic interests of Ontario Hydro." The Commissioner, however, didn't find this reason valid and determined that the public right to know the results was more important.

Ontario Hydro, however, announced on June 10, just after the Commissioner's order, that it will go to the Ontario Courts to seek an injuaweanction staying the order. The utility is claiming that, not only will the public be unduly alarmed by what are supposed to be confidential reports, but a major international contract it is currently negotiating could be threatened by the release of the report.

The contract was not identified, however, the Globe & Mail claims that, "The only major competition the utility is involved in is a potential deal to burn Cold War plutonium for the US Department of Energy."

Lambton Unit 2 back on-line after 27 months

Sarnia: Unit 2 of Ontario Hydro's Lambton coal-fired generating plant has been restarted after being mothballed for 27 months, in order to serve Hydro's growing export market.

The four unit generating station will now operate at full strength for six to seven months of the year, generating an additional $14 million in revenue. Plant Manager Doug Shelton praised staff at a celebration marking the restart and said having the unit on-line will improve system reliability in Southwestern Ontario during peak periods, besides increasing revenues through exports.

Executive Vice President and Generation Group General Manager at Ontario Hydro, George Hugh, told employees at Lambton he is committed to maintaining fossil fuel generation as a competitive market force, and that Lambton will continue to operate for the foreseeable future.

Hugh also claimed the restart will be good for the environment in Hydro's monthly newsletter. He said the low-sulphur coal burned at Lambton will produce 10% lower emissions of greenhouse gasses than if the electricity were generated in the United States. He said Hydro will remain well below Ontario's acid gas emission levels. Last year, he added, without Lambton unit 2 on line, Hydro was prevented by generation limitations from supplying US customers on several occasions.

OHT developing Smart Meter/Home Gateway device

Toronto: Ontario Hydro Technologies (OHT) is developing a "home energy gateway" for rural and semi-urban areas providing two-way communications between Ontario Hydro and customers.

Meter reading, load surveys, home security services and medical alert services will be capable through standard phone lines. Outbound communications, such as changing load structures, will be capable through a simple, narrow-band power line carrier system.

The service will be provided to rural and semi-urban areas, which are defined as a town and its outlying area where the town represents less than half of the population. By focusing on these areas, OHT will avoid direct competition with existing companies such as CellNet and Itron that provide similar services to urban areas.

The system will consist of several components, including a gateway box, a unit to pick up electrical pulses, and a simple display unit to give various messages to the customer. Some further messages that may be provided include weather reports and "tips-of- the-day."

According to Ron Horton of OHT, no direct load control will be offered. Direct load control is a programmable ability to reduce electricity use over specified periods by cutting off or reducing heating or air conditioning, or shutting down other sources of electricity consumption during programmed times. OHT believes, however, that by monitoring electricity metering and being aware of pricing tiers will encourage customers to reduce electricity use during peak periods.

The main communications protocol will be CEBus, but Horton says X-10 capabilities will also be included since there is already a wide user base. A simple RF capability may also be included that can relay signals from carbon monoxide and smoke detector alarms to fire departments, or burglar alarm signals to monitoring companies.

Lab tests on the equipment began in April 1996 and Horton expects a field test version to be tried in between 100 and 200 homes in the fall of 1996. If the product is successful, a commercial version could be available in early 1997.

Kupcis tells Americans to expect selloff soon, tells province not to break up utility

Toronto: Ontario Hydro President Allan Kupcis told a group of New York investors and financial managers that the Ontario government would soon approve plans to sell off parts of the giant utility. However, in early June, just after the Macdonald Committee released its recommendations for restructuring Ontario's electricity sector, Kupcis wrote a letter to the utility's employees calling for the preservation of Ontario Hydro as largely a single unit.

"Ontario Hydro should not be completely disassembled," he wrote. "Hydro should have the opportunity to face that competitive North American market. The province has invested a considerable sum in Hydro's brand equity, and it would be a tragic loss of that equity, at huge opportunity cost, to diminish Hydro just as such a competitive market opens to us...Hydro's just too valuable to dismantle."

According to the letter, released in mid June, some assets could be sold off, but the bulk of Ontario Hydro, including transmission and distribution assets, would remain the property of a restructured Ontario Hydro. According to Rod Taylor, Vice President of Corporate Strategies and Sustainable Developement at Ontario Hydro, "The secret to successfully competing in North America is to have a large, fully commercialized Hydro operating as a holding company, with our existing generation and transmission and distribution assets as unbundled parts of the whole."

This vision is vastly different from the views of the Macdonald Committee that recommended the selling off of most of the assets of the utility and the establishment of an entirely separate and regulated distribution system (see other stories on the Macdonald report in this issue). It also appears to be different than the view expressed in Kupcis' speech in New York on May 24. In this speech, Kupcis called for service and distribution units to be sold off to separate private owners and even indicated that nuclear generation facilities would eventually be on the block, although not immediately. "We can't do everything tomorrow, even if we wanted to," he said. "this is not going to be a fire sale of assets, which a lot of people paint it as."

Kupcis' New York speech echoed remarks made by Hydro Chairman William Farlinger in Niagara Falls a month earlier. (See "Hydro proposes its own breakup", IPPSO FACTO, June 1996, page 8.) At that time, Farlinger specifically supported Hydro being broken into at least four separate components - a transmission company or "wiresco," a central market operator, public generation and privatized generation.

Kupcis went on to say that independent generation is the way of the future, underlining Hydro's management's new theme of disaggregating the current business. "In the future, the emphasis will be on decentralization, interaction with the customer, alternative technologies, and convergence with other utilities. Economy of scale has given way to economy of innovation. Improvements in combustion turbine efficiencies have combined with low natural gas prices to make it possible for new generators to enter the market more cost-effectively than existing alternatives. Small-scale generation will be increasingly economic when located near the customer - if not on-site - and the low capital costs of small-scale generators make for a far less formidable barrier to entry."

The picture Kupcis painted to investors is that of a far more competitive market in Ontario, where customers would be free to choose from a vast number of competitive generators. "We get food supplies from Florida to Ontario," he said, "why should it be any different for electricity?" He went on to say that large power conglomerates were out of date in the same way that telephone monopolies are.

However, in his letter to employees, he clearly wants Ontario Hydro to retain much of its current size and dominance in the market, giving the utility the edge over other North American competitors, while on paper allowing for free competition. Kupcis is recommending that Hydro's Board of Directors press the government to open up the market to competition, while at the same time "positioning Ontario Hydro as a major competitor in the wider North American electricity market."

In its recommendation for a radical separation of generation, transmission and distribution, the Macdonald Committee decided to wade well up one particular creek," wrote Kupcis in the utility's newsletter 'Hydroscope'. "We however believe our province and Hydro's customers will be better served, and kept much drier, by other routes."

Hydro's Board will be lobbying the Harris government over the summer, says Kupcis, to try to get them to back away from the recommendations of the Macdonald Committee, and toward Hydro's own 4Cs report. "(The Macdonald Committee report) is a report to the Ontario Government, not government policy," wrote Kupcis.

National News

IPs object to restrictions in proposed CRCE rules

Ottawa: The federal government is seeking industry input on its proposed new tax measures to encourage renewables and energy conservation. Proposed guidelines were issued on June 27. The IP Task Force which IPPSO Director Jeff Passmore leads met with Finance Canada on July 26. Passmore notes that the Task Force was disappointed to learn that because of technical rules, as little as 2% of project costs would be eligible under the new measures as currently drafted. (See also Federal Budget story, IPPSO FACTO, April 1996, page 1.)

The discussion paper on "Canadian Renewable and Conservation Expenses," also called CRCE, suggests a framework to determine expenses that will be eligible under the new CRCE category, and provides an illustrative application of this framework to typical renewable energy and energy efficiency projects.

"We are seeking input from stakeholders and interested Canadians to assist the government with the definition of the allowable expenses under the CRCE category," said Finance Minister Paul Martin. "Once a decision has been reached on the expenses, the government will introduce amendments to the Income Tax Act to create this new category. In the end, we expect that the new CRCE category will result in increased investment that in turn will create jobs, spur economic growth and provide environmental benefits for Canadians."

"Renewable energy and energy conservation are key components of the federal government's climate change and sustainable development priorities," Natural Resource Minister Anne McLellan added. "This initiative will help level the playing field between energy investments. It will provide Canada's renewable energy sector with better access to capital which will in turn help the industry attain its potential for jobs and growth. In addition, new investment in renewable energy will expand domestic and international markets for wind, solar, small hydro and other renewable energy products and expertise."

The introduction of this new class of expenditure will help to place investment in the renewable and non-renewable energy sectors of the Canadian economy on a more equal footing, particularly through extending the benefits of flow-through shares to eligible renewable energy and energy conservation projects.

CRCE will be similar in concept to the Canadian exploration expense (CEE) category. These are generally described as intangible expenses incurred to determine the location, extent and quality of non-renewable resources. CEE is available to petroleum and mining companies and may be passed on to investors through flow through share agreements.

As with the CEE expenses, the renewable and conservation expenses that qualify as CRCE will also be an eligible expense for purposes of the flow through share provisions. Under these rules, purchasers of new equity will be allowed tax deductions for eligible expenditures. This will facilitate financing and encourage investment in companies undertaking renewable energy and energy conservation projects.

Since CRCE will provide similar tax treatment for eligible renewable and non-renewable energy sources, the discussion paper released June 27 also includes a description of the CEE category, as well as Canadian development expense, capital cost allowance and flow through share provisions that are applicable to the mining and petroleum sectors.

Ministers Martin and McLellan also announced two amendments to the application of the proposed capital cost allowance in Class 43.1. Class 43.1 will now include turbine spilling engines. In addition, used or reconditioned equipment will no longer be eligible for inclusion in this class. This latter change will ensure that the incentive provided by the tax system is targeted towards current energy efficient technology.

Officials in the Departments of Finance and Natural Resources will conduct the consultations during the next few months with stakeholders, including representatives from the renewable energy and energy conservation industries. Written comments on the paper will also be welcomed.

Backgrounders on the CRCE discussion paper and the changes to Class 43.1 are printed here.

This news release is available on the Internet at http://www.nrcan.gc.ca/ and http://www.fin.gc.ca

For further information, please contact:

David Burpee, Renewable & Electrical Energy Division, Natural Resources Canada (613) 995-7460, or Steve Dodds, Business Income Tax Division, Finance Canada, (613) 996-3478.

Backgrounder:

Canadian Renewable and Conservation Expense

As part of the Federal Government's commitment to promoting sustainable development, the 1996 Federal Budget proposed a number of changes affecting renewable energy and energy conservation investments.

In particular, the Budget proposed to modify income tax arrangements to:

- introduce a category of Canadian renewable and conservation expense (CRCE) in respect of intangible costs similar to those expenses which may be renounced as Canadian exploration expense (CEE) and are associated with the development of projects, the equipment for which is eligible for Class 43.1 treatment;

- allow this new class of expenditures to be fully deductible and be carried forward indefinitely; and

- allow these expenditures to be renounced to shareholders who have entered into a flow through share (FTS) agreement.

These changes will be of benefit to investors in eligible projects because, under current arrangements, deductions for many intangible expenses are of limited value in situations where a company has not yet begun to produce income or is operating at a loss. By contrast, the proposed new class of expenditures will permit companies to either carry forward all eligible expenses indefinitely for later deduction, or pass on the deductions associated with these expenditures to investors through FTS agreements. It will also provide renewable energy and energy conservation projects with more rapid deductions for some expenditures which would otherwise be capitalized.

The existing FTS arrangements allow non-renewable energy companies to transfer income tax deductions for eligible expenditures to new investors. In this way FTS arrangements encourage exploration by playing a financial intermediary role in the raising of capital for resource exploration.

The proposed changes recognise that the renewable energy sector also needs to finance intangible costs such as feasibility studies to determine the location, extent and quality of renewable energy sources and certain pre-construction development expenses. The overall impact of these changes, along with certain 1996 budget tightening measures applied to FTS arrangements in the non- renewable sectors, is intended to provide a more level playing field among competing energy investments. The introduction of the CRCE category and extension of FTS arrangements will also provide the renewable energy and energy conservation sector with improved access to new equity financing in the early stages of their operations when they may have little or no income to utilise the income tax deductions related to these expenses.

As indicated in the 1996 budget, the introduction of CRCE will take effect only after the definition of eligible costs has been developed in consultation with industry representatives.

The CRCE definition will ensure that costs in the renewable energy and energy conservation sector receive tax treatment similar to costs in the non-renewable energy sector. This discussion paper is intended to provide a framework for developing the definition of eligible costs for the new CRCE category.

To obtain copies of the discussion paper, or for further information on the definition of CRCE, please contact: David Burpee, Renewable & Electrical Energy Division, Natural Resources Canada, (613) 995-7460, or Steve Dodds, Business Income Tax Division, Finance Canada, (613) 996-3478.

Backgrounder:

Amendments to Class 43.1

The 1994 Budget announced changes effectively terminating capital cost allowance Class 34 and including certain types of energy conservation equipment in Class 43 (now proposed Class 43.1, which provides a 30% capital cost allowance rate computed on a declining balance basis).

A range of renewable energy conversion and energy efficiency equipment is eligible for inclusion in proposed Class 43.1, such as certain cogeneration systems, small scale hydroelectric installations, wind energy conversion equipment, certain photovoltaic and active solar heating equipment, and equipment used in certain landfill gas applications.

The two changes in the application of Class 43.1 are as follows:

First, turbine expanders or spilling engines used to generate electricity by making use of waste energy at natural gas pressure reducing stations will now be included. It is proposed that this will be achieved through the addition of the following subparagraph to paragraph (d) of proposed Class 43.1 of Schedule II to the Income Tax Regulations:

"(x) an expansion engine with one or more turbines, or cylinders, that convert the compression energy in pressurized natural gas to shaft power that generates electricity, including the related electrical generating equipment and ancillary controls, where the expansion engine

(A) is a part of a system that is installed

(I) on a distribution line of a distributor of natural gas, or

(II) on a branch distribution line of a taxpayer primarily engaged in manufacturing or processing goods for sale or lease if the branch line is used to deliver natural gas directly to the taxpayer's manufacturing or processing facility, and

(B) is used instead of a pressure reducing valve, and"

Second, in order to ensure that the incentive provided by the tax system is targeted towards current energy efficient technology, only new equipment will be eligible for this Class. Used, reconditioned or re-manufactured equipment will not be eligible. Transitional relief will be provided in respect of property acquired by a taxpayer before the date of this release, or before 1998 pursuant to an agreement in writing made by the taxpayer before the date of this release. (June 27)

Equipment eligible for Class 43.1 is described in more detail in the CRCE discussion paper released June 27.

For further information on Class 43.1, please contact: Don Skinner, Business Tax Division, Finance Canada, (613) 992-1578, or Michael Burke, Energy Technology Branch, Natural Resources Canada, (613) 996-6612.

Kenetech's Canadian project still on track

By David Bright and Stephen Salaff, Ph.D

Despite the "chapter 11" bankruptcy filing of Kenetech Windpower Inc. (KWI), both Kenetech and Hydro-Qu‚bec say they will proceed with their wind plant projects on the Gasp‚ Peninsula and the Magdalen Islands.

The KW Gasp‚ (1995) Limited Partnership, which was established in 1994 by Kenetech Limited of San Francisco and the Axor Corporation of Qu‚bec to build two 50 MW (nameplate) wind plants on the Gasp‚ Peninsula, told Hydro-Qu‚bec that it has the "capacity and will" to carry out its contractual obligations, according to a representative of Hydro-Qu‚bec. Hydro-Qu‚bec press officer Janet Murphy said that the financial problems of Kenetech Windpower Inc. (KWI) are "unrelated" to the utility's contracts with the Kenetech Limited-Axor partnership.

Axor is a prominent Qu‚bec engineering company, which was brought into the project by Kenetech Limited in 1994 on a 50-50 equity basis. Kenetech Limited concluded the contracts with Hydro- Qu‚bec in late 1993.

Kenetech Corporation announced on May 29 in San Francisco that KWI filed on that date a voluntary petition in US bankruptcy court in northern California to reorganize under chapter 11 of the bankruptcy code. Kenetech Corporation itself said it has no intention to seek relief under the bankruptcy code. Both KWI and Kenetech Limited are wholly owned subsidiaries of Kenetech Corporation, which apparently ceased all manufacturing in late May.

The chapter 11 proceeding is not expected to disrupt the 18.9 MW wind plant completed at Cowley Ridge, Alberta in 1994, and now owned by Canadian Niagara Power Corp. (a subsidiary of Niagara Mohawk Power Corp.). Built and initially owned by Kenetech, the plant utilizes fifty-two model KVS-33 turbines of 405kW capacity each. Kenetech Canadian Operations Inc. (KCOI) runs the plant for Canadian Niagara Power, which bought it from Kenetech in 1995.

Wind plant supervisor Gavin Lowe of KCOI said that the project is satisfactorily generating electricity in fulfilment of its long term power supply contract with TransAlta Utilities Corporation.

Hydro-Qu‚bec concluded a pair of 25-year contracts for the $130 million Gasp‚ wind farm with Kenetech Limited in December 1993, under the set aside for renewable energy capacity in the utility's "APR" request for proposals of 1991. The contracts called for a combined total of 142 GWh of energy annually for 25 years.

Hydro-Qu‚bec contracted to pay Kenetech Limited $0.055/kWh, comprised of an energy component of $0.0425/kWh and a capacity component of $0.0125/kWh.

The Kenetech-Axor partnership announced plans to build the wind plant on the Gasp‚ Peninsula, south of the St. Lawrence River, between Cap-Chat and Matane. Cap-Chat is the site of the large Eole vertical axis experimental wind turbine, which was shut down in 1993.

In addition, Ms. Murphy said that Hydro-Qu‚bec has contracted with a differently named Kenetech-Axor Limited Partnership for a 6 MW wind farm on Qu‚bec's Magdalen Islands in the St. Lawrence Gulf. Hydro-Qu‚bec currently operates a 65 MW diesel power station on the islands, where wind speeds average 9 meters per second. Construction of the wind-diesel project has been delayed by the shutdown of a salt mine which is the largest electricity consumer on the Islands.

Meanwhile, an interconnection study of the project by Hydro- Qu‚bec is looking at the technical issues of interconnecting wind energy to the diesel grid. Although Kenetech originally specified its KVS-33 turbine for the project, the option of using Kenetech's larger KVS-45 model with 520kW capacity remains open.

Richard Legault of Kenetech Windpower Inc. (KWI) in Montreal admitted that while the difficulties of KWI could have an impact on the Gasp‚ project, the chapter 11 proceeding is neither a failure nor a liquidation of KWI, but rather a reorganization. Legault said he was confident that Kenetech could overcome the difficulty by bringing in new partners to help finance the Gasp‚ project.

Ms. Murphy said that the next milestone in the Gasp‚ project schedule is the start of construction by March 31, 1997. She added that if Kenetech Limited fails to meet this deadline, then "it will be a different ball game."

Murphy noted that the Kenetech-Axor partnership has submitted an environmental impact statement (EIS) to the Committee for Public Environmental Hearings (known by its French acronym BAPE) for the Gasp‚ project. The EIS specifies that the project will comprise 200 of Kenetech's KVS-45 variable speed 520 kW wind turbines. Kenetech had originally planned to use 300 of its KVS-33 405 kW turbines.

Citizens commented on the EIS until mid June, and now Qu‚bec's environment minister is expected to determine if public hearings will be called.

Legault said in February that the change in turbine model has caused a four to five month delay in project schedule. Assuming public hearings, Legault had hoped to obtain a construction permit by December 1996, with financial closure in January 1997, construction during spring and summer 1997, and connection to the grid in December 1997, about one year behind schedule.

"Hydro-Qu‚bec recognizes that the Gasp‚ project will contribute to its overall system reliability and to its fixed capacity," said Legault.

The Gasp‚ sites, with an average wind speed of about 8 m/s provide "a good wind regime, one of the best in Canada," said Legault. He affirmed that the Gasp‚ development is a worthwhile and interesting project for Qu‚bec, the Canadian wind industry, and for the Kenetech organization itself.

Kenetech has run two full scale and fully instrumented KVS-45 prototype turbines in Texas since fall 1995, and Kenetech's confidence in the operational performance of these turbines led the firm to specify the larger model for the Gasp‚ project, said Legault, who added that adoption of the KVS-45 would enable companies to develop sites with relatively lower wind speeds.

Utilities should not use transmission grids to thwart competition

Vancouver: "Providers of transmission services such as Hydro must accept they cannot use their transmission systems to subsidize their generation and distribution assets or as a barrier to competition," says Independent Power Association of British Columbia Director David Austin.

Writing in the newsletter "Energy Analects," Austin, who is a lawyer with Vancouver firm Tupper, Jonsson & Yeadon, says that the verticle integration of the current monopolistic electricity industry must be broken up to ensure an open market for electrical power in BC, and the rest of North America.

Austin says there is pressure on BC Hydro to unbundle its transmission business in order to ensure transmission access to American markets that are in the process of restructuring toward a competitive market. However, he says, monopolies still have a tendency to opt for the status quo, resulting in anti-competitive behaviour where independent projects tend to be killed due to unrealistic transmission rates and anti-competitive rate offerings to stall or cancel cogeneration projects.

The first myth that needs to be dispelled, says Austin, is that the entire hydro transmission system is an inseparable delicate unit. "The transmission of electricity is not as simple as trucking vegetables to market, but it is not a complete black art," he says. He explains that BC Hydro has been describing its existing transmission system as a delicately balanced system that needs to be carefully maintained so that it "doesn't come crashing down." The problem with this, says Austin, is that it describes a system meant to transmit electricity from distant mega-hydro projects that are often over a thousand kilometres from where the electricity is consumed. Long-distance transmission such as this is inherently more difficult to maintain, and less stable, than short distance transmission systems. The independent electricity producers who require access to the grid tend to be closer to their intended markets than many of BC Hydro's generation sites.

"Hydro's view," explains Austin, "is that third parties who want to use its transmission system should pay for all of it even though a large portion of it was built solely to deliver electrons from Hydro owned generation sites." Austin's view is that, since BC hydro is the main beneficiary of its remote generation sites, the associated transmission costs should be carried by BC Hydro alone.

Another myth Austin says needs to change is that it's virtually impossible to determine the actual flow path of specific electrons through the transmission system. "This black box approach is very useful when the transmission owner has a large and expensive system which it wants third parties to pay for," he says. In reality, Austin says that although the actual flow of every electron cannot be realistically mapped, approximations can be made that are adequate for the purpose of selling independently produced electricity through the provincial transmission system. For example, Austin sites the fact BC Hydro creates computer simulations of its generation and transmission systems to determine the need for transmission reinforcements. If the flow of electrons were indeed a complete mystery, such simulations would be a complete waste of money.

A third myth Austin sites is that the hydro transmission system is not constrained and generation siting credits are not necessary.

New technologies, Austin says, make it possible for electricity generation to be located much closer to the customers, thus reducing the need for costly and less efficient distribution and transmission facilities and upgrades. To realize these savings, however, Austin says siting credits to independent producers are necessary to ensure that new generation facilities are built in the best locations in terms of transmission.

For example, Austin says that BC Hydro's 1995 electricity plan states, "Security of supply to Vancouver Island is becoming critical." To respond to the growing demand on the Island, BC can either invest in underwater transmission upgrades, or it can use siting credits to increase generation capacity on the Island. "If Hydro wants to keep its costs down," says Austin, "Then the correct price signals must be sent to potential investors in generation. Any thought of letting Hydro negotiate credits on a case by case basis should be discarded. It will quickly become an exercise in monopoly bargaining power."

Another myth, according to Austin, is that Hydro will charge itself the same prices it charges everyone else for access to the tranmission system. Unless utilities are unbundled, he says, and transmission assets are operated as a separate company from generation, there is no way to know if utilities are subsidizing their generation costs by over-charging independent producers for use of the transmission system.

A final myth that Austin lists is that electricity tariffs should be developed in isolation from natural gas tariffs. It is better to use natural gas produced in British Columbia to produce electricity and receive the value added benefits than to simply export raw natural gas, according to Austin. Therefore, electricity tariffs must be developed to make the production of electricity from natural gas more attractive than the transportation of raw natural gas for export. According to a study done by BC Hydro, at the request of independent producers, it is almost six times more expensive to transport electricity, on an energy equivalent basis, than it is to transport natural gas. "The difference is not explicable by physical/mechanical efficiencies," says Austin. "Something is terribly wrong with the cost of transportation in the fledgling electricity market."

In conclusion, "The new electricity market is much bigger and dynamic than the old utility boys club where splitting the difference on interutility trades was the guiding principle," says Austin. "The laws of physics cannot be ignored when considering the alternative ways of utilizing Hydro's transmission system, but neither can the objective of economic efficiency. This may be a radical notion to vertically integrated monopolies such as Hydro, but they are going to have to get used to it...very quickly."

Insurers want action

Extreme weather harms Hydro-Qu‚bec, sparks fears over climate change

Qu‚bec City: Weather patterns in Qu‚bec so far this year have ranged from water shortages in the north affecting hydroelectric production, to massive flooding in the Saguenay region causing near record damages.

Hydro-Qu‚bec's 1996 first quarter export sales of spot electricity were down 50% over the same period in 1995. This was due largely to near drought conditions in the spring and summer of 1995 in regions of northern Qu‚bec, such as the La Grande basin, were much of Hydro-Qu‚bec's generation capacity is located.

Hydro-Qu‚bec spokesperson Janet Murphy says, however, that the decline of over 2 terawatt hours in short-term power sales in the first quarter was offset by a 12.5% increase in firm, or guaranteed, power sales. She also says that 1995's first quarter sales were higher than normal due to unusually cold weather in the American northeast.

At the end of this year's first quarter, natural inflows supplying Hydro-Qu‚bec's generating stations were equivalent to 49.4 terawatt hours, compared to 73 terawatt hours at the end of the first quarter of 1995. Energy reserves in the utility's reservoirs on January 1, 1996 were equivalent to 84.8 terawatt hours of electricity, down 28.5 terawatt hours from one year before.

Murphy claims, however, that energy reserves could fluctuate by up to 35 terawatt hours without creating problems for Hydro- Qu‚bec. She says that, although spot sales are still low, Hydro- Qu‚bec is prepared to make more short-term sales "when prices are good", or demand in the US northeast increases.

While rainfall over much of Qu‚bec's north has been lower than normal over the past year, the situation in the Saguenay region of central Qu‚bec took a dramatic, and costly, turn during July. Massive rainfall caused some of the most severe flooding in Qu‚bec history, inundating Qu‚bec's third largest metropolitan area and overflowing and damaging dams in the region. The monetary cost of the disaster could reach as high as $1 billion (Canadian) and the human toll has been 10 dead and at least 1,500 homeless.

Serious abnormalities in climate have not been unique to Qu‚bec over the past year. July also saw massive flooding in China and the Indian subcontinent, with almost 2,000 dead and several major cities covered with water. Hailstorms in Winnipeg and Calgary caused almost $200 million (Canadian) in insured losses. Last year's hurricane season in the Caribbean and American Atlantic coastal region saw double the usual number of storms and some of the heaviest damages in American history. This year's hurricane season has just begun and there have already been three major storms causing serious damage in Central America, the Caribbean Antilles and east coast of the United States. Major storms, droughts and flooding have also caused higher than usual levels of damage in many other parts of the world, including Europe and Africa.

While politicians and the business community have been slow to respond to global warming and climate change, the insurance industry is beginning to perceive a crisis situation as monetary damages and insurance claims due to weather-related disasters rise to record levels. Ivo Knoepfel is Climate Change Advisor for Swiss Reinsurance Co., one of four major reinsurance companies in the world. Reinsurance companies help primary insurers spread out the risk from major natural disasters. Therefore, the fact that they are hiring climate change advisors is a clear sign that they perceive problems arising in this area. The average annual payout in insurance claims related to weather between 1970 and 1995 was $3.5 billion (US). However, the average between 1989 and 1995 was $9.3 billion (US) showing a sharp rise over the past six years. The highest year to date for weather related insurance payments was 1992 with over US$20 billion in claims. This was due in large parts to the massive flooding of the Mississippi Valley that took place that year. Overall, the number of floods causing serious damage rose from 2 every five years in 1963 to 24 every five years in 1992. The number causing at least 100 deaths more than doubled over the same period.

Part of the problem, according to Jeremy Leggett, a scientific advisor to Greenpeace International, is that the world's population is increasing dramatically and most of the increase is being located on low-lying coastal plains that are particularly susceptible to storms and flooding. For example, Bangladesh's population has risen over the last two decades from 80 million to almost 200 million by the turn of this century. Bangladesh is a country slightly larger than New Brunswick that is almost entirely made up of a low-lying river delta formed by the meeting of the Ganges and Brahmaputra Rivers. It is also prone to the annual monsoons of the Bay of Bengal that give it some of the highest levels of rainfall in the world.

As a result of the sharp increase in insurance claims due to weather related disasters, 57 major European insurance firms addressed delegates from more than 150 countries at climate change talks in Geneva over the first two weeks of July. They issued a statement saying they believe man-made climate change will lead to increased storms and droughts throughout the world. They urged delegates to adopt "early, substantial reductions" of greenhouse gas emissions to try to avert future increases in weather-related disasters. As it states in a Swiss Reinsurance Co. brochure, "Once we know for sure, it'll be too late. We do indeed have a problem, and it is far more serious than would appear at first glance."

In response to the proddings of the insurance industry, environmentalists, and other parties, delegates at the conference agreed to prepare a schedule of mandatory limits to greenhouse gas emissions to be implemented after the year 2000. This schedule will be presented to another meeting to be held in Kyoto Japan in December 1997 for approval.

To date most nations, including Canada, have been relying on voluntary emission reductions from industries. Canada's Natural Resources Minister Anne McLellan has repeatedly stated that voluntary measures can be used to achieve Canada's commitment (made at the Earth Summit in Rio De Janeiro in 1992) to reduce greenhouse gas emissions to 1990 levels by the year 2000. She has received criticism from numerous sources for these statements, since estimates based on current trends indicate that Canadian emissions will actually rise by about 13% during this period.

Part of the problem in getting government to respond to the problem, according to Director of Global Air Issues at Environment Canada, Ann MacKenzie, is that it is difficult to point a finger specifically at the greenhouse effect as the primary cause of recent global weather patterns. Many factors besides greenhouse gases contribute to weather patterns. Some of these factors are natural in origin, such as volcanic eruptions.

Even though international scientific opinion has increasingly accepted the validity of the greenhouse effect, public opinion still tends to see it as a far-off problem, and fails to accept current disasters as evidence that global warming is happening now. "I don't think Canadians have really recognized this as an environmental problem," says MacKenzie. "There's too much thinking that it's in the distant future...We have a fair ways to go."

While environmentalists fear that Canada is especially vulnerable to global warming because of our reliance on forestry and agriculture, as well as our fragile arctic ecosystem, Canadian business leaders fear we will be especially hard hit by new, mandatory international limits. If international limits are based on a per capita basis, Canada will be unduly penalized because we are large, cold, heavily industrialized and sparsely populated.

In any event, according to Leggett and Greenpeace, global climate change is a reality that Canadians have to accept and begin to learn about the consequences of. We also need to understand, they say, what can be done about the problem, and the politics surrounding the issue, both domestically and internationally.

Exports to increase dramatically

Ottawa: Industry Canada expects as much as 40% of sales in the Canadian electrical industry to be driven by export demand by the end of the century. This prediction and others are contained in the May 1996 Ontario Industrial Overview Report, published by Industry Canada.

The report also says, "The hottest markets are Asia and Latin America where 10% growth per year is anticipated over the next 10 years. Industry success will depend on product mandates from parent companies, firms' ability to form consortia with global partners to win contracts, and their success at securing export financing. Just as in the rest of North America and Europe, there is very little in the way of new energy generation capacity being created in Ontario, and domestic opportunties are more limited. Refits and initiatives by Independent Power Producers will create some business. The move to privatize the Canadian utility industry may also help to eliminate some of the interprovincial trade barriers related to procurement specifications, codes and standards."

Canasia signs Hyundai as partner

Vancouver: Canadian power development company, Canasia Power Corp., based in Vancouver, B.C., with offices in New Delhi and Mississauga, took a major step towards addressing some of India's acute power needs. As the sponsor of the mega US $1.1 billion thermal power station, Canasia moved the project closer to finalization by signing a major new partner whose presence will probably lead to further partnering relationships. (See also IPPSO FACTO, February 1996, cover story.)

On July 15, Mr. Ashok Dhillon, President, Canasia Power Corp. and Mr. Chong-Suh Han, Executive Vice President - Industrial Plant Division, Hyundai Heavy Industries Co. Ltd. signed an agreement which makes Hyundai a 30% equity participant in the Jawaharpur Power Project, an 800 MW (2 x 400 MW) generating plant to be constructed in Uttar Pradesh, India's most populous (135 million) and power deficient state. Estimated value of the project is US $1.1 billion.

Additionally, Canasia awarded Hyundai the turnkey contract for the design, construction and commissioning of the power station which will be Hyundai's first power project in India. As one of the world's foremost builders of infra-structure projects, Hyundai is known internationally for its cost competitiveness and aggressive construction schedules.

Canasia's president, Ashok Dhillon, has stated that Jawaharpur is currently the single largest private sector power project being developed by a Canadian company in India. Canadian content will be determined by project economics and corporate Canada's participation in the project as equity partners. Major international financial institutions and energy companies are also holding talks with Canasia Power Corp. to participate in the project. Canasia views India as one of the best power markets in the world and is already planning additional projects that will address the critical power needs of the country.

Although the Power Purchase Agreement was signed in June 1995, an extra pillar was added during Prime Minister Jean Chretien's "Team Canada" trip to India, in the form of a counter-guarantee by the Uttar Pradesh state government to guarantee the obligations of its state owned utility, contained in the Power Purchase Agreement.

The 800 acre site for the power plant some 230 km south east of New Delhi will create a special industrial zone that should produce a beneficial environmental impact by reducing local acid rain effects, and thereby reducing damage to the Taj Mahal, among other things. This is because the new plant will attract additional industry away from the city of Agra. A colony for over 2,000 people to be built within the station boundaries will provide additional benefits, such as improved living standards, employment opportunities and access to better health and educational facilities.

For further information, please call:

Mr. Dudley B. Abraham, Executive Vice President
Canasia Power Corp., 3442 Wagondust Road
Mississauga, ON, L4Y 3L8.
Tel/Fax: (905) 279-6241

Canasia Logo

photo: On July 15, Mr. Ashok Dhillon, President, Canasia Power Corp. (left) and Mr. Chong-Suh Han, Executive Vice President - Industrial Plant Division, Hyundai Heavy Industries Co. Ltd. (right) signed an agreement which makes Hyundai a 30% equity participant in Canasia's Jawaharpur Power Project, an 800 MW (2 x 400 MW) generating plant to be constructed in Uttar Pradesh, India.

Chinese interested in Canadian small hydro

Ottawa: Chinese officials will tour Canada in August seeking to acquire connections with a variety of suppliers of small hydro technology. Tony Tung, Natural Resources Canada's Manager of Hydraulic Energy, says that "China is building 1,500 to 2,000 MW of small and medium hydro power projects each year." Clearly, there are a wide range of opportunities for Canadian companies interested in selling products and/or services to Chinese customers.

Fourteen national and regional officials will travel from Vancouver to Montreal during the week of August 11. A letter from Tong Jiandong of the Hangshou Regional Center (Asia Pacific) for Small Hydro Power says, "In our next visit to Canada we also wish to explore the possibility of collaborating with Canadian government, organizations and companies in the SHP development in China." He cites 14 specific projects already under development which require US$250 million.

A presentation of the 14 projects will be made by the Chinese delegation at a reception to be held on August 13, 1996. If you would like to attend the reception on August 13, or want more information, contact Jack Alexander at (tel./fax) 613-969-0199

Cold Lake 220 MW cogen MOU signed

Cold Lake, Alberta: Imperial Oil Ltd. and TransAlta Energy Corp. have signed a memorandum of understanding to build a 220 MW gas-fired cogen plant as part of Imperial Oil's planned expansion of its Cold Lake facilities.

The cogen plant will be built at a cost of about $90 million and will result in an additional 30,000 bbls a day of bitumen from a new operations area called Mahkeses. Steam produced from the expanded operations at Mahkeses will be used to turn turbines and produce electricity. The entire cost of the expansion project will be about $450 million, including the cogen plant.

"This cogeneration plant represents an excellent investment opportunity in an Alberta-based generating facility," says TransAlta Vice President of Development Duane Lyons. "The company is confident the project will provide competitively priced electric power in the domestic market, in addition to providing possible competitive opportunities in the export market."

Imperial has submitted a preliminary disclosure document about the expansion project, including the cogen plant, to the Alberta Energy and Utilities Board (EUB) and Alberta Environmental Protection (AEP). A formal application for approval will come by year's end, according to Imperial. Assuming timely approval and favourable market conditions, the cogen facility is expected to provide electricity to Alberta's power pool by the year 2000.

Comments on new NOx standards due September 16

Toronto: A multistakeholder committee is coming close to finalizing new source performance standards for emissions of Nitrogen oxides from commercial and industrial boilers. (See IPPSO FACTO, June 1996, page 18.) These new standards are intended to be implemented through a combination of federal and provincial measures, with the net effect of substantially reducing NOx emissions in Canada.

Draft guidelines were distributed for during July. Comments on the draft are due by September 16. The full Committee will meet again on October 23, to agree on revisions for finalizing the Guideline. Final drafts should be out by November 6, and submitted for approval to the National Air Issues Co-ordinating Committee of the Canadian Council of Ministers of Environment on December 16.

For further information, contact Jake Brooks at IPPSO, or Geoff Ross at Environment Canada 819-997-1222.

Pincher Creek 'Green Zone' planned

Pincher Creek, Alberta: Pincher Creek, home of Canada's largest 'wind farm' wind turbine generation project, is hoping to attract new industry, including tourism, to the area by establishing a 'green zone'.

The area's Economic Development Board, town council and municipal district are working together to establish a green power zone in southwestern Alberta. Their hope is exploit the popularity of green power and the concern that Canadians have about the environment to promote the area as a home for environmental industries and a destination for eco-tourists.

"There are some businesses in the world that would just love to be able to advertise they use green power in the development of their product," says Pincher Creek Mayor Ken Dickie. Town council, he says, has already gone on the record as being willing to pay more in order to use electricity generated at the wind farm. But, he admits, convincing local residents and businesses to pay a premium on their electricity bills may be harder. Recent polls, however, including one by the Canadian Wind Energy Association (CanWEA), indicate Canadians would be willing to pay slightly higher prices for green electricity.

The proposal currently being promoted includes building two grid-connected 1.5 MW wind turbines at the Highway 3 turnoff into Pincher Creek. They would also construct a visitor information centre and a display of wind-activated sculptures along Highway 6 into town. In the town, there would be an historic wind-oriented display and an indoor interpretive centre.

The project would be completed over a ten year period, costing $6.6 million. When completed, it is projected to attract 55,000 visitors a year, injecting $1.1 million annually into the local economy and creating 15 permanent jobs.

The Economic Development Board has put out a call for proposals on the conceptual design and is looking for a private developer as a partner to build the two turbines. Getting a private developer, according to Dale Johnson, President of Wind Power Inc. of Pincher Creek, means finding a way to make wind power profitable. This will most likely mean a "green rate" charge to willing customers who want to pay more for environmentally-friendly sources of electricity.

"All that it's going to take to make this thing work is a change in political thinking," says Johnson, who acts as a resource to the Economic Development Board.

The Board has presented its ideas to the province's Economic Development Ministry to convince them the project is viable and to get their financial support.

The Economic Development Ministry was approached instead of the Energy Ministry according to Economic Development Board Administrator Susan Nelson, because, "We're not sure whether the Energy Ministry, with its personnel and its philosophy, will be of any assistance in this. That's why we've gone through the Economic Development Ministry to try and prove the point that this is an economically viable concept and in the long run, for business in Alberta, it would be prudent to be looking at alternative sources of power and becoming a showcase for the world, rather than becoming the place everybody points to as the biggest carbon producer in Canada."

Kai Lynge, Director of Advanced Manufacturing at the Economic Development Ministry, however, says the Ministry has not made any decisions in regard to the project. He says he plans to hold discussions within his department, and with other ministries, before making any recommendations.

New SD Commissioner named

Brian Emmett has been named Commissioner of Environment and Sustainable Development. He has worked with Environment Canada in various capacities, and with Energy Mines and Resources. Since 1995, he has been Managing Director of the Propane Gas Association of Canada. For details, contact John Zegers, Office of the Auditor General of Canada, Ph. (613) 995-3708.

Internship program offers subsidies for hiring graduates

CEIA (Canadian Enviroment Industry Association) Ontario is working with the Canadian Council for Human Resources in the Environment Industry and the Office for Partnerships for Advanced Skills to offer a Graduate Internship Program. The program offers subsidies for companies in the environment industry which hire one or more of the 30 participating graduate students for a period of up to 50 weeks. During this period, the program will contribute $2. per hour towards each student's salary. In addition, ten of the students will be available at a subsidized rate of up to $22,000 per year. Collectively, the students offer up-to-date skills that reflect virtually all aspects of the environment industry, including chemical, civil and environmental engineering, physical sciences, environmental law and planning. The pool of graduates is limited and many have already been hired. Potential employers are under no obligation to hire students they interview. For more information, contact Rita Mezei , Program Manager, CEIA Ontario, Ph. (416) 778-6590.

Federal funding available for new technology projects

Ottawa: The federal government has launched a new technologies funding program called Technology Partnerships Canada. Part of the government's Science & Technology Strategy, the program provides co-funding for projects that commercialize new technologies in a number of sectors, including aerospace and defense, environmental technologies and enabling technologies (e.g. advanced materials, advanced manufacturing technologies, biotechnology). Government contributions are repayable, depending upon the success of the project; repayments, in turn, are directed back into the program to foster innovation in Canadian industry. For details, contact Ewa Burk, Acting Director, Ph. (613) 941-7676, Fax. (613) 954-5654, E-mail. tpc@ic.gc.ca. Source: N.A.R.R.A. NEWS, Vol. 4, No. 1, July 1996.

Environment Canada posts report highlights electronically

Ottawa: Highlights of Environment Canada's 1996 State of the Environment Report can be found at on the Internet. Source: The Nova Scotia Environment Industry Association's Envirofax, May 22.

Canadian energy companies form emissions alliance

Calgary: Eight major Canadian energy companies have formed a non-profit organization, The Greenhouse Emissions Management Consortium (GEMCo), to act as a managing body for all carbon emissions offsetting projects they initiate. This organization is expected to represent the companies collectively as a basis for their action on global climate change. It will manage the specific efforts of the members and represent them to the governments of Canada and the provinces on voluntary actions and in lobbying efforts.

The founding members include Canadian Utilities Ltd., NOVA Gas Transmission Ltd., Ontario Hydro, SaskPower, TransAlta Corp. and Westcoast Energy Inc.

The consortium is already looking at projects that will help offset or reduce the amount of emissions that contribute to the greenhouse effect. The target of these projects is to find ways, of a technical or biological nature, to reduce emissions in the most efficient and cost-effective manner. In a press release announcing the formation of the consortium, the members said, "In addition to developing offset investment opportunities on behalf of members, GEMCo will be a source of valuable scientific and technical information."

GEMCo is currently contacting other energy related companies to expand the organization.

Report says energy efficiency improving in Canada

Ottawa: A new report from Natural Resources Canada released in June shows that energy efficiency measures have reduced the growth rate of Canada's energy consumption, although consumption continues to increase.

Entitled "Energy Efficiency Trends in Canada", the report, which will be updated on an annual basis, found that end-use energy consumption rose at an average annual rate of 1.5% between 1984 and 1994. Without actions taken towards energy efficiency, however, the report says the annual rate would have been about 2.1% over the same period.

Numerous energy efficiency efforts were noted for contributing to the reduced level of growth. Highly efficient T-8 lighting systems were unavailable in Canada in 1984, but accounted for up to 95% of lighting sales for new and retrofit commercial buildings by 1994. Household refrigerators and freezers sold in 1994 were 53% more efficient than those sold in 1984. Residential gas and oil powered heating units were mainly conventional in 1984, but by 1994 all sold were highly-efficient models. One of the main contributing factors was the pulp and paper industry which accounts for 30% of Canada's industrial energy use. A switch during this period from chemical to mechanical methods of pulping resulted in a 20% energy savings.

Despite impressive savings in these, and other areas, energy consumption continued to grow for a number of reasons. The number of households in the country grew at an annual rate of 1.9% between 1984 and 1994. Commercial floorspace grew 3.5% annually, and gross domestic product grew by 1.8% annually, according to the report.

Copies of the report can be obtained from Energy Publications, Canada Communications Group, Ottawa, Ontario, K1A 0S9, or by fax at (819) 994-1498. The catalogue number is M22-122/1996e.

BC Hydro and Manitoba Hydro join consortium to make diagnostic tools

Vancouver: BC Hydro and Manitoba Hydro are joining up with four American energy companies to develop diagnostic tools to help utility specialists interpret data collected by power plant sensors.

Under a $7 million (US) program, the two Canadian utilities will work with The Tennessee Valley Authority, the Bonneville Power Administration, Idaho Power and the Electric Power Research Institute. Over a four year period, the six will develop and enhance diagnostic equipment. They expect to lower operating costs at their generation facilities with the new technologies they develop. They also believe the project will give them access to some of the best minds in the field of electricity generation.

The consortium is now looking for expressions of interest in the areas of bearings, generators and turbines. They are looking for designs for equipment capable of receiving and analyzing data from plant sensors. They are also looking for a "master module" to provide correlation of data from various diagnostic equipment modules. The first contracts will be awarded toward the end of 1996.

For further information, or to submit expressions of interest, call Jim Birk at (415) 855-2562.

PV report available

The Canada Centre for Mineral and Energy Technology (CANMET), through the CANMET Energy Diversification Research Laboratory (CEDRL), recently completed an "Overview of the Worldwide Photovoltaic Industry". This report was prepared for a large industrial company based in Canada, with some cost-sharing by CEDRL, with the understanding that it could be distributed to the existing Canadian PV industry and potential new Canadian based industry participants or investors.

The objective of the overview was to provide a concise picture of the current status (1995) and future prospects (2010) of this emerging industry. The report is divided into three main sections. The first section provides a brief introduction to the PV industry, describes the primary market segments for the industry's products and then concludes with an industry competitor analysis.

The second section provides a brief description of the PV technologies incorporated into PV systems. These include PV modules and balance-of-system components. It focuses on the various PV module technologies of the leading module manufacturers and other major module development efforts. It identifies their strengths/weaknesses, and discusses the issues related to their manufacturing costs.

The third section provides a brief description of PV economics, including a "value chain analysis" in which it reviews the various cost components of a PV module as the modules move through the distribution chain from the manufacturer to the end-use customer as part of a complete PV power system. It then compares the current and projected economics of four "typical" PV systems and makes some concluding remarks on the current and potential financial performance and growth opportunities for the PV industry.

For this study numerous PV industry reports and publications were reviewed. This literature review was supplemented with original analysis utilizing the knowledge and expertise of the CEDRL project team (Greg Leng, Lisa Dignard-Bailey, Govindasamany Tamizhmani and Eric Usher) and PV industry consultant hired for this study (Julio Bragagnolo).

Copies of the report are being mailed to Canadian organizations who are included in CEDRL's mailing list. If you would like to receive a free copy of this report please write or fax your request to:

Morel Oprisan CANMET, Energy Diversification Research Laboratory, 1615 Lionel-Boulet, P.O. Box 4800, Varennes, Qu‚bec J3X 1S6, Fax: (514) 652-5177

Radioactive waste policy framework approved

Ottawa: The federal government has announced the approval of a radioactive waste policy framework that will help establish a comprehensive and integrated approach to the long-term management and disposal of radioactive waste in Canada. The framework is based upon consultations with waste producers and owners. For details, contact Pierre Gratton, of Natural Resources Canada, Ph. (613) 996-2007.

Minihydro mill wins "Green-vention" award

In its 6th annual "Green-vention" competition, the Canadian Industrial Innovation Centre awarded two Canadian innovators with top honours for their environmentally friendly inventions. The two winners are co-inventors, Alan K. Vowles and Gerald Vowles of Flin Flon, Manitoba and Belleville, Ontario, for their invention, the WAVEMILL, and Gordon Loewen of Vancouver for the "Airing Fairing," a new drag reducing skirt for tractor trailers. The WAVEMILL is a device which harnesses the energy contained in the rise and fall of ocean waves. The Airing Fairing, by streamlining the structure of tractor trailers, provides a 20% fuel savings in road tests. Each of the winners received a $1,000 cheque from the Innovation Centre towards the commercialization of their inventions. For more information, contact Gary Svoboda, Manager, Marketing Services, tel: 519-885-5870 or 1-800-265-4559.

Environmental Technology Information Service

Toronto: OCETA, the Ontario Centre for Environmental Technology Advancement, in conjunction with the North American Commission for Environmental Cooperation (CEC), the International Environmental Business and Technology Institute Inc., and the Centro de Calidad Ambiental del Instituto Tecnologico y de Estudios Superiores de Monterrey in Mexico, is currently exploring the possibility of developing an electronic information service focused on environmental technologies and services. The goal of the system is to facilitate the exchange of information about environmental technologies between and among the three NAFTA countries. The Environmental Technology Information Service (ETIS) will help users find the best possible solution to their environmental problems. The service will also be designed to provide the necessary linkages to introduce Canadian, U.S., and Mexican environmental technologies to Central and South America. For more information, contact Doug Beynon, Vice-President, Waterloo, tel: 519-575-4786.

International News

UK privatizes nukes at lower than expected price

London: The British government after several false starts has finally been able to put its nuclear power plants up for sale to the private sector. British Energy PLC shares went on the market in early July, fetching a price of 1.4 billion (US$2.18 billion). This figure was "much lower than hoped for," according to the July 15 Wall Street Journal. It is significantly below the company's book value.

Earlier attempts to privatize Britain's nuclear power plants had tried to package them along with other power stations, but investors soundly rejected such mixing of assets. Environmentalists and some consumer advocates object to the privatizations on the basis that any nuclear privatizations inevitably leave liabilities (or at least contingent liabilities) in the public accounts, even as the assets are transferred to private hands. If the liabilities were packaged with the assets, the sale of nuclear plants might well be impossible, and their effective market value could be closer to zero.

US Senate restores $23.7 M to renewable energy budgets

Washington: On July 31, the American Wind Energy Association (AWEA) called an amendment to the Senate's Energy and Water Appropriations bill restoring funding to DOE's renewable energy programs a "positive step which will help ensure a healthy U.S. renewable energy industry."

The amendment was agreed to on July 29 and adds $16.5 million to the wind energy program budget, which was originally slated for $15 million in funding for fiscal year 1997 by the Senate's Energy and Water Appropriations Subcommittee. The wind budget now stands at $31.5 million in the Senate and $28.5 million in the House. The program was funded at a level of $32.5 million in FY 1996.

"We are extremely pleased with the support we have gotten from both Houses of Congress in the last two weeks," said Karl Gawell, AWEA's director of governmental affairs. "Considering that the House Subcommittee proposed to zero out the wind budget and terminate the program, we have come a long way."

"Support for the wind program is support for U.S. competitiveness in foreign markets, job creation, and a cleaner environment," said Gawell. "We are encouraged that Jim Jeffords, Bill Roth, and the other backers of this amendment realize these benefits, and we appreciate their strong leadership on this initiative."

The Energy and Water Appropriations bill will now go to a House-Senate conference committee, where the differences between the two versions of the bill will be hammered out. The conference committee will likely meet in August, and the final bill will be completed in September.

- Wind Energy Weekly

Germany builds world's largest rooftop solar project.

Bonn: The Asbeck Group of Germany and Solarex of the United States are together building the world's largest rooftop photovoltaic (PV) system on top of Bonn's Trade and Technology Centre.

The 500 kW system, being built for an undisclosed amount of money, will feed electricity into Bonn's grid to reduce the city's electricity bills. In a unique funding scheme, the project is being paid in part by a 1% surcharge on electricity bills in the city, which will in turn be used to pay rebates to residential or commercial customers who install grid-connected PV systems.

Canadian electrical manufacturers get Japanese certification

Tokyo: An agreement between the Canadian Standards Association (CSA) and the Japanese Quality Assurance Organization (JQA) means Canadian manufacturers of electrical equipment can automatically get Japanese certification.

Although JQA certification is not legally required to sell electrical products in Japan, CSA Vice President Nick Maalouf says getting certified by the JQA will make Canadian products more marketable in Japan.

Prior to this agreement, Canadian manufacturers could only get JQA certification by undergoing product testing in Japan. Now, testing done by the CSA for Canadian certification will be forwarded to the JQA and JQA application forms will be taken by the CSA. This will reduce the time required to get certified by both countries and greatly reduce the costs formerly required to undergo product testing in Japan.

For further information on the agreement and how it will effect you as a Canadian manufacturer of electrical products, call the CSA at (416) 747-2315.

Central & Eastern Europe making first tentative steps toward private power market

By Patrick O'Gorman

Turow, Poland: The reconditioning of Poland's second largest power generation plant in this Silesian coal district is becoming a test- run for the involvement of private industry, and private equity, in the electricity sectors of former Communist states.

Although Turow is, and will remain, entirely state-owned, financing is being arranged under limited-recourse structures almost identical to those used in most new third-world private power projects.

Original financing plans made in 1991 and 1992 included foreign equity and international loans which were to be repaid through power exports. This is a common practise in Eastern Europe as hard currency sales to the West are needed to bring cash into local economies. In this case, however, reasonable priced transmission access through Germany could not be found so the original plan fell through.

A restructured plan was developed in 1995, though, where Polish banking syndicate Handlowy provided $215 million (US) in zloty and dollar loans due in 2007. The Polish National Fund for the Environment is also providing an additional $55 million in soft loans for upgrades to the brown coal-fired facility. The remainder of the $370 million needed for work on Units 1 and 2 is coming from the Nordic Investment Bank, Citibank and Swiss Bank. Loans are guaranteed by the Polish Finance Ministry with export credits from Finland, the United States and Switzerland.

Units 1 and 2 are currently comprised of a total of 10 pulverized coal units. Six of these are being replaced with Foster Wheeler fluidized bed boilers and ABB steam turbines. This will increase each unit's capacity by about 30%, or to about 230 MW per unit, for a total of 2300 MW. The plant's life will also be extended until about 2035, at which point the surrounding coal fields are expected to be depleted. Another three units are being refurbished and fitted with emission control equipment to extend their operating lives to 2011. The last unit will receive an ordinary overhaul in 1997 and will be decommissioned by 2001. There are also plans for the construction of a new unit 3 in September 1997, followed by the overhaul of units 4, 5 and 6.

While Turow represents one of the few significant eastern electricity projects since the collapse of the Soviet Bloc, it contains only a small amount of new generation capacity. This is due to a shrinkage of gross domestic products (GDPs) throughout the east, and the paralleled shrinkage in electricity demand. Consequently, while new projects are expected to be rare for several years to come, modernizations of existing plants will become more and more necessary to improve efficiency and reduce emissions in the heavily polluted east.

Foster Wheeler, besides Turow, is currently looking at numerous power station upgrades throughout eastern Europe, particularly in Poland, which has seen the only actual increase in GDP since 1989. "Two years ago it was very difficult (to promote private power projects)," says Philip Dyk, Director of International Project Finance for Foster Wheeler, "but now people are very interested. However, the equity market is less developed than the debt market in Poland and the equity markets need to get the right signals before there will be major progress."

Poland's relatively strong GDP, along with the fact that it began moves toward general privatization and de-centralization before most other former communist block countries, has ensured that it will remain the centre of electricity developments for the region in the near future.

The Czech Republic follows Poland in both GDP growth and electricity demand. The Czechs saw a 3.1% growth in power consumption during 1994 following several years of steady decline.

Slovakia isn't far behind its former countrymen in the Czech Republic, but they've shown a greater tendency toward centralization of infrastructure works, including electricity, systems from which the Czechs have been moving away from more successfully. Like many former communist governments, the Slovaks tend to use "the national interest" as an excuse for holding on to state-owned businesses, particularly in the energy sector.

Other former communist countries, in the Balkans and the former Soviet Union, have only begun to see any form of economic restructuring. Internal political instabilities and a tendency to re-elect communists when capitalism doesn't show immediate results has hindered economic recovery and made foreign investment difficult. The GDPs of these countries currently hover between 40 to 60 percent of what they were before the fall of communism. New electricity demand is therefore extremely low for domestic use. New export investments by hard-currency starved governments are possible, however, as are modernizations of existing generation facilities and the development of cogeneration potential.

Peter Goldscheider, Managing Director of the European Privatization and Investment Corp. (EPIC), predicts that $90 billion (US) in investments in electricity generation will be needed across Central and Eastern Europe by the year 2004.

One organization that is poised to assist Eastern governments in financing this level of development is the London-based European Bank for Reconstruction & Development (EBRD). "A pro-active approach is being taken in key industries, even without strategic partners," says EBRD principal banker for power and energy utilities, Riccardo Puliti. Their current focus, he says, is in developing the Russian Federations' electricity potential. "A particular objective is to identify opportunities for the bank to finance Russian power generation equipment manufacturers," he says. This is being done by taking a regional approach and working increasingly with local industry and investors. EBRD currently has regional offices in Moscow, St. Petersburg and Vladivostok, and will soon be opening another in Ekaterinburg in the Urals.

According to Nicholas Stern, EBRD Chief Economist, "Important reforms and reconstruction remain to be carried through or completed (throughout Central and Eastern Europe). In particular, privatization of large companies and the establishment of a well- functioning financial sector will have a long way to go in much of the region, and enterprise restructuring continues to pose daunting problems for policy-makers and enterprise managers in all transition economies. The task of building an efficient and more commercially oriented and rational infrastructure presents an imposing challenge, as does that of overcoming the heavy environmental legacy of the old regime."

2 charts - on disk

Clean fuel made from sugar

London, UK: According to a paper published in the July issue of the scientific journal "Nature Biotechnology", a team of British and American scientists have developed a clean, simple method of producing hydrogen from sugar that they say could revolutionize the electricity industry in the 21st century.

While sugar has been known to be a high-energy source for some time and has been distilled to produce a liquid gas for turbine generators, this new method is faster, cheaper and produces cleaner-burning hydrogen gas.

The process uses enzymes from bacteria that live near hot underwater vents to convert glucose from sugar into pure hydrogen and water. The process is much faster than the distillation of sugar and produces a cleaner-burning fuel.

"Hydrogen is the fuel of the 21st century," says Jonathan Woodward, co-author of the report from the Oak Ridge National Laboratory in Tennessee. "The ultimate goal is to convert renewable resources into hydrogen gas." The British-American team has been working to find ways to replace fossil fuels and nuclear reactors with a clean source of electricity.

British may produce electricity from "mad cows"

London, UK: National Power Plc. of the United Kingdom is looking at the possibility of turning Britains mad cow disease problem into a source of commercial electricity.

Already, over 100,000 cows that may have been infected with the disease have been killed and incinerated. A ban on British beef exports imposed by the European Union (EU) has forced Britain to slaughter millions of its cattle herds in order to eliminate the disease that can spread to humans. It is unknown precisely how many cattle may have been infected by eating tainted imported feed. Since the only way to detect infection in individual cattle is by observing the symptoms, or analyzing brain tissue, the only way to ensure the elimination of infected herds is to kill any that might possibly have been infected. This is something the EU has insisted on in order to lift the ban, much to the objection of the British government.

Incinerators have been overwhelmed by the task of disposing of carcasses, which is expected to take up to five years to complete. this has led National Power to investigate the possibility of grinding up carcasses to replace coal for electricity generation. this would speed up the disposal of carcasses, ease the burden on non-electricity producing incinerators and generate a financial return on the project.

If National Power's investigation shows the plan is feasible, mad cows could begin to produce electricity in the fall of 1996.

graphic

Pennsylvania utility launches new low-income program

Philadelphia: Duquesne Light Company has launched a new service aimed at helping low-income residential customers reduce their bills, and helping the utility minimize arrears.

The "Smart Comfort" program actually began in 1988 in response to a state government legal mandate for utilities to provide assistance to low-income customers. Duquesne quickly learned, however, that assisting customers who find it difficult to pay their electricity bills can have a significant impact on reducing the utility's losses and lowering peak demand.

The program's original architect, Joe Flynn, and it's current Director, Barry Kukovich, have since redesigned the project to provide comprehensive energy savings to targeted customers with a relatively low project budget. In 1995, Duquesne estimated savings to customers in the program of up to 40%, with each home's total energy consumption at a cost of saved energy less than 3 cents per kilowatt hour.

Originally, Duquesne provided strictly weatherization services through the program, but quickly realized that this covered only a relatively small portion of low-income customers who live in high- rise apartments with electric resistance heating. Therefore, the program was greatly expanded, providing a more customized service to meet individual customer needs.

Duquesne now employs "Energy Managers" through the Smart Comfort program who visit individual households and help the customers find various ways to reduce their electricity consumption. Much of the work of the energy managers is in educating customers about their energy use patterns and showing them how they can lower their bills by cutting back consumption. The energy managers can also install energy efficient fluorescent lights on the spot and arrange for waterbed and refrigerator replacements for more efficient models. This work is done in cooperation with three local gas companies.

As a result of the efforts of the energy managers, low-income customers of Duquesne have seen significant energy savings and Duquesne has reduced the number and size of delinquent accounts.

According to Ted Flanigan, Director of the Colorado-based energy efficiency organization, the Results Centre, "Joe Flynn and Barry Kukovich deserve tremendous credit. Not only have they far exceeded Pennsylvania's mandated requirements for low-income energy assistance, but they have done so well within cost-effectiveness guidelines. They have also broadened the program's eligibility to a greater number of customers while addressing customer's pressing social concerns as well. Their dedication, creativity, sensitivity, and demonstrated abilities are indeed exemplary."

Three Gorges bidding begins, US shut out

Beijing: The Chinese government began accepting bids in April for 14 of the 26 planned turbogenerators for the massive Three Gorges hydroelectric project on the Yangtse River. Because of a decision by the Clinton administration not to provide export credits to companies bidding on the project, however, no Americans are currently on the list of prospective suppliers.

About $4 billion (US) out of a projected $12 billion (US) final project cost is currently open for bids. Four consortia are currently in the running, including one made up of General Electric Canada Inc. and Voith GmbH and Siemens AG of Germany. GE Canada's Peterborough plant would be a major recipient, providing engineering services should this consortium win. Other consortiums include a British/French/Swiss/Norwegian group, a Russian group and a Japanese group. All of these bids include export credit financing from their respective governments, which gives them all an edge over their US counterparts. "Nobody's going to participate in the Three Gorges if they can't get soft financing," says Anne Stevenson Yang of the US-China Business Council's Beijing office. "It seems to me that the Three Gorges are ruled out for American companies."

Each of the 14 turbogenerator units will be a massive 700,000 kilowatts, contributing to Three Gorges becoming the largest hydroelectric dam project in the world when it is completed in 2009, generating 84 billion kilowatt-hours of electricity a year. Being excluded from bidding will cost American companies both in terms of direct contracts with Three Gorges, and in terms of getting a foot in the door on the many other power projects that China will need to fuel its massive projected economic growth into the next century. As part of China's ninth five-year plan (Communist China bases its economic growth on five-year planning periods) electricity generation capacity will be increased from 210 GW at the end of 1995 to 300 GW at the turn of the century and to between 550 and 600 GW by 2010.

Changes to China's Electricity Law enacted this year will make it far easier for foreign companies to be involved in the economic bonanza this growth will spur. The most important aspect of the new law is that ownership regulations are spelled out for the first time in Chinese history. The law gives the goverment full sovereignty and control over the national grid and distribution systems, and for the first time allows that majority foreign ownership, and even complete foreign ownership, of generation facilities is acceptable. This will lead to a rise in government approval of foreign ventures and partnerships in China's electricity sector as bureaucrats finally have set guidelines to follow in granting approval.

A reduction in import tariffs applicable to large scale generation projects will also encourage foreign investment. As part of a package of changes to its tariff system designed to speed Chinese admission to the World Trade Organization (WTO), tariffs on large scale generators have been reduced from 25% to 18%.

The state also now encourages generation enterprises to connect to the national grid, and has directed the operating agency of the grid to accept requests for connections. Electricity prices will now be based on rational compensation for costs, and established profit and tax components based on internationally accepted standards. The law sets the legal foundation for establishing power purchase contracts, but since final authority for price setting remains with local bureaus, negotiation of purchase agreements will remain the most difficult task for new generation projects.

Canada hopes to be a major player in the fast developing Chinese electricity market, with Prime Minister Jean Chretien playing a key role. For the third consecutive year, Chretien will be attending the annual meeting of the Canada-China Business Council this November in Shanghai. Among other things, he will be finalizing a deal to sell two CANDU reactors to China and will be pitching GE Canada's bid for participation in the Three Gorges project.

Canadian involvement in this project does not come without controversy, however. Because of its massive size, Three Gorges will have a significant impact on the environment, flooding a vast area of the culturally historic and scenically beautiful Three Gorges region on the Yangtze River.

There are also serious doubts about the technical merits of the project. Potential siltation and other problems could significantly impair the operation of the project, reducing electricity production and damaging the economics.

The Chinese government is citing the economic benefits that Three Gorges will bring to China. It will create a large supply of badly needed electricity to the rapidly growing Chinese economy that would otherwise likely come from coal-fired generators. It will also make it possible to control some of the flooding on the Yangtze River, known as "China's Sorrow" because of the massive damage caused by flooding of the river throughout China's history. There have been years in which over 100,000 people have been killed by the flooding of the Yangtze. There are currently massive floods taking place on the river that have killed about 1,500 people and covered several major cities and industrial regions with water. According to Professor Song Jian, head of the State Science and Technology Division, the dam "can prevent the drowning of a third of a billion of our people."

Another benefit of the project is that it will allow 10,000 ton ocean-going ships to travel 1,500 miles to the city of Chongqing. This city is the China's third largest and one of the largest in the world with 15 million people. It's the main industrial and economic region of central China and will become the world's largest seaport.

These benefits however are not seen by many people to outweigh the negative impacts the project will have. 62,000 acres of farms and orchards will be flooded in a nation that is already unable to feed its one and a quarter billion citizens without massive imports. Thirteen major cities, 140 large towns and hundreds of villages will also be flooded forcing the relocation of an estimated 1.25 million people. It will threaten aquatic life within the river, and animal life along the river banks, including the endangered Baiji, or Chinese River Dolphin. It will also flood the Three Gorges, the Qutang the Wu and the Xiling, which are well known internationally for their beauty, have been the subject of writings by some of China's authors and poets throughout its history, and contains thousands of significant cultural and historic sites including temples and tombs, some dating back over 2000 years.

All of these negative impacts have caused widespread opposition to the project within China, and internationally. They are contributing factors behind the Clinton administration's decision to block export credits, although the project's financial and operational viability were also cited as reasons by the US Bureau of Reclamation. Even the National People's Congress of China, a largely rubber stamp parliament that approves Communist Party policies, had a rare emotionally-charged debate over the project in 1992. It approved the project, but with a rarely precedented third of its members defying the Party and voting against it.

According to Xie Xide, a prominent Chinese scientist and former president of Shanghai's Fudan University, there is still opposition to the project, "but since it has been decided by the People's Congress, no one raises these arguments anymore."

Tellus sees higher values with externalities model

Researchers from the Tellus Institute, of Boston, Mass., using a new computer model, have found that externality values for greenhouse gas emissions can have a substantial impact on the costs of various energy options.

A recent WIND ENERGY WEEKLY article reported that A. Myrick Freeman of Bowdoin College and Robert Rowe of the consulting firm Hagler Bailly said externalities would have only a small effect on energy prices (see WIND ENERGY WEEKLY #685, February 19, 1996), but noted that the two had assigned very low or no costs in their two scenarios to carbon dioxide emissions. The two used a computer program, EXMOD, that was developed by Tellus and Hagler Bailly, and their scenarios assumed, respectively, costs of $0/ton and $1/ton for CO2.

An article by Bill Dougherty in the February issue of Tellus's "Energy Report" newsletter appears to agree with the criticism, and notes that even for a new coal-fired power plant, the impact of a $25/ton tax on CO2 emissions would be to raise the cost of power by 30 mills/kWh (3 cents/kWh), a substantial penalty.

Says Dougherty, "Some analysts have recently used EXMOD to conclude that externalities are either low or don't significantly affect the ranking of new electric resources (Hirst and Eto, 1995; Freeman and Rowe, 1995). These conclusions, based on the EXMOD default data, are not robust across a range of reasonable assumptions."

Tellus researchers developed some examples of EXMOD's use for a paper presented to the International Atomic Energy Agency last December. Looking at options for coal-fired power in New York's lower Hudson Valley, they found total externalities for a new plant to be over 4 cents/kWh. Adds Dougherty, "For an existing plant, with much higher emissions rates . . . the alternative assumptions result in a total externality cost of about 70 mills [7 cents/kWh]. These costs are high enough to affect decisions on plant additions, retirements, and operation."

EXMOD's default values, which provide low levels of valuation for pollutants and $0/ton for CO2, Dougherty continues, are based on market forces, or consumer willingness to pay. Such values are, however, difficult to determine and "particularly problematical . . . as the basis for policy on environmental and health conditions of broad public interest.

"For at least some types of human and ecological impact-- affecting near- and long-term conditions of life--the sustainability paradigm, in which constraints or targets are set for pollution or ecological preservation, would serve as a better basis for resource and environmental policy."

For further information, contact Tellus Institute, 11 Arlington Street, Boston, MA 02116, USA, phone (617) 266-5400.

- Wind Energy Weekly

Organizational News

IPPSO Board backs new national study

Toronto: IPPSO's Board of Directors agreed at its meeting on July 31 to endorse and contribute funds to a new study about the potential for renewable energy in Canada. The proposal came from Director Jeff Passmore, and is expected to attract support from other sustainable energy organizations and government bodies.

IPPSO also developed plans to support a new committee called the Restructuring Committee. This group, which has already met informally several times, will involve stakeholders from across the NUG industry in Canada, and possibly from other energy sectors as well. Its purpose will be to advocate for the early implementation of the Macdonald Committee recommendations and other sustainable energy policies consistent with IPPSO's stated policy positions.

Meanwhile, IPPSO directors continue with previous plans to meet with a range of officials, both elected and appointed, in government, utility, consumer and producer organizations.

Correction - OEC

IPPSO FACTO reported incorrectly in the last issue that the Ontario Energy Corporation "is not a crown corporation," and that "Private shareholders hold a majority of ownership in the company." This is not correct. The provincial government is the sole shareholder in the Ontario Energy Corporation. The article was entitled "Carrie named GM of Ontario Energy Corp." and IPPSO FACTO apologizes for the error.

EFW plant for sale

I would like to bring to your membership's attention the availability of a 240 ton per day 7.3 MW waste to energy plant which we would like to sell as a system but will consider all offers for parts. The key components include a 7.3MW ABB Turbine Generator, Zurn boilers, and Enercon Combustors. Used only 6 months, cost $35m US in 1989, asking $3m US. All reasonable offers considered. Please call 802 773 1057. Matt Freeman

Resources

World Wide Web Help Available

OCETA, the Ontario Centre for Environmental Technology Advancement, has developed two projects to assist environmental companies navigate the intricacies of the Internet. Through the first project, a "Home Page Fast Track," OCETA will work with companies and their existing promotional materials to launch their own homepages on our server. The "Internet Assessment Project" will help companies determine the value and benefits of the World Wide Web, specifically in two areas: (1) enhancing their current activities in terms of market penetration, reducing marketing costs, and better market intelligence, and (2) providing new opportunities to meet client and internal organizational needs, e.g. Intranets (distributed systems) and communications with clients (electronic forms, document downloads, electronic commerce, etc.). For more information, contact Doug Beynon, Regional V-P, tel: (519) 575-4786.

Energy and environment sampler available on the net

The World Energy Efficiency Association has implemented an Internet Energy and Environment Sampler, which contains information on more than two hundred organizations around the world. The sampler can be accessed at on the Internet. Source: The Nova Scotia Environment Industry Association's Envirofax, May 22.

New center for sustainable development

The U.S. Department of Energy (DOE) said March 8 that it has established a "Center of Excellence for Sustainable Development," described in a news release as "a pilot program that will help small communities . . . protect the environment for future generations while promoting economic development."

The center will offer information and technical advice to help communities become more energy efficient and environmentally sound. It will also provide a "tool kit" of workbooks, computer programs and data for guidance on sustainable development projects ranging from "green" buildings to neighborhoods that waste less energy. Communities can review case studies of successful community projects and research technical and financial programs that can provide further assistance. Experienced personnel will be on hand to consult with local officials.

The center's World Web site (address below) includes basic information on renewable energy sources, wind energy among them, and contact information for some wind turbine manufacturers. Its section on "Success Stories" also contains renewable energy projects, one being the "Midwest Wind Energy Project" carried out by the municipal utility in Waverly, Iowa, which installed a single wind turbine in 1994 to gain familiarity with wind technology.

"By offering assistance at the local level, we hope to help communities adopt practices that range from pedestrian walkways to environmentally friendly sources of energy," said Secretary of Energy Hazel O'Leary. "Communities with the foresight to adopt sustainable development strategies will find they save taxpayer money, improve the profits and productivity of local businesses and make the community much more liveable."

The center grew out of DOE's assistance to Midwest towns devastated by the 1993 floods. DOE helped communities rebuild using sustainable development strategies, which integrate economic development and environmental quality goals. This assistance will be offered nationwide during a six-month demonstration period. Two of the towns that benefited from the DOE program after the floods, Pattonsburg, Mo., and Valmeyer, Ill., were honored March 7 by the President's Council on Sustainable Development. With federal assistance, Pattonsburg is replacing flood-devastated buildings with energy-efficient designs, building better water-quality systems and creating a new power supply using renewable energy. Valmeyer also is embracing energy-efficient design for buildings.

DOE's Denver Regional Support Office will manage the program. Interested communities can contact the center toll-free at (800) 357-7732 or via the center's "home page" on the World Wide Web at .

- Wind Energy Weekly