Volume 10, No. 5, October 1996
Please note that various photos, charts, graphs and illustrations associated with the original text may be omitted from the electronic version. Contact IPPSO for hardcopy.
Sterling appointed Minister, backs public's right to know about environmental effects of open access
Hydro proposed new "debt monster"
OEB agrees with IPPSO that the surplus is gone in 3 years
Paul Martin sees jobs in renewables
Hydro buys off Pembroke's NUG
Hydro to evade the OEB again
Toronto: Ontario Hydro has let it be known that once again, it has no intention of abiding by the findings of the Ontario Energy Board, its nominal regulator.
"Ontario Hydro is saying very clearly that it intends to ignore not only the letter of the OEB report, but also the sprirt of the 1996 OEB report," says IPPSO President Tom Brett. Ontario law allows Ontario Hydro to ignore the findings of the Ontario Energy Board, although this may force the government to step in. "If Ontario Hydro's new rates turn out to be a full frontal attack on the residential consumer, then we may see the government interceding in this matter," Brett says.
"The Board finds it ironic that an organization such as Hydro, created to protect customers from discriminatory pricing, should now defend such practices on the grounds of customer needs." (Report of the Ontario Energy Board, August 30, 1996, p. 138, par 9.1.11-12)
Ontario Hydro has consistently ignored the findings of the OEB, but this time it has given advance notice of its intention to do so. "If there ever was evidence of the need to place Ontario Hydro under binding regulation," Brett said, "we've got it now. Hydro is acting like an adolescent just begging for limits to be placed on it. Ontario Hydro has even admitted itself that it needs to be placed under binding regulation."
The immediate issue at stake is a number of "aggressive" rate proposals that essentially reward consumers for using more of Ontario Hydro's services. While few people would object to a discount, such rates tend to shift costs to other consumers. In this case, those ineligible for the discounts and future ratepayers, who will very likely have to pay a stranded asset charge, are underwriting such discounts. Such rates discourage efficiency, and amount to unfair competition, because Hydro's competitors, can't use publicly-guaranteed money to make the same kind of discount offers.
In an interview broadcast by Ontario Hydro September 9, Hydro Vice President John Fox acknowledged that the OEB was not yet "comfortable with us proceeding with the type of aggressive pricing program that we have." He followed this comment however, saying, "We believe that continuing the way we're going is absolutely necessary to safeguard Ontario Hydro's financial stability. It's absolutely necessary to honour the rate commitments the government has asked us to make, (the 'average rate freeze' - ed.) and it's absolutely necessary to improve the types of service that our customers want. So it's hard for us to accept an argument that says stopping what we are doing is going to serve the province's interest, the customer's interest or Ontario Hydro's interest."
According to Peter Dyne of the Consumers Association of Canada, "John Fox's frustration stems from the central problem with Ontario Hydro. It is an unregulated utility. Hydro should also realize that the Ontario Energy Board's decision on Hydro's requests is the Scottish verdict: 'not proven.' Who's fault is that?"
David Poch, Counsel for the Green Energy Coalition, said "The stunning thing about such a statement is that it mistakenly assumes that whatever is good for Ontario Hydro must also be good for Ontario."
Editorial
Managing during transition: Watch your chequebook, Mr. Sterling!
A hearty "Welcome!" is in order for our newly appointed Minister of Environment and Energy, Norm Sterling. He faces an enormous responsibility, and he will need all the support that those of us in the energy sector can give him. Imagine walking into a new job and being handed responsibility for restructuring the electricity sector, while setting a new tone for the management of public finances, with the future of the largest debtor in the province hanging in the balance!
Given the nature of this challenge, Minister Sterling has probably already received a lot of friendly advice. IPPSO's contacts in the Premier's Office have made it quite clear that they understand the importance of restructuring the electric sector and the depth of the challenge it represents.
There is a very real danger that Hydro could use the ambiguity of a transitional period like this to, a) aggressively compete to extend its market control like a private company would, while b) continuing to pile up costs of this activity onto the public debt. Hydro should not be allowed to use public money to "buy market share" which it can use later to "compete" against others who didn't have the same starting advantages. It's as if systematically inserting a huge public subsidy into one competitor's business, while all the others have to fend for themselves, and are eventually forced to pay for their competitor's investments too. The OEB's latest report on Hydro is a stinging condemnation of this kind of behaviour: "The Board is concerned that Hydro's proposals this year could create additional barriers to restructuring, particularly long-term contracts with no renegotiation provisions."
The OEB recommended that in this transitional period, Hydro's rate contracts should be no more than three years, and that its rates should adhere closely to generally accepted ratemaking principles, to insure fairness and equity to all customers. Hydro has signalled its intention to ignore this advice.
None of this will come as news to Hydro watchers or to advisory staff in the government. However, given the sums at stake, the implications of these kinds of conclusions probably bear repetition:
1. Restructuring has to be accomplished in this electoral mandate, which means introducing legislation next year. As Macdonald said, "The status quo is not an option." Ontario Hydro's current situation fails to systematically control costs, blocks competition and technical innovation, and continues to hold the public liable for all its mistakes, financial and otherwise. The only question is when restructuring should happen, and the universal answer is that 'sooner is better than later.' It's too complex a problem to leave for late in a government's mandate, so the time is now.
2. During the transitional phase, you have to minimize the opportunities for parties taking unfair advantages. Nearly everyone acknowledges that Ontario Hydro is being grossly unfair right now. Ontario Hydro has made it clear that it will exploit the extraordinary powers it now has, to give itself an (unfair) advantage over its competitors now and in the future. It is subsidizing its own generation with investments that will be charged to the stranded assets fund that everybody will have to pay. It's blocking competitors in both generation and distribution with lawsuits and other unfair tactics. It's fiddling with prices, putting unreasonably long-term contracts in place; and it's not doing everything it can to reduce its debt. It flagrantly ignores repeated directives from its regulator. As one knowledgeable insider put it, "You've got to put Hydro on a short leash, until the government decides what it's going to do."
3. There are easy ways to make Ontario Hydro accountable to the regulator immediately. The Ontario government simply has to exercize its perogative as shareholder to instruct the Corporation to act as though it is accountable to its regulator. As the shape of restructuring becomes better known, appropriate forms of regulation can be developed and codified with legislation in due course.
4. Appointing an Advisory Council to guide the transitional process will facilitate decision-making. It is important to delegate each type of decision to the appropriate level group: Overall policy direction should come from cabinet, structural plans and legislation are best developed by the Advisory Council in consultation with the Ministry, and oversight comes from the regulator. If this sounds similar to the way Ralph Klein managed the process in Alberta, that's no coincidence. Although there are differences of opinion about his end-result, many industry leaders agree that Klein managed the transitional process well.
5. Tell Hydro that the public will no longer take responsibility for its financial horse-play, or risky investments. Any technical investments or aggressive pricing schemes, unless approved by the regulator, should be paid for by the business unit that proposes it. Hydro still lives in the fairy-world where it can dream up schemes that have failed elsewhere; thumb its nose at any concerns expressed by the public or the regulator; and implement them knowing that the public is on the hook if the plan goes awry. In contrast, several years ago the US government wisely placed its public utilities on notice that its investments would no longer be publicly guaranteed - two years before it actually implemented wholesale access. Since then consumer costs have come down, and the government really didn't have to spend much on the process. Ontario clearly has some catching up to do in this area.
Ontario Hydro portrays itself as self-financing, but it's still using a government cheque-book. The reason is that the government is the guarantor of Hydro's debt. About two-thirds of that debt is considered reasonable, and can be serviced from the corporation's ongoing business, according to Macdonald and most other observers. But the other third or so is going to be considered "stranded" and charged to the public one way or another. Unfortunately, the supportable amount of debt is a finite number, and until the government sets limits on the size of the stranded assets pool ... it just gets larger.
All of the above refers only to the formally recognized liabilities of Ontario Hydro. But the public is also on the hook for any unrecognized responsibilities Hydro has incurred, such as long-term environmental problems, inadequately recognized depreciation, unfunded reserve accounts, etc. Our obligations will very likely exceed the $13 billion that Macdonald envisioned raising through the Ontario Hydro Acceptance Corporation. I think we have a moral right to control how the money we're involuntarily guaranteeing is being spent.
If you accept that power costs would be about 20% lower under open access, then it's costing Ontarians over $1.7 billion for every year that we delay restructuring - more than $4 million per day. Some may quarrel with the 20% figure, but that's the kind of reduction that other jurisdictions have seen, and that's what Canadian-based NUGs have offered their customers - if they are allowed to sign long-term contracts.
Actually it's not too hard to demonstrate that this kind of saving is possible: Right now, spot-market power is around 3 cents, and longer term power is maybe 4.5 cents. That's at least 20% lower than the 7.19 cents (OH's average revenue, from OH Annual Report, p 57) Hydro customers are paying right now. Can you think of any other government legislation that could save us a billion and a half dollars each year? Think of the economic multipliers associated with putting that kind of money back in the pockets of Ontario consumers! It's equivalent to a major tax cut, and it doesn't have the same consequences for public services that other kinds of tax cuts appear to require.
If you're in the process of deliberating how to change the system, you don't want to have guys trying out aggressive new manouvres that no one has developed the tools to analyze. And you certainly don't want them closing off options by entering into long-term contracts and driving out players who will be needed in the future.
Clearly, if those same guys still have your cheque-book, you've got to get it back.
All that having been said, however, in politics good advice is always tempered by an estimation of where the weight of public opinion rests. In other words, knowledgeable people in the energy sector have an obligation to let our politicians know where they stand, in addition to providing them the benefit of our professional insight. Therefore, it is timely that those of us in the NUG sector become bold about expressing our opinions as well as providing our advice to government.
- Jake Brooks, editor.
Sterling backs public's right to know about environmental effects of open access
Ottawa: Ontario Energy Minister Norman Sterling made his first major energy policy statement September 10, supporting the public's right to know about a report on the environmental effects of open access. He was responding in part to the resignation announced the previous day of Adele Hurley, the Canadian Co-Chair of the International Joint Commission (IJC). Hurley's resignation was triggered by the federal government's refusal to release a controversial report from the IJC's Air-Quality Advisory Board. The IJC monitors transborder water and air pollution as part of several Canada-US accords.
The federal government changed its position and released the report two days later, partly because of political pressure created by Hurley's resignation and Minister Sterling's comments. Sterling was addressing concerns that the IJC report in question predicted that the introduction of open access in the US would lead to increased use of coal-fired power, particularly in the US Midwest, resulting in a reduction of air quality in Ontario and New England.
Currently about half of the pollutants causing smog in Ontario originate in the US. Sterling says that if coal-fired generation increases in the Midwest, it will offset efforts by his department and Ontario industries to reduce emissions within Ontario. The day before the federal government relented and released the report, Sterling threatened legal action and diplomatic steps to force its release. "I hope to take a very aggressive stance in pushing Mr. Marchi to do what he should do as the federal Minister of Environment and act on behalf of the people of Ontario," he said before entering a cabinet meeting on September 10. "There is no sense in us striking out in a direction to bring great pain to the people of Ontario to reduce emissions by 15% and see them go back up by 15% because of what happens across the border."
Marchi responded that the IJC is at arm's length from the federal government and cannot dictate what it does. "Thus far," he said, "Our department has not received any report and the question is whether a report actually exists."
Harry Sterling, a former Canadian IJC representative, disagrees with Marchi's contention. He says that the scientists who write the reports for the IJC are for the most part government employees. The report is therefore, "likely already in the hands of the government." He says that the problem with the IJC has traditionally been political "games" played by political appointees to the Commission. "Suppression, or biased editing, of environmental findings by governments on both sides of the border, and at all levels, is not a new phenomenon," he claims. "US scientists have become so politicized that in their more candid moments, they openly admit scientific findings are manipulated to meet political or ideological objectives."
The US Commissioners on the IJC, according to Sterling, didn't want the report released because it would have caused difficulties for American politicians during an election year. "Had the report been submitted," he said immediately after Hurley's resignation, "it would have obliged US authorities to order a review of the matter, something the Americans did not want." Another Canadian Commissioner, Vancouver Lawyer Frank Murphy, sided with the Americans in suppressing the report. Murphy is a long-time BC Liberal and friend of Prime Minister Chretien's BC lieutenant Ross Fitzpatrick.
This vote by Frank Murphy reportedly led to tensions between Canadian IJC representatives as Hurley tried to force the release of the report last April. According to a document submitted to Canada's Foreign Affairs Department, Murphy complained that Hurley's actions, "had put him in the position of breaking a deal with the US section."
Hurley tried, at an IJC meeting in April, to have the full report released to the Canadian and US governments, but only a few paragraphs were read to government representatives. She then sought the assistance of the Department of Foreign Affairs, who apparently sided with Murphy. Although Hurley refused to specifically say her resignation was over the report, she did say, "The government knows the reason why I'm leaving."
Marchi, however, only said that the resignation was accepted because of ongoing internal difficulties within the IJC, not because of the report. The day before the report was released, however, Marchi expressed personal concern about the possibility of expanded American use of coal-fired generation. "What I don't want to happen, and what I don't think Canadians want to happen, is that we backslide and that we fire up the coal plants once again and create problems for cross-border pollution."
Now that the report has been released, it should trigger action by the American government and Environmental Protection Agency under section 115 of the US Clean Air Act. This section requires action if a study, "From any duly constituted international agency has reason to believe that any air pollutant or pollutants emitted in the United States causes or contributes to air pollution which may reasonably be anticipated to endanger public health or welfare in a foreign country."
Hurley, upon hearing of the release of the report, said she was pleased and that, "It's important for the future integrity of the Commission that the commissioners have finally decided to do the right thing."
Sterling appointed Minister
Toronto: On August 16, Ontario Premier Mike Harris announced the appointment of Norman Sterling as Minister of Environment and Energy. Mr. Sterling is the longest-sitting Member of the P.C. (Progressive Conservative) Caucus. IPPSO President Tom Brett welcomed the appointment as a positive signal, because Mr. Sterling is a high-ranking member of the PC Caucus, who sits on the powerful Priorities and Planning committee of Cabinet. Harris acknowledged that with Sterling's appointment, he was "elevating the importance" of the post. "We want to send an important message to Ontarians that protecting the environment for future generations ranks equally with the fiscal situation for future generations," Harris said. "So, I wanted to put an senior cabinet minister there."
Shortly after his appointment Mr. Sterling assured the public that environmental protection is a high priority: "We hope that we will put the province of Ontario into a better financial position but there's no sense in getting there if you are sick in terms of the environment and the community that you live in."
Mr. Sterling was first elected to the Ontario Legislature representing the riding of Carleton in 1977. He was returned for the sixth time on June 8, 1995. Mr. Sterling was named Minister of Environment and Energy after serving fourteen months in the portfolio of Consumer and Commercial Relations.
Mr. Sterling has held a wide range of responsibilities during his time in office. In his first term, he served as Parliamentary Assistant to the Attorney General, and in 1981, was appointed Minister without Portfolio. He served as Secretary for Justice and Secretary for Resources during the Bill Davis government. He has also served as P.C. Deputy House Leader, Chair of P.C. Caucus, and P.C. critic for various ministries including Intergovernmental Affairs, Treasury and Economics, Industry, Trade and Technology, and Consumer and Commercial Relations.
Mr. Sterling earned a Bachelor of Engineering (civil) from Carleton University in 1964 and obtained Status of Professional Engineer in 1966. He received a law degree from the University of Ottawa in 1969 and was called to the Bar in 1971. He was named Queen's Counsel in 1981. He was a senior partner in the law firm of Sterling, Clark and Young.
Prior to entering politics, Mr. Sterling had worked at DuPont of Canada as an engineer, and owned and operated a small manufacturing firm. He then practiced law for six years preceding his election.
In his spare time, he enjoys golf, tennis, downhill skiing and hockey. Mr. Sterling is the father of two adult children.
Government makes privatization a priority
Sampson appointed minister of privatization
Toronto: Along with the appointment of Norm Sterling as Minister of Environment and Energy in mid-August, Ontario Premier Mike Harris also appointed Rob Sampson as Minister of Privatization. In fact, the Premier created a cabinet committee on privatization. It will be chaired by his close advisor Finance Minister Ernie Eves and include Labour Minister Elizabeth Witmer, Management Board Chairman Dave Johnson and Rob Sampson.
"We greet the appointment of Rob Sampson to this position with great pleasure," said IPPSO President Tom Brett. "Mr. Sampson has a good understanding of the independent power industry, and we are confident that he will be able to bring our concerns about restructuring forward with the utmost competance."
Mr. Sampson was previously the Parliamentary Assistant to the Minister of Finance. In this role he led the government's investigation into auto insurance reform, a project that many observers believe he executed very successfully. Mr. Sampson agreed to be a featured guest at IPPSO's Waterpower breakfast meeting this past June 20. His previous work in the private sector brought him into contact with independent power projects. He is generally thought to have more experience with independent power than most elected members in the legislature.
Rob Sampson was appointed Minister Without Portfolio with Responsibility for Privatization on August 16, 1996. Mr. Sampson is responsible for the privatization of the Ontario Government's various facilities and organizations. He sits on the Cabinet Committee on Privatization.
Mr. Sampson was first elected to the Ontario Legislature in June 1995, representing the riding of Mississauga West. In his role as Parliamentary Assistant to the Minister of Finance he held specific responsibility for Financial Institutions. He also was responsible for the new auto insurance legislation and initiated a review of access to capital financing for small businesses.
Prior to his election, Mr. Sampson had a career in corporate finance with the Chase Manhattan Bank of Canada. He also held various management positions with the Toronto Dominion Bank.
Mr. Sampson studied at Queen's University where he received a Bachelor of Arts degree in Economics in 1978 and a Master of Business Administration degree in 1980.
Outside of politics, Mr. Sampson is an avid sailor and has served as a Director and Chairperson of Recreation for the Ontario Sailing Association. He was a member of the Planning Advisory Council for the City of Toronto from 1992 to 1993 and is a Fellow of the Institute of Canadian Bankers. Mr. Sampson and his wife Louise have two children, Nick and Katie.
photo of Rob Sampson.
Ontario Hydro proposes "debt monster"
Toronto: In recent weeks, Ontario Hydro has quietly begun releasing something which it calls its "new corporate strategy." There have been no official documents published, but there was an article published about it in Hydro's internal newspaper, some overheads provided to the Toronto Board of Trade, and other unofficial releases. The plan appears to be the Corporation's response to the Macdonald Committee report.
To the shock of many observers, Hydro's new "strategy" is to keep all the generation, transmission and distribution in one company, while abandoning the Power Corporation Act, so that it can acquire further freedom from regulation. Although the proposal involves "functional unbundling" of generation, transmission and retail, the groups would still all fall under a single central control structure. The only change from the current system is that Hydro would spin off its system control centre, to operate as an independent non-profit organization, the "Central Market Operator" or CMO.
Hydro's main thesis seems to be that it needs to remain large to be competitive. This is diametrically opposite to the views of Donald Macdonald, who said he found no evidence that larger companies were better for the market, the system or society. It is also contrary to recent experience in the UK which suggests that regulation is necessary largely in order to keep major utility companies from merging.
IPPSO believes that such an approach can only frustrate the achievement of a competitive market in Ontario. IPPSO President Tom Brett said, "Hydro's proposal is unlikely to deliver benefits to the Province comparable to what can be achieved by having a fully competitive electricity sector."
IPPSO Executive Director Jake Brooks jokes that the proposal can't be called a new corporate strategy because it's not new, being essentially the same as the way Hydro has always been. More important Brooks says, is Hydro's suggestion that we have to sacrifice a competitive market at home, in order to compete internationally. "To my knowledge, Hydro hasn't even tried to produce evidence to back up its assertion that a utility has to be less competitive in Ontario in order to be more competitive outside Ontario."
Perhaps IPPSO's most serious concern about Hydro's proposal is that a largely intact and fully "commercial" Hydro will have a huge appetite for capital spending if it is to have any hope of becoming and sustaining itself as a major player in the North American market. As one expert commented, "If Hydro believes they have the full support of government for staying in one block and competing internationally - they'll go wild with the chequebook. It's a debt monster."
IPPSO representatives have also argued that the major export schemes assumed in Hydro's proposal could only be achieved at the expense of the domestic market and the environment, since Hydro doesn't have excess capacity of low-cost or clean power. For Hydro to earn export profits comparable to the current domest cost benefit of its hydroelectric resources (at least $1 billion per year) would require it to have annual export sales in the order of 200 Terawatt-hours or about 150% of its total current annual production. This level of export is clearly not even remotely possible.
The new corporate strategy claims to advocate retail access in 1998. However, compared to early introduction of wholesale access, this is impractical because it begs many questions about the restructuring of the municipal electric utilities, and the distribution of benefits, questions which will take much longer to resolve than wholesale competition questions will. Thus, IPPSO analysts believe that the new strategy is really intended to delay competition and choice, rather than promote it.
Hydro also appears to be very interested in gaining control of the retail sector, something it does not have now. (See "Hydro thwarts competition from its own MEUs, IPPSO FACTO, August 1996, page 6.) The reason for this is probably that Hydro realizes that the obligation to serve, the most protected segment of the market, is likely to be transferred to the retail sector. (See "Whither the obligation to serve," IPPSO FACTO, August 1996, page 13.)
In an overhead presented to the Toronto Board of Trade on September 5, Hydro said its position included the following points:
"* Early action to restructure, resulting in a planned transition, will preserve the integrity of the Power Pool longer.
* With appropriate stranding mechanisms, opening the market need not await debt retirement; earlier opening gets the economic signals right sooner."
"It's good to see Hydro acknowledging the urgency of restructuring," said IPPSO Executive Director Jake Brooks. "And NUGs appreciate the concern about getting the economic signals right as soon as possible." However, he reiterates IPPSO's concern that Hydro's plan appears to attempt to pre-empt government decisions on restructuring Hydro.
graphic
Power costs climb in Pembroke after Hydro kills historic contract
Pembroke Ontario: Power consumers in the Pembroke area have been told to expect increases in their cost of power. This news results from a recent decision by Ontario Hydro to make Pembroke Hydro, the local utility, break its contract with local independent power producer Hydro-Pontiac. Currently, the power from Hydro-Pontiac costs Pembroke Hydro 14% less than power from Ontario Hydro. Ontario Hydro has promised publicly to save Pembroke consumers harmless over the life of the Hydro-Pontiac contract, which extends for 3 more years. Thus, it is possible that Pembroke's underlying power costs will go up, even though its rates could stay the same for three years.
This does not please Pembroke Hydro General Manager Murray Moore who thinks the purchase contract with Hydro-Pontiac is still a good idea. The generating station owned by Hydro-Pontiac has been supplying the City of Pembroke since 1906, so the arrangement pre- dates even the establishment of Ontario Hydro. Moore believes that power from the station will continue to be attractive to Pembroke for many years to come.
Hydro-Pontiac's 9 MW of hydro-electric generation is located in Pontiac County near Waltham, Quebec, just across the Ottawa River from Pembroke. Since 1906 Pembroke has imported power from across the river. Since 1952 it has also purchased power from Ontario Hydro. In recent years, the power from Hydro-Pontiac has become more and more attractive, compared to Ontario Hydro's power.
The views of Pembroke's Mayor Les Scott are very clear on this subject: "As a municipality we're upset and concerned with this. We've had an agreement in place with Hydro-Pontiac for 90 years. We think it's heavy-handed and completely unfair of Hydro to try to break the contract now." Mr. Scott is assured that he has the complete support of the other elected members of Pembroke City Council on this matter.
Moore is confident that the citizens of Pembroke like their arrangement with Hydro-Pontiac, and want their representatives to defend it. "We have no intention of taking a back seat on this issue. We're going to keep pushing for permission to continue to buy from Hydro-Pontiac," Moore says. "It was the citizens of Pembroke that built that station in 1906," and he suggests that it would be a shame if they couldn't benefit from it now. "Until 1952 that station supplied all our power. The City would have bought the facility in 1967 if it had been allowed to, but the Power Corporation Act prevented them from purchasing facilities outside City boundaries."
Pembroke Hydro has requested a meeting with Norm Sterling, Ontario's new Minister of Environment and Energy, in order to discuss their concerns in this matter. They hope to hear about the meeting shortly.
"You have to wonder about a company that can force its customers to buy from a more expensive, distant and unresponsive supplier," says IPPSO Executive Director Jake Brooks. "I think this can only happen as long as Ontario Hydro has the use of a bottomless cheque-book guaranteed by the public. It's clearly a case of Hydro abusing its monopoly position, to the detriment of consumers and the economy as a whole."
Ontario Hydro used a little-known clause in its contract with Pembroke Hydro to make the utility cancel its purchase contract with Hydro-Pontiac. However, even if there had not been such a clause in the contract, Ontario Hydro might have used other means to force Pembroke Hydro to cancel its purchase arrangement with Hydro-Pontiac. In the past, Hydro has used a range of tactics including threatening utilities with exit fees and other costs. (See 'Hydro thwarts competition from its own MEUs,' IPPSO FACTO, August 1996, page 5).
Ontario Hydro is the only utility in North America allowed to use its monopoly powers to favour its own generation. Most other monopolies in the western world are regulated. In New Hampshire for example, the New Hampshire Public Utilities Commission can order utilities to wheel power from small cogeneration projects to industrial users in the same locality. In a recent decision (Doc. No DR95-0950) Petrocon Engineering won the right to supply power over the utility's wires to two customers with a 5 MW project in Merrimack, New Hampshire, even though its project was still under development.
New IP opportunities emerging
Surplus gone in 3 years: OEB
Toronto: Despite Ontario Hydro's vociferous claims about having a huge surplus of electricity, the OEB (Ontario Energy Board) believes that surplus will be gone in 3 years, assuming all of Ontario Hydro's nuclear plants perform according to Hydro's predictions. (Such performance assumptions are not without their critics, as Ontario Hydro's nuclear performance has never met Hydro's predictions. This year has been particularly poor.)
The suggestion that the surplus could be gone in 3 years is good news for independent power producers. Since 1992 Hydro and government policy has restricted the growth of the independent power industry based on the premise that the province has a large surplus of power.
In that time period, Hydro has stopped purchasing independent power, has banned wheeling, has taken purchasers of independent power to court, and has offered special discount rates to customers specifically to discourage cogeneration projects. Based on the premise of the power surplus, Hydro has stopped producing its long- term avoided costs, saying that only short-term costs matter for current planning purposes. After hearing testimony from experts, the OEB agreed with IPPSO that Hydro should price its power at long-run costs, not short run costs. However, Hydro continues to use its unverified estimates of short run costs in some cases, and its own unverified estimates of long-run costs in other cases, whichever is more convenient.
But all that may be about to change. The Ontario Energy Board agreed with arguments advanced by IPPSO at this summer's hearings, contending that the surplus will be gone in 3 years, even using optimistic assumptions. Given that it takes at least three years to bring new capacity on line, it is time for independent power producers to start thinking about building new capacity. "Out of province suppliers will now start looking at these numbers and begin acquiring capacity to compete for our market," according to IPPSO Executive Director Jake Brooks. "The only question is whether Ontario-based power producers will be allowed a chance to compete to supply their own market." He warns that inaction in this area could lead to a situation where Ontarians are forced to import coal power, or power generated with Canadian gas, at relatively inefficient US-based plants.
IPPSO has long argued that the purported surplus of power in Ontario is illusory, because it is based on unreasonable projections about the performance of Hydro's existing generation capacity. The coal-fired power plants have been run through more "cycles" than they were designed to withstand in recent years. The nuclear plants may have to labour under new license restrictions in addition to suffering from more technical failures, like those at the Pickering nuclear generating station this year. If either the coal or nuclear stations suffer failures, the others may not be able to pick up the slack - because of technical restrictions in the case of nuclear, and because of acid gas restrictions in the case of coal.
Hydro's current Business Plan acknowledges that the risk of poor performance at the nuclear stations is significant. Ontario Hydro was forced to purchase power to meet its peak demand on August 6, 1996.
Brooks says "the least cost power for Ontario will be power that is produced in Ontario from high-efficiency facilities with long-term financing. This requires significant advance planning, and three years is barely enough. It's time to open up the market for high-efficiency NUG again." In fact, most power generation plants take at least four years from recognition of need to power production.
Hydro's Load Retention Rates unacceptable according to the OEB
Toronto: On August 30, the Ontario Energy Board (OEB) filed one of its strongest reports ever concerning Ontario Hydro. Toronto-based lawyer Ian Mondrow led IPPSO's case before the Board and succeeded in getting the Board's agreement on a number of IPPSO's key concerns. For example, the OEB agreed with IPPSO for the second year in a row that Ontario Hydro's load retention rates, designed to discourage cogeneration, are unreasonable in their present form, and amount to unfair constraint on competition. "We have to stop letting Hydro bribe its customers with publicly guaranteed money," said IPPSO Executive Director Jake Brooks. The OEB told Hydro to place a moratorium on its Load Retention Rates until a more acceptable approach could be worked out. But Hydro is not expected to heed the Board's advice, which is not legally binding.
Load retention rates are not available unless the customer is seriously considering switching to a competing supplier, so they can be seen as discriminating against competition. Such discrimination is particularly worrisome in that the deals are secret and the costs are passed on to other customers without their consent. Hydro argued that if the pricing system helps Hydro financially, then it has to be acceptable. The OEB disagreed: "The Board finds it ironic that an organization such as Hydro, created to protect customers from discriminatory pricing, should now defend such practices on the grounds of customer needs." [p. 138, par 9.1.11-12]
In addition, the OEB found Hydro derelict on providing the Board with sufficient information to base meaningful conclusions. Hydro refused to file with the Board a number of important documents including its proposed wheeling policies, details of its load retention deals, its long-term avoided costs, and other matters.
"This seems like contempt of public process to me," said IPPSO Executive Director Jake Brooks. "Where does Hydro get off witholding this information from the public? Everything Hydro has ever done is paid for by the public in one way or another. It's a mockery of the concept of public power not to share such basic information with the public."
In its report, the Board ordered Hydro to file its "System Incremental Values" (its estimates of avoided cost) but it is not clear whether Hydro will comply. In one instance the OEB was so frustrated by Hydro's casual approach to justifying its proposed new rate structures that it told Hydro to "Provide evidence other than hearsay and anecdote," regarding customers' perceptions of Hydro's rate offerings.
In addition, Hydro continues to dodge questions about the cost of bringing mothballed units back on line. Hydro argues that the surplus will last longer than three years because it can always bring back mothballed units at low cost. However, it refuses to file estimates of those costs. In addition, according to some experts, it might be physically impossible to bring these mothballed units back on at all, because of the province-wide acid gas emission limit. Putting scrubbers on these units is both expensive and time consuming. Alternatives might be cheaper or more suitable given the time-frames.
Interest rate exchange risk for the proposed US dollar rate was another issue that IPPSO raised and with which the Board agreed. "IPPSO's significance as a player is growing and it's being taken more seriously at these hearings," said IPPSO President Tom Brett.
Hydro Vice President John Fox argued before the Board that Hydro is not a monopoly because it now has competition. But the Board disagreed with Hydro on this point as well. Hydro still controls access to the transmission system, sets prices unilaterally, and is using lawsuits and other power tactics to bolster its control of the market. Hydro can not pretend that it's not a monopoly, the OEB said.
The OEB has advice for government too
The OEB agreed with IPPSO, and a wide range of consumer, business and environmental interests, that the Ontario government should move to implement restructuring quickly.
In the Board's own words: "It would be efficacious if the uncertainty surrounding Ontario Hydro and the structure of the electricity industry were resolved quickly so that Hydro's planning and rate proposals could be based on a more certain foundation. In the meantime, the Board believes that Hydro should base its planning and rate proposals on a continuation of its monopoly status and on its capacity surplus."
Board chastises Hydro for ignoring previous findings
Toronto: Ontario Hydro came under direct criticism from the OEB for shamelessly ignoring the Board's previous findings. Each year, Ontario Hydro has chosen to ignore some of the Board's findings, but it has usually tried to address the Board's concerns in the following year. However, many such issues appear to remain unaddressed this year.
In its report, the OEB said, "The Board believes that the issues that should have been addressed in Hydro's proposal this year are those identified by the Board last year ... Rather than addressing these issues, Hydro has put forward a rate proposal that contains many of the features found problematic last year."
Consequently, the Board reprimanded Hydro with an unusually strongly-worded Recommendation 9.2: "The Board recommends that Hydro not come forward with further rate proposals until it is able to deal in a meaningful way with the issues of stranded assets, unbundling of rates, and effective public review of load retention applications."
IPPSO responds to Macdonald
IPPSO recently released its response to the Macdonald report, in the form of a letter to Ontario Energy Minister Norm Sterling. The letter reads in part as follows:
"IPPSO finds the report to be an outstanding example of public policy advice, with a highly important and well-crafted vision for the future. We commend the government's foresight in having commissioned the work.
IPPSO applauds the Advisory Committee on Competition in Ontario's Electricity System (the "Committee") for producing a report (the "Report") that lends order and discipline to a multitude of stakeholder views, concerns and positions regarding the restructuring of Ontario's electricity system. The Report is all the more impressive considering the limited time available for its production.
The Committee made several comments which IPPSO feels are highly important, and bear emphasis:
1. "The status quo is not an option." [p.4, para. 3]
2. Fairness, stability and transparency (i.e. a "level playing field") are the touchstones for the new electricity market. [pp. 35-36]
3. To ensure the ongoing operation of a competitive market, a regulatory scheme for electricity must be established. [p.97]
4. There is an immediate need for a clear policy direction announcement from the government. [pp. 126-127]
5. "It would not be appropriate for Ontario hydro to pursue new strategic policy directions or undertake large new capital expenditures" in the interim. [p. 126]
6. The transformation of Ontario's electricity system should be phased so that:
a. Reforms that can be implemented within the current legislative framework proceed right away, to move immediately towards a "level playing field". [pp. 127- 129]
b. Many important benefits of enhanced competition in Ontario's electricity system can be captured at an early stage (wholesale competition). [p.37]
c. Deliberate but cautious planning for full retail access as the ultimate endpoint for industry restructuring will ensure the continued integrity and stability of Ontario's electricity system. [pp. 39-40]
7. The government should pay particular attention to environmental objectives and to the associated opportunities presented by the process of electricity system reform. [pp.91- 92]
Given the above, IPPSO urges the Ontario government to act on the recommendations of the Advisory Committee, and to make an early announcement:
1. Endorsing the Report and indicating its intentions to move forward towards a competitive future.
2. Setting specific timelines for each of the early transitional steps identified in the Report, with a view to implementing full wholesale competition no later than January 1st, 1999. These first steps include:
a. separating the transmission function from generation, and establishing an independent system operator to ensure equitable access;
b. establishing Ontario Hydro Acceptance Corporation as the designated entity for dealing with retirement of stranded debt and for guaranteeing the integrity of existing NUG contracts, and require it to take part in the detailed audit of Hydro finances as recommended in IPPSO's submission to the Macdonald Committee;
c. further restructuring Ontario Hydro's generation business units into companies that operate and report independently; and
d. developing broad guidelines for regulatory practices and procedures for use during the transition and beyond, with a view to maximizing competition, economic efficiency, and the "level playing field," within a framework that includes environmental and public interest objectives.
3. Indicating its intention to empower the Ontario Energy Board ("OEB") to regulate and oversee the new electricity system, and once government has set the broad policy direction, the details of the transition thereto. In addition, requesting the OEB to undertake a process to define practices, procedures and organizational changes required to prepare the OEB for this regulatory role. Introducing legislation to enact these changes within 12 months would be reasonable.
4. To minimize anti-competitive impacts of Hydro's current initiatives while still respecting Hydro's need to maintain load, pending implementation of full restructuring, the Ontario government should instruct Ontario Hydro to comply with any outstanding OEB findings impacting on competition and/or special rate offerings.
5. In keeping with the Advisory Committee's recommendations that Ontario Hydro continue to act in the public interest pending transition, setting an immediate cutoff date for major capital expenditures by Ontario Hydro, beyond which, subject only to prior approval following appropriate OEB review, any such expenditures would be:
a. Financed by the generation entity incurring the expenditure.
b. Excluded from the stranded asset retirement program to be implemented as part of the restructuring of Ontario's electricity system.
6. Adopting the Advisory Committee's recommendations that the basis for renegotiation of existing non-utility generation contracts be entirely voluntary.
IPPSO is continuing to evaluate the implications of the Report, and to work with other stakeholders towards quick and orderly implementation of the restructuring of Ontario's electricity system. IPPSO urges immediate and decisive response from the government, and looks forward to further opportunities for input as this important restructuring proceeds."
AMPCO calls allies of competition together
Toronto: The Association of Major Power Consumers in Ontario (AMPCO) is pulling together a wide variety of groups to organize their support for bringing a competitive electricity market to Ontario.
At a meeting on September 13, AMPCO Executive Director Arthur Dickinson said that the greatest concern is not over the details of the restructuring model, but that "the most important thing is that the government takes a decision on the future of the system." He reiterated that AMPCO has seen power contracts in the US that are as much as 40% below Ontario's industrial rates.
Participants in the meeting included several municipal electric utilities, major companies and business association representatives.
A representative of the Ontario Chamber of Commerce commented that, "We're missing the boat," compared to other jurisdictions, in terms of allowing industry to take advantage of competitive power markets. Dickinson commented that, "We have the opportunity to get ahead of the game now, and the alternative is much less appealing."
Al Gleeson, former General Manager of London Hydro, suggested that procrastination on restructuring would be "unconscionable" because of the costs involved. When participants noted that the current rate freeze may be satisfactory from government's point of view, Dickinson pointed out that the freeze only came after a 40% increase, and that "flat rates are not helping at all," in terms of allowing Ontario manufacturers to be competitive. Mike Ford of GM noted that "the rate freeze was always seen as short-term."
Discussion also covered Ontario Hydro's new corporate strategy, and was generally negative about it. One commentator noted that in the plan "Hydro retains an effective monopoly on generation and retail."
By the end of the meeting, the group had agreed on an objective and had made plans to continue working together. The objective was agreed as follows: "To promote the introduction of customer choice and competition into the electricity system as quickly as possible."
The general terms of a Four Point Plan were discussed and Mr. Dickinson was appointed to draft a more detailed version. The plan can not be printed in detail because it is still under development, but it includes several principles common to IPPSO's position:
- full separation of Ontario Hydro's transmission, generation and system operation functions
- creation of independent generating companies with separate governance
- establishment of a independent transition agency with authority and responsibility to oversee the process
- no need to tie the overall restructuring timelines to the municipal restructuring process, which can be pursued separately for the most part.
For further information, contact AMPCO at 416-260-0225 or fax 260-0442.
"The reform process cannot be delayed."
Board of Trade urges government to make statement
Toronto: The Board of Trade of Metropolitan Toronto, the largest community chamber of commerce in Canada, has come out clearly in favour of wholesale competition for electricity in Ontario, and urged the government to state its position too.
In a September 30 letter to the Hon. Norm Sterling, Ontario Minister of Environment and Energy, the Board of Trade explained its views on several matters related to reform of the Ontario electricity system. Its position is in many ways similar to IPPSO's:
- It believes that the playing field must be made level between power generators
- It believes the government must act soon to prevent more serious problems
- It believes in introducing wholesale competition as soon as possible
- It believes that the Ontario Energy Board should have authority to regulate Hydro, as it does with the gas utilities
- It believes in bottom-up restructuring of the municipal electric utilities
- It believes that introducing competition is more important than privatization, and that there is no immediate need for privatization.
- It believes that any stranded asset charge should be applied to all users of the electricity system in Ontario, rather than to taxpayers.
"We are very pleased that the Board of Trade position is so consistent with our own position and that of the other major stakeholders," said IPPSO President Tom Brett. "This will make it easier for government to act quickly and decisively on the basis of such a broad-based consensus."
The Board of Trade's statement says, "The Board of Trade strongly supports the Macdonald report's central proposition that moving to a competitive power market and ending Ontario Hydro's monopoly will lead to lower prices and more choice for provincial power users." Its recommendations include the following:
"1. The government must make a clear statement of its intended direction with respect to restructuring the electricity system as soon as possible. This document has emphasized the importance of introducing competition into the electricity system through the reforms urged in the Macdonald report.
2. Legislative and regulatory reform is a necessary first step toward a competitive electricity system. Specifically, the Power Corporations Act should be replaced with new legislation and the Ontario Energy Board made responsible for effectively regulating the electricity industry. OEB regulation will be particularly important during the transition to a competitive system and to ensure that stranded assets are dealt with appropriately. Also important from a GTA perspective is to allow municipal electrical utilities to incorporate under the Business Corporations Act, so as to permit market-driven, bottom-up restructuring; introduce more competitive power pricing; and encourage appropriate rationalization at the distribution end of the electricity sytem.
3. We recommend that the government continue to study the advantages and disadvantages of introducing private equity into the ownership of Hydro's generating assets, but to make no explicit policy with respect to this matter at this time. The important thing is to introduce competition into the provincial electricity system under the current structure of both public and private ownership.
4. We nonetheless believe that the sale of some of Hydros' non-core business units, such as Ontario Hydro Technologies and Ontario Hydro International - and mothballed or underutilized power stations or other assets - could proceed immediately, to improve Hydro's debt/equity ratio.
Privatization of other Hydro assets would likely maximize the potential benefits from restructuring the electricity system, but can be treated as a conditional outcome after giving a restructured, public-private system the opportunity to prove itself competitive to Ontario power consumers. This approach should permit the government to intiate the reform process immediately."
The Board of Trade statement reiterates that the "reform process cannot be delayed," and stresses the many pressures for change, including the need for competition, potential loss of jobs to other jurisdictions, technological change, and international trade agreements.
"The important thing is to introduce competition into the provincial electricity system under the current structure of both public and private ownership."
The Board also is consistent with IPPSO in advocating a level playing field: "We further support Macdonald's contention that a competitive environment can co-exist with both public and private modes of ownership, provided there is a level playing field for all competitors." The statement goes on to advocate that Hydro pay costs comparable to NUGs in terms of income tax, property tax, capital tax, borrowing rates, etc.
"The degree of convergence in opinion between the major players in the electricity sector is truly remarkable," Brett concludes.
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Deadline for comments on regulatory reform extended to October 15
Toronto: Ontario Minister of Environment and Energy Norm Sterling announced on September 5 that he would extend the deadline for comments on regulatory reform to October 15. "I appreciate that municipalities, environment groups, industry and others would like more time to ensure they provide comprehensive and constructive contributions," Mr. Sterling said. "I want to ensure that Ontario's high standards of environmental protection are maintained and enhanced by making regulation more relevant and responsive."
In July, the Ministry released a discussion document entitled "Responsive Environmental Protection" on which it is seeking input. The Ministry is responsible for 80 different regulations and it is trying to simplify them and make their application more responsive to the public. It forms part of the government's overall plan to priorize removing barriers to jobs and growth. An earlier ministry review, led by Parliamentary Assistant Dr. Doug Galt, consulted with more than 200 representatives of industry, municipalities and environmental groups from November 1995 to June 1996.
The energy section of the discussion document outlines the case for restructuring the electric sector and legislative reform, but does not take any position. In fact, even though it discusses detailed modifications to the regulation of gas utilities, it does not even suggest that there may be a need to make Ontario Hydro subject to comparable regulation. In general, the legislative changes discussed in the energy part of the document are minor and of only a housekeeping nature.
There is a discussion of "Economic Instruments" in the document that is appears to be unrelated to energy industry activities. It says, "The Ministry is committed to exploring the feasibility and benefits of (open market trading emission reduction credits) system," but goes no further than that. There is no discussion of externalities or pollution tax/credit systems.
Copies of "Responsive Environmental Protection" are available from the Ministry of Environment and Energy's Public Information Centre at 416-325-4000 or 1-800-565-4923. The report also may be accessed through the ministry's Internet website: http://www.ene.gov.on.ca.
Written submissions should be sent to: Regulatory Reform Project, Ministry of Environment and Energy, 8th Floor, 135 St. Clair Ave. W., Toronto, Ontario, M4V 1P5 or by fax to (416) 323- 4346.
How will the ISO's software identify power source?
Alliance discusses energy efficiency and renewables in an open market
Toronto: The Canadian Energy Efficiency Alliance (CEEA) recently conducted a consultative process designed to help reconcile the concept of an open market for electricity with the objective of energy efficiency. Chief among the Alliance's concerns is that if the Ontario electricity market is opened up in the near future, there will be more use of low-cost coal-fired power, even though such power is produced relatively inefficiently, and with significant environmental consequences.
The Alliance held a workshop on September 16 called "Environmental Protection, Energy Efficiency and a Competitive Energy Market in Ontario." The objective was to assemble responses to a discussion paper, largely in order to provide guidance to the Ontario Ministry of Environment and Energy and other stakeholders trying to develop positions on the questions. There were 23 participants from 16 public, private and non-profit organizations.
During the discussion a question arose about how the software for Ontario's ISO (Independent System Operator) or CMO (Central Market Operator) will accomodate efficiency objectives. If there are to be portfolio standards or verification of any power marketers' content claims, the software will need to be able to identify the source of each unit of power sold into the system. Ontario Hydro is apparently moving quickly to set up a CMO, and this is expected to include a huge software design contract in the hundreds of millions of dollars. Workshop participants noted that it will be essential that such software be designed to handle data on generation source, so that content claims can be verified, and also in order to harmonize with US trading systems. Of course many financial trades will be aggregating and mixing blocks of power and will not care about the source, but others will need to use this information. In other words, this generation source information would likely be required for physical sales to the system but might be optional for secondary or financial trades.
The draft report of the workshop contains a number of tentative conclusions that will interest energy policy analysts:
1. Mechanisms are required to protect the environment. A free market without regulation or other mechanisms to protect the environment is not acceptable.
2. Government is responsible for Ensuring the Protection of the Environment .. (open access) suggests that the government will have to play an increased role in the monitoring and regulation of a more diverse electricity industry
3. The government has an opportunity to address the environmental impacts of other fuels while it is considering mechanisms to protect the environment from electricity-related activities.
4. There will be a need for consumer protection to ensure that claims respecting environmental performance of competing energy services are accurate.
5. There are major benefits to be gained from efficiency-related codes and standards and the goverment must play a strong role in supporting and developing them.
6. A fund to help overcome the barriers to energy efficiency should be set up and financed by an non-bypassable "wires charge" on all users of electricity. The fund should be managed by an independent non-profit organization. A similar fund to advance renewable energy production was also supported.
7. Utility rates which discriminate against energy efficiency should be disallowed.
8. A renewable energy portfolio standard, set-aside or obligation should be implemented, whether there is a bypassable power pool in existence or not. Sellers not able to produce the renewable energy themselves would have to buy credits from producers with excess renewable energy production.
9. Green pricing is possible under both wholesale and retail access models.
10. Emission caps with tradable permits should be extended beyond NOx and SOx to include CO2, mercury and VOCs.
11. Regulation of the transmission company is necessary because it is a natural monopoly and there are potentially avoidable consequences from unnecessary expansion of its system.
Some participants noted that the expected negative environmental effects of open access are likely to overshadow any positive effects of specific environmental measures.
The Alliance is a multistakeholder body designed to accelerate the adoption of energy efficiency. Its founding document is a book of over 30 Action Plans that were developed through a consensus process in 1993 and 1994. The Alliance is establishing an ad hoc working group to provide advice to support government action on electricity restructuring in Ontario. Alliance members include Ontario Hydro, IPPSO, Consumers Gas, Municipal Electric Association, energy service contractors, manufacturers, environmental groups, and other energy-related companies. For further information on the Alliance, see previous issues of IPPSO FACTO, or contact Bruce Lourie at 416-922-9038.
Ontario meets to reduce NOx from boilers
Toronto: The Ontario government has geared up its process to "address smog in Ontario" with a working group and a process designed to draft new recommendations. The primary role of the NOx Emissions Working Group will be "to identify opportunities and develop an implementation plan for NOx emission reductions from boilers, fired heaters and processes." At press time it was not possible to report results from a working group meeting scheduled for September 30, but updates will be provided in future issues of IPPSO FACTO.
For further information contact Scott Grant at the Ministry 416-323-5215.
Kirkland Lake hypes its cogen project on the net
Kirkland Lake, Ontario: The Town of Kirkland Lake is using its cogeneration project as a hook to attract other green industry to the area. A new website offering information on Kirkland Lake's local services and industrial location incentives says "Kirkland Lake is committed to 'cogenerating interest.'" It also features a hotlink to a page of information on the Kirkland Lake Power Corp. Cogeneration Project. The effort is part of the Town's "Go Green" initiative which tries to find industries which will make use of other industries' effluent streams. The power project for example has steam, water and ash outflows which the Town is seeking to market. The Town notes that the warm water coming out of the plant is cleaner than when it goes in.
For more information, contact Don Studholm, Director of Economic Development for Kirkland Lake, at edkirk@kirk.northernc.on.ca
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Fuel Cell Technology Forum
Toronto: The Toronto Section of the IEEE (Institute of Electrical and Electronic Engineers) held a very successful and well attended seminar on July 17, 1996 which presented the status of fuel cell commercialization for stationary power and distributed power applications. Other sponsors of the event included the US Department of Energy, EPRI, NRCan, OMEE, Consumers Gas, Ontario Hydro Technologies, and Toronto Hydro.
A variety of technical presentations by leading fuel cell manufacturers and users suggested that widespread fuel cell commercialization is only a few years away. Many of the participants ended the day with a tour of an ONSI 200kW fuel cell system providing baseload electricity and heat to Ontario Hydro's Markham Centre on Highway 7 near Warden. Speakers included M. Hammerli from Natural Resources Canada, D. Casson from BC Hydro, J Miseresky from Consumers Gas, Alexander Stewart from Electrolyser Corporation, Ron Quick from Ontario Hydro, L. Clarkin from the Department of Defense, and several others.
Fuel cells produce power and heat by combining hydrogen and oxygen electrochemically. Typically, natural gas is reformed within the plant to produce the hydrogen fuel and air is the source of oxygen. Similar to a battery, fuel cells contain an anode, a cathode, and an electrolyte. Unlike a battery that requires recharging, a fuel cell produces electricity as long as the fuel and air are supplied.
The fuel cell electrochemical reaction is environmentally friendly producing no sulphur dioxide or particulates. Emissions of nitrogen oxides, carbon monoxide and total hydrocarbons are negligible. Although these dramatic environmental benefits are attractive to governments, utilities and many end users, application of this technology has been limited due to high capital costs as compared to conventional cogeneration technologies and utility rates. These capital costs are expected to come down quickly as manufacturers increase production volumes in the next 3 to 5 years.
OMEIF inks energy efficiency deals
Toronto: OMEIF, the Ontario Municipal Energy Improvement Facility, has concluded several contracts with Ontario cities which are expected to yield millions of dollars in energy savings. OMEIF is a three-year (1995-1998) demonstration project to provide municipalities in Ontario with energy services, including non- recourse financing, strategic energy planning, a demand-side management talent bank, aggregated procurement of energy efficiency equipment, and monitoring and verification services.
In Sudbury, OMEIF has partnered with local and provincial energy providers and regional staff. To date, they have identified measures that will save the Region $1 million per year, 30% of its energy costs, for an investment of somewhat more than $6 million.
In Toronto, OMEIF has assisted in assembling a Partnership to install energy and water efficiency retrofits of approximately 100 industrial, commercial, institutional and multi-residential buildings in the City. The staff of ICLEI will write the Partnership's securitization plan, have provided ongoing advice to the Energy Efficiency Office and are presently shortlisted as consultants to the Partnership.
In Ottawa, OMEIF has helped develop a strategic plan which includes hundreds of thousands of dollars of energy efficiency investments in each of several years.
OMEIF is intended to become self-sustaining. Current partners include the Ontario Ministry of Environment and Energy, Consumers Gas, Ontario Energy Corporation, Ontario Hydro and Union/Centra Gas. OMEIF is a project of ICLEI, the International Council for Local Environmental Initiatives, a membership organization with several offices around the world, originally established by the United Nations.
For more information, contact Rob Kerr, Managing Director, OMEIF, 8th floor, East Tower, City Hall, Toronto, Ontario M5H 2N2. (416) 392-0238 fax 392-1478 email: 75361.3043@compuserve.com
OMEIF's web site is http://www.iclei.org/omeif
Toronto launches Better Buildings Partnership
A coalition of public and private sector concerns has launched a Better Buildings Partnership (BBP) as part of a plan to reduce utility bills and improve air quality in the Greater Toronto Area (GTA).
The Partnership was developed after a consultation meeting held May 27 (see IPPSO FACTO, June 1996, p.11) which examined a consultant's report commissioned by Toronto City Council and Toronto Hydro. The report made a wide range of recommendations on energy efficiency and greenhouse gas and smog-related emission reductions.
The City of Toronto, Toronto Hydro, Ontario Hydro and Consumers Gas are all sponsors of the Partnership, as are local energy service companies the Besto Group, Rose Technology Group and Tescor Energy Services. The latter three were awarded contracts in December 1995 by the City's Energy Efficiency Office to implement various aspects of their energy efficiency and conservation strategy.
The BBP is estimated to be contributing $30 million dollars to area businesses in initial spending, with expenditures rising to $3 billion over the duration of the program. It is also expected to significantly reduce greenhouse gas emissions, contributing to Canada's international commitment to reduce such gas emissions to 1990 levels by the year 2000. Smog related gasses such as nitrous oxides (NOx) will also be reduced.
The BBP will provide funding for retrofits to commercial and multi-residential buildings within the City of Toronto. The money is coming from the Canada/Ontario Infrastructure Works Program in the form of interest-free loans. Public and non-profit buildings will be eligible for loans of up to two thirds the cost of eligible projects and privately-owned buildings will be eligible for up to half the cost. Local energy service companies will finance the remainder. The money saved from utility bills can be used to repay the loans.
For more information, call the Better Buildings Partnership office at Toronto City Hall at (416) 392-1500.
Toronto Hydro considering "poison pill" options
Toronto: Toronto City Council and the Toronto Hydro Commission have registered their objection to Ontario Hydro's apparent desire to absorb Ontario's 309 Municipal Electric Utilities (MEUs), and are looking into "poison pill" options that would prevent a seizure of assets.
Ontario Hydro's proposal for restructuring includes the creation of a large "wiresco" independent entity which would amalgamate its own retail sector and the MEU's into a province-wide electricity distribution service company. The province's MEUs object both to the loss of local control of the utilities and to the fact that Ontario Hydro considers the MEUs to be branches of the provincial utility. Ontario Hydro's plans for a 'wiresco' do not include provisions for compensating municipalities for the loss of assets and revenues.
Currently, the MEUs are generally debt-free (as opposed to Ontario Hydro's $30 billion plus debts) and generate revenue for municipal governments. The dispute over ownership is long-standing, with the municipalities claiming that they are the owners of the utilities and their assets and others claiming they are self-owned. The fact that Ontario Hydro is currently suing London Hydro and Ajax Hydro (see IPPSO FACTO June and August front covers) is being used as an argument supporting the MEUs position. If Ontario Hydro were the true owners of the MEUs, they would have no need to sue.
The report of the Macdonald Committee on the restructuring of Ontario's electricity sector recognizes this dispute. Though the report does recommend some sales of assets, it also says that municipalities could be compensated for appropriated assets. "The real issue underlying this question seems to be whether the restitution would provide sufficient compensation for the municipality," the Committee says in their report. Toronto City Council fears that the compensation, if there is any, will not reflect the real value of the assets or compensate for the City's loss of revenue.
Fear over the loss of revenue is a key issue for Toronto's Council members, as well as other municipalities due to the Harris government cuts in transfer payments. Municipalities are receiving less money from the province, but are expected to take on a greater share of the cost of services. Maintaining ownership over the MEUs, coupled with a competitive market in electricity generation, would give municipalities a reliable source of revenue and possibly reduce the need for increases in property taxes and the implementation of user fees for city services.
New changes to the Municipal Act expected to be introduced by Municipal Affairs Minister Al Leach next spring would make it easier for municipalities to own and operate electricity distribution utilities by eliminating much of the red tape surrounding business affairs by municipalities. It would ease restrictions on contracts, the sale and purchase of assets, negotiating loans and charging for goods and services. According to David Crombie, who chairs a committee on provincial municipal reform, " The current Municipal Act sets out in mind-numbing detail exactly what municipalities are allowed to do."
Crombie's committee released its recommendations for amending the Act on August 15. Although there is no mention of municipal electric utilities in the recommendations, the report clearly is in favour of municipalities providing services in a more business-like manner, generating revenues for themselves rather than relying on transfer payments from the Province. According to Crombie, "It concurs with the direction that this government wants to go in."
Independent contractors benefit from OH seaway station upgrade
Cornwall: Several Canadian companies are benefiting from upgrading currently being undertaken at Ontario Hydro's R.H. Saunders Generation Station on the St. Lawrence River near Cornwall.
All 16 units are being upgraded at the 38 year old station, raising the installed capacity 8% to 984 MW. As part of the Runner Upgrade Program begun by Ontario Hydro in 1992, 2 units are being upgraded per year. Twelve of the units at Saunders are being upgraded under this program. Upgrades to the remaining 4 units, as well as rewinds on all 16 generators, installation of on-line monitoring systems and concrete rehabilitation have been started in phases since 1992, with the last of the upgrade programs started this summer. All upgrades are due to be completed in 1998.
Sulzer Hydro of Lachine, Quebec has the contract to provide one new runner and new stainless steel blade replacements for 11 other runners under the runner upgrade program. The new blades increase the efficiency of the runners from 85% to 92%.
Westinghouse, of Hamilton Ontario, has completed 11 of the 16 rewinds of the generators and will complete the remaining 5 by July, 1998.
Online monitoring equipment is being provided by VibroSystM of Longueuil Quebec, and includes proximity probes for monitoring turbine runner clearances while units are in operation.
Thompson Gordon, of Burlington, Ontario, has been contracted to provide greaseless Thordon bushings for wicket gates and operating rings, replacing older grease-lubricated bronze bushings.
ABB of Guelph, Ontario and Ferranti Packard of St. Catharines, Ontario have the contract to replace 13 power transformers with new equipment to handle the increased generation capacity.
Two American-based companies, Trentec of Loveland, Ohio and Cutting Technology International of Philadelphia, are rehabilitating the concrete structures of the station.
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Toronto City and Metro governments opt for PV
Toronto: Toronto's City and Metro governments have turned to photovoltaics (PV) to solve problems in delivering basic services - in this case, parking meters and harbour buoys.
The city installed 7 'pay and display' ticket-dispensing parking meters in June in the trendy Yorkville district. An estimated $10,000 was saved by eliminating the need to run wiring to the machines. The ticket dispensing machines were chosen for the crowded shopping and restaurant district because they take up less room than the traditional coin-operated meters which don't require electricity. Each machine covers 6 parking spots on the street.
The machines also take both cash and credit card, making it easier for customers to pay, and reducing the need for coin pick-up by city employees.
The machines are French-made and operate off of a 12 watt PV unit which is built oversized to compensate for shade or cloud- cover.
The Toronto Harbour Commission and Metro Toronto Works Department have also purchased PV equipment to supply power to light bouys in the harbour.
The Harbour Commission purchased 16 PV systems for existing buoys from local supplier Prometheus Energy to mark various shipping channels around Toronto Harbour. This purchase was made in May, following the successful test by Metro Works of two of the PV buoys at the Toronto Island Ferry docks.
The systems employ two 12 watt PV arrays, a controller and a sealed deep-cycle battery. The deep-cycle batteries store power collected by the arrays during the day to light the buoys at night. Previously, the buoys were powered by a primary, non-rechargeable battery that had to be replaced every year at a cost of $800 each. The PV systems cost about $600 each and require a battery replacement only every 3 years at a cost of $200 each.
photos being developed
Two energy conferences focus on restructuring
Toronto: Two conferences held in Toronto in September represented two of the first electricity industry conferences to be held since the release of the much-anticipated Macdonald Committee report on the restructuring of Ontario's electricity sector.
Consequently, both conferences focused almost entirely on the anticipated changes expected to soon sweep the sector, and how members of the industry can prepare for the change and meet the demands, and potential profits, of a new competitive market.
Although the Ontario government is yet to make any decisions as to what market changes will be introduced, the feeling of organizers and participants at both conferences was unanimous. Open competition and a greater share of the market for privately-owned generation is inevitable and will come sooner rather than later.
The first conference, held September 15 to 17, was organized by the Canadian District Energy Association (CDEA). A strong emphasis was placed on public/private partnerships, particularly on a municipal level. A tour of the Toronto District Heating Corporation's (TDHC) steam plant and new district cooling plant, as well as the University of Toronto's cogeneration plant were included in the conference.
According to organizers, the conference, "Is meant to generate further interest in district energy in Canada and relate to participants the value that communities see in district energy. Policy and decision makers will be intrigued by the energy, environmental and job creation aspects to the technology."
According to Alex Bystrin, President of TDHC, district heating and cooling will be naturally attractive to municipalities, particularly as municipal electric utilities (MEUs), regardless of how they're restructured, have more ability to shop for sources of power other than Ontario Hydro. District heating and cooling systems are highly efficient, local sources of energy that reduce significantly the amount of electricity that must be purchased from outside the MEU's geographic area.
There was significant discussion about the fact that district energy projects are not generally eligible for treatment as assets under Class 43, a federal tax classification that allows for accelerated depreciation. Paul Boucher described the results of "The Hathaway Report" which examined 23 potential district energy projects, conducted a pro forma analysis, and projected the return on equity for each, based on current CCA rules and alternatively, with the benefit of class 43's 30% declining balance rule. The current system produced an average 3% rate of return. His conclusion was that Class 43 would clearly stimulate more projects to get off the ground. With Class 1, it is generally not viable to recover waste heat, he believes. IPPSO Director Scott Stevens said, "In the interest of efficiency and emission reduction, district energy should be eligible for CCA similar to other technologies. We can demonstrate substantial emission reduction and efficiency improvements."
The second conference, held September 19 and 20, was organized by the Canadian Institute, which they say, "Is Canada's largest provider of professional development and continuing education programs for senior executives, lawyers and government staff."
Entitled, "Canadian Power '96: Profiting from the Challenges of Change," the conference examined the motivating factors behind the current restructuring drive and how they're likely to shape the future of Ontario's electricity sector. It looked at the dangers and benefits of privatization, future financing options, the future sources of generation, and the municipal perspective of the coming changes.
"We could displace our load from Ontario Hydro within two to two and a half years, at a lower cost."
- Ronald Kidd, President of Etobicoke Hydro.
According to Graham Hadley, former Manager of International Business for National Power of England, the prime motivating factors behind current international trends toward privatization and competition in electricity markets are: political will, maturing industrial markets, and changing realities of world energy.
Current political trends in the industrialized world are toward a more conservative, business-oriented form of government. The ideology behind many political decisions is that private enterprise can manage many of the services traditionally provided by government cheaper and more efficiently, without being a drain on the public purse. While past governments regarded institutions like public utilities as sacrosanct, current governments do not see a problem with privatization. An example he gave of this change in mindset is the definition of electricity he found in a 1971 edition of the Encyclopaedia Britanica which said, "Electricity is a monopoly service owned by the state."
Another influential factor Hadley says is that electricity markets in industrialized states are far different than when public utillity monopolies were first formed in the early years of the twentieth century. The mandate of early utilities, he said, was to provide electrical service to all potential customers, even in areas where economics didn't make such service profitable. Now that electricity service is more or less universally available, the greatest motivational factor in the sector is making electricity cheaper.
In the past, the economies of scale may have made it easier for large monopolies to provide the cheapest source of power through large-scale megaprojects. New technologies tend to favour smaller-scale generation systems, closer to the customer though. These technologies tend to favour local utilities and open competition. For this reason, Hadley says that the concept of stranded assets is misleading. "There are no such thing as stranded assets," he says, "Only uncompetitive assets."
Andrew Roman, a partner with the law firm Miller Thompson, agreed with Hadley on this point when he gave his view of how Ontario's market should be restructured.
He said that if Ontario is to see lower electricity rates, it is going to have to be through a substantial decrease in generation costs. Generation, he said, accounts for about 70% of the average electricity bill in the province, with transmission and local distribution accounting for about 15% each. Because of high-cost sources of generation, such as nuclear, currently being relied upon, however, "The real market rate is 20% below current market rates."
He called for the eventual closure of nuclear generation plants in the province and, until that time, a complete breakup of the generation assets of Ontario Hydro into much smaller pieces than recommended by the Macdonald Committee. He says that retaining a single owner for Ontario Hydro Nuclear and the Niagara hydroelectric units is, "The worst recommendation in the entire (Macdonald) report and is likely to gut competition. The remaining assets (representing less than 1/4 of the utility's total current generation capacity) will not be able to be sold at realistic prices. We'll slip back into the status quo." He says, however, that the government will likely go with the Macdonald Committee recommendations because of, "The government's need for the avoidance of controversy."
Overall, participants in the conference saw a much greater tendency toward smaller-scale, more localized generation with a greater role for municipal utilities. This role would include greater ability to make deals with competing electricity suppliers and diversification into new energy-related services. For example, Ronald Kidd, President of Etobicoke Hydro, said, "We could displace our load from Ontario Hydro within two to two and a half years, at a lower cost." He added, though, that doing this in such a short period of time would create serious stranded asset problems for existing generation and would not be in the best interest of the province as a whole.
Changes would be made possible by the elimination of many of the barriers currently imposed by the Power Corporations Act. The jurisdictional boundaries would also need to be rationalized, according to Toronto Hydro General Manager John Brooks. Municipal Utilities would have to be merged, but not necessarily along municipal boundaries. He says it would make far more sense to form utilities along geographic boundaries enabling the most efficient methods of transmission and distribution. Both he and Kidd, however, forecast many political problems in seeing this happen. Both expressed scepticism about amalgamation happening in the immediate future.
Hydro news
Unit 2 at Lambton running after being declared surplus
Sarnia: Unit 2 of Ontario Hydro's Lambton Power Station is back in service unexpectedly.
The unit which had been shut down in 1994, was restarted in June of 1996. It was supposedly mothballed because of Ontario Hydro's surplus capacity situation. However, Ontario Hydro's export sales and "lower energy availability" nuclear problem in recent months has apparently made it necessary to restart the unit which was shut down less than two years before. There were significant costs to mothballing the unit, and the writeoff amounted to $142 million for two units at the station, of the $643 million writedown that Hydro took for excess capacity in 1993.
IPPSO has strongly criticized Hydro for the aggressive writeoff it took in 1993, saying that it tends to improve reported income in later years. See also IPPSO FACTO March 1994, page 12.
RETS decision stalled again
Toronto: Ontario Hydro's decision on the winning bidders for the first round of its renewable energy RFP (Request for Proposals) has hit another snag. Because of internal administrative scheduling problems, the contracts will be at least 6 months behind schedule. A decision is now expected on October 28, according to Brian Kelly, Ontario Hydro's Director of Environment and Sustainable Development.
The RFP was announced in 1994 and bids were solicited from proponents in the following year. 54.1 MW worth of bids were shortlisted late last year and final decisions were originally planned for April 1996. For further information, see IPPSO FACTO stories on the RETS program published in December 1995, page 8, February 1996, pages 15 and 16, April 1996, page 14, and in the errata sheet for February articles, included with the April issue.
Hydro says its nuclear safety program is "poor"
Toronto: In a startling admission, Ontario Hydro CEO Alan Kupcis described Ontario Hydro's record of managing nuclear safety issues as "poor." He did not say that nuclear safety itself was poor, just that Hydro's management of it was poor. The admission was reported on Toronto's 680 news station on September 13, but not picked up by the press.
Kupcis apparently made the comment during hearings into relicensing of the Pickering nuclear station at the federal regulator, the Atomic Energy Control Board (AECB). The license is coming under pressure from officials at the same time as the station has been closed unexpectedly for technical reasons.
Hydro's nuclear safety practices have come under fire lately. See "Pickering woes continue" in the August 1996 issue of IPPSO FACTO, page 14, and "Shakeup at OH Nuclear," elsewhere in this issue of IPPSO FACTO.
Hydro settles dispute with First Nation
Michipicoten: Ontario Hydro signed an agreement in August with the Michipicoten First Nation near Wawa in the Eastern Lake Superior region, setting out guidelines for transmission access through the Band's land. The Nation also received an apology from Hydro President and CEO Allan Kupcis for the utility's previous treatment of their community.
In the 1960's, Hydro built transmission lines across Michipicoten land without formal permission from the Band's Council and, according to band Chief Sam Stone, without taking into consideration how construction would affect the lives of the people in the area.
"By apologizing," says Stone, "They are recognizing our right to self determination. This demonstrates that Hydro is sincere in their desire to start a new relationship."
Ontario Hydro's former Vice President of Aboriginal Affairs, Sam Horton, began the process toward an agreement with Michipicoten in 1992 when he approached the Band's council to begin discussions. Those discussions led to the signing of this agreement. "Ontario Hydro is interested in forging a new relationship based on mutual respect and co-operation," says Kupcis, "And this is an important first step."
photo
Retail access is spreading
Toronto: Ontario Hydro documents show that retail access initiatives are becoming increasingly numerous and gaining ground in important border areas to Ontario. Using an overhead presented to the Toronto Board of Trade, Hydro planner Rod Taylor reports that:
- Bills addressing retail wheeling, competition and restructuring have been introduced in 33 states since January 1995
- Retail access is moving ahead in 16 states
- The key dates are in the 1997 to 2001 period, although some are underway already (such as New Hampshire)
- Ontario Hydro's key trading partners are moving ahead with retail access: New York in 1998 and Michigan in 1997.
- Alberta has taken the lead in Canada. However, restructuring is under consideration in British Columbia, New Brunswick, Nova Scotia, Newfoundland, and Quebec.
There are numerous green power choice programs under development, but they are mostly in the US. For further information, see article elsewhere in this issue of IPPSO FACTO.
map
Hydro unveils NOx management plan
Toronto: Ontario Hydro in June unveiled a new Nitrogen Oxides (NOx) emissions management plan in conjunction with the National NOx/VOC Management Plan agreed to by the Canadian Council of Ministers of the Environment.
Under the plan, Ontario Hydro will cap NOx emissions at 38 gigagrams per year by the year 2000. "While reducing its own emissions," says Jim Burpee, Manager of Hydro's fossil fuels division, "Hydro continues to play a very active role with industry, government and other stakeholders in developing and promoting broader solutions to regional and global emissions problems, through such mechanisms as reduction trading."
According to Hydro's published plan, the previous focus of gas emission reduction efforts at Hydro has been in the area of acid rain. Efforts to curb sulphur dioxide and NOx, which are the two main gasses that cause acid rain, have resulted in 60% less of the two gasses being released into the atmosphere by the utility between 1989 and 1994.
In 1995, Hydro released about 30 gigagrams of NOx, down from a high in 1989 of about 62 gigagrams. The cap is set at 38 gigagrams because of a projected increase in the use of Hydro's 6 fossil fuel generation plants as exports increase and nuclear capacity decreases due to temporary shut downs or possible early retirement of reactors. According to Hydro's own projections, emissions could actually rise to over 60 gigagrams by 2001 or, conversely, be below 30 depending on numerous factors within the utility and the industry.
The new focus of gas emission reduction efforts, according to the report, is ground level ozone. While the ozone layer in the upper atmosphere is crucial for its role in filtering out harmful solar radiation, ozone at ground level is harmful to human health and agriculture. It is one of the main components of urban smog. Ozone is formed at ground level when NOx combines with volatile organic compounds (VOC) in warm urban air.
Four of Hydro's six fossil-fired generation plants are located in the highly populated Windsor/Quebec City corridor and are a major source of NOx. Other major sources include large industries such as smelters, and automobiles. Unfortunately, a high percentage of NOx found in Ontario's air originates in the American Midwest, control of which requires the co-operation of numerous American jurisdictions. Co-ordinating international efforts to combat gas emissions have often led to disputes and difficulties in meeting reduction targets. Recently, this has contributed to the resignation of Canada's Co-Chair to the International Joint Commission set up by Canada and the United States to combat transborder water and air pollution (see story on page ???).
Hydro's plan for meeting its voluntary emissions cap focuses on three approaches: emissions control, emissions reduction trading and energy use efficiency.
Emissions control involves finding ways to burn fossil fuels more cleanly and efficiently. Hydro is currently retrofitting one of the units at the Nanticoke coal-fired station with low NOx burners. This new system is expected to reduce NOx emissions from that unit by 20%. If successful, some or all of the other 7 units could be retrofitted between 1998 and 2002. A different low NOx burner design has been successfully installed and tested on one unit at the Lambton coal-fired plant as well, and a second unit is to be retrofitted beginning in 1997. Other methods of reducing emissions from fossil generating stations will be investigated on an ongoing basis. Cogeneration is, of course, highly effective at reducing NOx emissions.
Ontario Hydro also is a strong proponent of emissions reduction trading. In this practise, sources of emissions that can be reduced most cost-effectively are encouraged to go beyond the targeted reduction levels, an initiative for which they will receive a credit. This credit can then be sold to another producer of emissions where reductions are more difficult and/or more expensive to achieve. According to Hydro, this practise will encourage the most cost-effective methods of reducing emissions and will encourage industries to make reductions beyond what they might otherwise achieve.
The third method included in the plan is the more efficient use of electricity both within the utility and by its customers, particularly during peak load times. Ontario Hydro uses its fossil generating stations primarily to meet load during peak demand periods, shutting them down when nuclear and hydroelectric units can sufficiently meet the needs of customers and exports. By encouraging more efficient use of energy, Hydro can reduce the number of times in a year when its fossil stations need to be started up. This is particularly significant in relation to urban smog since demand peaks during hot summer months to meet air conditioning requirements. Hot summer periods are also the time when urban smog is worst.
Although Ontario Hydro appears optimistic that the target can be met, the report suggests that it may not be possible. "Fluctuations in customer demand, together with changes in nuclear and hydroelectric performance and operating conditions, create considerable uncertainty in the forecast for Hydro's use of fossil generation, and in the resulting level of NOx and other emissions," the report explains. However, according to Burpee, "Our NOx Management Plan has been designed to be flexible and cost effective in recognition of the many changes taking place as the electricity sector in North America becomes much more competitive."
From an environmental standpoint, however, the enthusiasm shown in Hydro's pamphlet on the NOx program is questionable. Substantial reduction gains made since 1989 will not be maintained (see chart) and there is not a clear promise made to keep to 'committed' levels.
Even when emissions reached their lowest point in 1994/95, ground-level ozone exceeded the Ontario Energy and Environment Ministry's acceptable standards by over 750 hours per year in Ontario.
chart
OHT working with private company to develop unique micro-hydro system
Markham: BWH Technologies of Markham is currently working with Ontario Hydro Technologies (OHT) to develop a unique micro-hydro system that uses a patented hydrolic pump to transfer power from a runner in the river to a turbine and generator on shore.
Requiring no dam or penstock, the 100 kW system employs a runner and the patented pump, which are placed in a river, and a hydraulic turbine and generator that are placed on shore. They are connected by a high-pressure hydraulic tranmission system.
BWH developed and patented the system and is now working with OHT, as part of Ontario Hydro's Renewable Energy Technologies (RETs) Program, to perfect it. According to OHT's Paul Dinar, their main concern with the system is the efficiency of conversion of energy from the pump in the river to the turbine and generator on the shore. He says they have tested one model and have now sent it back to BWH with suggested revisions for improvement.
If a marketable model can be developed, OHT will work with BWH to market, sell, install and service the systems. BWH hopes to have 84 units sold by the end of 1998.
OH employee leukemia linked to electric fields
Toronto: A University of Toronto study released on July 10 has found that higher-than-normal rates of leukemia among Ontario Hydro employees may be linked to electric fields.
While scientists have linked magnetic fields surrounding transmission lines and other generating equipment to cancer for several years now, Dr. Anthony Miller, a Professor of Preventative Medicine and Biostatistics who wrote the report, says that researchers should be paying more attention to electrical fields.
Electrical fields are created around a transmission wire when no current is flowing, according to Miller. Magnetic fields are created when a current is flowing.
According to Miller's study, published in the American Journal of Epidemiology, previous studies only examined the presence of magnetic fields and failed to take into account the effects of electrical fields on employees of utilities who are exposed to both. He says that the reason for this omission has been that studies have tended to look at the kind of work an employee does, for example linesmen as opposed to office workers, rather than where the work is done. His point being that even an office worker whose work area is located near a source of electrical and/or magnetic fields is at risk.
While linesmen and others who work in close proximity to high voltage lines were found to be at the most high risk by Miller, but others who work near electricity generators where also found to be at a higher risk for leukemia, and possibly other forms of cancer. By studying 30,000 current and previous Ontario Hydro employees, Miller found that those working in close proximity to electric and magnetic fields were 11 times more likely to develop leukemia. Those who did develop leukemia tended to have worked in their positions for at least 20 years.
Miller says that, while his study raises concern for utility workers, it may ease concerns for residents of homes near high voltage transmission lines. "We do know that any electrical field exposure is shielded by buildings," he says. "So given the importance of electric fields in our study, I think that diminishes concern about transmission towers."
Ontario Hydro financed this study by Miller, based on his previous work, and is currently financing further studies. However, Ruth Greey, senior electric and magnetic fields consultant for the utility says no action will be taken by Ontario Hydro until the results of further studies are in.
David Shier, a staff officer with the Power Workers' Union, however says Hydro should err on the side of safety, adding that there are some relatively simple steps that could be taken now to reduce the risk to staff. For example, power lines could be de- energized before employees begin working on them and office staff could be moved away from electric fields. Miller agrees with this, saying, "If there are people working closer than they need to some of these sources, the obvious thing to do is to move them away."
Shakeup at OH Nuclear
by David McArthur and Stephen Salaff
Pickering: Ontario Hydro will "shut its nuclear generating plants and turf out the station managers unless the poor operating performance of its atomic plants improves," according to Hydro president and CEO Allan Kupcis, in a late August interview with the Toronto Globe and Mail.
Hydro is reorganizing its troubled business unit Ontario Hydro Nuclear, which was created only four years ago. The directors of the Pickering, Bruce and Darlington nuclear stations will now report directly to George Hugh, Hydro's vice president for all forms of generation.
Observers feel that these shifts may mark the impending end of Ontario Hydro Nuclear, with significant implications for the existing fleet of reactors.
The reorganization followed closely the shut down of all eight Pickering units in mid April, and the subsequent sharp criticism of Pickering safety performance by staff and members of the Atomic Energy Control Board.
Kupcis admitted to the Board on September 12 that there has been "insufficient progress" in improving nuclear safety at the Pickering nuclear generating station and throughout the utility.
According to Tom Adams of Energy Probe, the future of Ontario Hydro is tied up with the future of Pickering. He said that nuclear safety is "in chaos" at Ontario Hydro. Adams says that Hydro should begin closing down the reactors at Pickering with the poorest operating records, instead of investing money in generating capacity with persistent outages.
Ontario Hydro is the world's second largest nuclear operator, and Hydro's 19 Candu reactors supply more than 60 percent of the utility's electricity.
Pickering's two operating licenses expire on December 31. While new station manager Ken Talbot has asked for the standard two-year license renewal, AECB staff have urged the plant be given a 6-month renewal, until it establishes better safety performance.
Shutdowns at Pickering are causing major financial losses. The AECB has already stated that it will impose significant restrictions on Pickering's new operating license unless maintenance and performance improve, and a roster of nuclear safety incidents are resolved. The Board is expected to determine in December whether to impose restrictive conditions on the Pickering licenses, which could include derating units or significantly improved training for plant staff.
All eight reactors at the 4,320 MW Pickering station on Lake Ontario east of Toronto were closed in late April for repair of a faulty check valve in the emergency coolant injection system. The shutdown is the chief reason that Hydro's profit in the first seven months of 1996 was nearly $140 million below forecast. Several Pickering reactors have been returned to service, but only after at least three delays in the announced restart date.
The utility's average electricity rates have not increased since 1993, and are expected to remain flat until 2000, placing a squeeze on operating, maintenance and administration budgets. Capital expenditures have been slashed, reducing money for costly nuclear refurbishment. Moreover, Hydro has eliminated over 8,000 jobs, many of them held by highly experienced nuclear staff. The reduced cash flow and loss of senior plant workers have complicated efforts at nuclear safety engineering and reform.
In addition, the maximum output at the Bruce nuclear generating station has been restricted since early 1993, due to a major safety system issue called the "fuel shift" problem. At issue is a design flaw which would exacerbate the consequences of a postulated loss of coolant accident at the station.
Kupcis' blunt statement is the strongest indication yet that Hydro management is thoroughly dissatisfied with the utility's nuclear performance, and could be forced to undertake serious new measures to limit losses. Bruce unit 2 (750 MW) was Ontario Hydro's first commercial nuclear reactor to be closed, in October 1995, after less than half of its expected 40 year life. The utility plans to close Bruce unit 1 in four years, and then other reactors with high-cost engineering problems. Hydro no longer plans the long and expensive process of retubing the Bruce reactors.
A joint Ontario Hydro proposal with Atomic Energy of Canada Ltd. to the US Department of Energy, which called for burning mixed oxide plutonium fuel manufactured from Russian nuclear weapons plutonium in the Bruce reactors, which would have required the retubing of three units, appears to be abandoned.
A recent internal nuclear safety report to Hydro's board said that chronic nuclear safety problems are not being resolved successfully. Such corporate "peer evaluations" revealed that communication and common purpose between head office and Ontario Hydro Nuclear are inadequate.
In late May, Hydro shifted Pickering manager Pierre Charlebois to the position of nuclear safety director at head office. Charlebois headed the Pickering station until May 31, when he was replaced by Talbot. Charlebois then left the utility in August, for reasons which Hydro representative Terry Young refused to divulge.
Ron Field, former head of Ontario Hydro Nuclear, was recently reassigned to help with nuclear management restructuring, but Hydro has not specified Field's role in the reorganized operation. The position of OHN director is vacant.
Government is also contemplating restructuring within Hydro. In early August, Ontario Premier Mike Harris established a new cabinet committee to oversee the privatization of Ontario government institutions including possibly Ontario Hydro, and appointed a minister responsible for privatization, Rob Sampson. (See article elsewhere in this issue of IPPSO FACTO).
Environment doesn't count
The following comments were made at this summer's Ontario Energy Board Hearings:
"IPPSO: So you would not consider the environmental benefits of high-efficiency co-generation when evaluating an application for an LREP contract that involved that as the alternative? The environmental savings don't enter into your consideration of whether to offer an LREP and, if so how much you are going to offer. Is that correct?
Ontario Hydro: Yes, I think that's correct. In the projects that have involved self-generation, I think the only consideration has been, there has been some at least preliminary view of whether the projects could have been permitted in the course of ascertaining whether they were bona fide alternatives.
IPPSO: ... So am I correct to conclude that there are no anticipated discussions or applications with respect to loads that are below 10 megawatts?
Ontario Hydro: Yes."
- Excerpted from transcripts of Ontario Energy Board HR 24 Hearings, Volume 6, June 24, 1996, page 1222. (Note that "LREP" stands for Load Retention and Expansion Program.)
National News
Energy efficiency consultations launched
Ottawa: On August 20, the federal government officially launched the "energy efficiency consultations" promised in the March 1996 budget. The objective is to identify tax and other measures to "improve the treatment of investments in energy efficiency and heating and cooling from renewable energy sources." The consultations, which will be undertaken jointly by NRCan and Department of Finance officials over the coming months, will seek to identify impediments to these investments and to develop proposals to address them.
Federal Minister of Natural Resources Anne McLellan, said "Today's announcement marks a further step in the government's ongoing review of barriers and disincentives to sound environmental practices. Burning fossil fuels can contribute to global climate change, acid rain and urban smog and we must make every effort as a government to encourage Canadians to use energy more wisely."
The consultations will cover all uses of energy. It is expected that a major focus will be on identifying impediments that businesses may face in making energy efficiency and renewable energy investments in commercially-owned buildings, including impediments to energy service companies which assest businesses in making these investments. Proposed solutions in both the corporate income tax and non-tax areas will be considered.
Finance and NRCan will meet with interested parties for detailed discussions in October. In November, NRCan will distribute a report on the meetings. Participants and other interested parties will be given the opportunity to provide additional comments to NRCan until the end of December. Submissions and comments received during the consultations will be considered by Finance and NRCan in reviews of the current support being provided by the government to energy efficiency and renewable energy and in preparations for the 1997 budget.
To be added to the listed of interested parties, or to obtain further information, contact:
Nicholas Marty
Energy Efficiency Branch
Natural Resources Canada
580 Booth St, 18th floor,
Ottawa, Ontario, K1A 0E4
613-996-6629 Fax 613-947-4120 EERE.consult@es.nrcan.gc.ca
Comment
ARET, Canada's Voluntary Environmental Initiative Needs Work
by Gary Gallon, Canadian Institute for Business & the Environment
Canada's move to embrace voluntary environmental initiatives has bogged down. Not only has it slowed environmental protection and pollution prevention, but it has retarded innovation of environmental technology and reduced Canada's competitiveness in the $240 billion a year international environmental technology market.
The reason is that, unlike the United States and Europe where voluntary programs are used to augment and go beyond regulations, the Canadian voluntary initiatives are being used instead of regulation. To add to the problem, they have not worked particularly well. This information is important for the US and Mexico which are both flirting with the concept of voluntary programs. In the end the voluntary programs could be more complex, more expensive, and harder to implement than regulations. Many companies that have participated are now saying it is easier, fairer, and cheaper to have a set of regulations that levels the playing field of all of the participants.
One of Canada's problem areas is its national environmental voluntary program, the Accelerated Reduction/Elimination of Toxics, known as ARET. Conceived in September 1991, it was finally put into action in March 1994. Much of the federal government's regulatory initiatives were put on hold while ARET was being prepared. Now two years into the actual program the following problems have been found:
1. Many member companies of participating industry associations are not participating. Or they are participating slowly. Companies in the same industry but not members of the participating association, are not participating. The leading companies and the leading associations are placed at a competitive disadvantage compared to those that are not participating. In some cases, field levelling regulations have been requested to help those who are dedicating resources to volunteering.
2. No systematic third party validation of emission reductions are reported by most of the participating companies. No one knows whether serious cuts in emissions have been achieved and maintained.
3. Some industry sectors have very poor participation, such as mining and energy, while other industry sectors like chemicals have excellent participation
4. There are insufficient consequences when companies don't achieve their targets. Companies can delay in submitting their reduction plans. They can fail to meet their deadlines and their reduction levels. Their are few if any substantial consequences when this occurs.
Queen's University Study About ARET
A new study conducted by the School of Policy Studies, Queen's University, Kingston, Ontario (April 30, 1996) called: "Lessons Learned From ARET: A Qualitative Survey of Perceptions of Stake holders".
It found that the "'Achilles heel' of the ARET Challenge's emphasis on voluntarism is the absence of credible verification mechanisms". It also stated that: "a workplan is important in terms of enabling stakeholders to convince their constituency that a particular project is worthwhile participating in. If it is not in a stakeholder's interest to negotiate, it will not be possible to reach a deal and the (environmental voluntary) process will have no dynamic."
For more information contact: Environmental Policy Unit, School of Policy Studies, Queen's University, Kingston, Ontario led by Dr. William Leiss, Fellow of the Royal Society of Canada and Chair of the Research Policy Committee of the Society's Global Change Program.
Ph. (613) 545-6832, Fax (613) 545-6630.
Gary T. Gallon, President
Canadian Institute for Business & the Environment
510 Victoria, Ave., Montreal, Quebec H3Y 2R5
Ph. (514) 369-0230, Fax (514) 369-3282
Email: cibe@web.net
NUGs still working with government on new tax rules
Ottawa: The Independent Power Stakeholder Task Force has suggested a number of revisions to the federal government's new rules on taxation of alternative energy projects. In the federal government's recent budget, two general measures were announced, CRCE (the Canadian Renewable and Conservation Expense classification which allows for Flow Through Share financing) and amendments to Class 43.1, which permits an accelerated capital cost allowance to be claimed on equipment used for qualifying NUG projects. The details of each of these measures were left to be worked out in negotiations between government officials and industry representatives between June and September of this year.
Federal government officials proposed a detailed breakdown of NUG project expenses into nearly 100 categories, each of which was suggested to be considered either, 1) eligible as CRCE, 2) expensed, 3) capitalized, or 4) CCA pro-rated. Task force members asked for a number of changes in July, and the government responded recently with revised breakdowns. Significant improvements appear to have been made, from the Task Force's perspective since the June draft. In a September 20 letter to Natural Resources Canada, Task Force representative John Keating, who is also President of Canadian Hydro Developers Inc. in Calgary, detailed 7 further suggested revisions, most of which could be described as housekeeping or clarifications.
In addition, Keating suggested that such detailed work might be unnecessary: "Considering all the effort that is going into specifying the individual cost components for each of several energy technologies, we suggest consideration be given to delivering on the political intent in a more direct fashion. The petroleum industry is not required to detail every conceivable outlay to define CDE or CEE, but is permitted to include 'any expense for the purpose of ...' Would it not be possible to simply define a legislated percentage of any expenditure that qualifies for Class 43.1 inclusion as being CRCE. The administration of CRCE would then be kept simple and not subject to interpretation by an assessor. Financing would therefore be more accessible since budgeting for the CRCE component of any project would be more predictable, it would simply be the percentage of Class 43.1 additions in any given year."
IPPSO Director and Task Force member Jeff Passmore notes that such open-ended definitions are unlikely to be abused because "all such expenditures would be subject to an audit and clawback."
Meanwhile, members of the Canadian District Energy Association have raised another set of concerns about the proposed new rules. District energy equipment is not normally eligible for Class 43.1 and much of it may have trouble getting considered under CRCE.
The federal government has said it would like the legislation to be final in October. For more information on the IP Stakeholders Task Force, see IPPSO FACTO, August 1996, page 16.
Air Issues Committee meets again but little happens
Ottawa: The Non-Government Advisory Committee on Climate Change (of the National Air Issues Committee of the Climate Change Task Force) met on September 18, but did not announce any new measures to accelerate the adoption of its objectives. IPPSO Director Jeff Passmore who took part in the meeting said, "It's very disppointing the extent to which Canada doesn't permit itself to be a little more aggressive in this regard. We seem to avoid taking a leadership role, basically following the Americans' lead."
The committee is trying to develop a Canadian Position for COP-3, or Conference of the Parties 3, as part of the International Framework for Climate Change Convention. (See article "Governments edge closer" elsewhere in this issue of IPPSO FACTO)
Passmore also believes that the conventional energy industry remains a problem in processes such as this. "Their main function there would appear to be to confuse, delay, obfuscate and otherwise make sure that Canada doesn't do anything proactive and/or progressive."
IPPSO Executive Director Jake Brooks believes that the conventional energy industry has similarly tried to frustrate Environment Canada's multi-stakeholder consultation process on the detailed implementation of the Canadian Environmental Protection Act. (See article elsewhere in this issue of IPPSO FACTO. See also editorial by Gary Gallon on the ineffectiveness of the voluntary measures in the ARET program, and report on the "Conference of the Parties" toward international agreements on atmospheric pollution.)
"Rational Energy Plan" could cut GST and create 1.5M jobs
Paul Martin sees potential in job creation through renewables
Ottawa: Federal Finance Minister Paul Martin unexpectedly pleased advocates of renewable energy when he addressed a meeting in Ottawa September 20. A workshop on "Greening the Federal Budget" was sponsored by the National Round Table on Environment and Economy (NRTEE), a multi-sectoral group dedicated to promoting sustainable development.
Minister Martin was asked if he would be prepared to fund tax initiatives in renewable energy and energy efficiency if equivalent incentives were removed from the conventional energy sector (so that the overall effect on government would be revenue neutral). Martin responded that he didn't want to withdraw existing incentives from the conventional energy industries, but that if a renewable energy incentive created jobs and made sense in other respects, that he would be prepared to consider implementing such a measure. Mr. Martin said that the priorities of the government are dealing with the debt and job creation.
According to Rob MacIntosh of the Pembina Institute, "the key thing is that the Federal Government is acknowledging the lack of a level playing field. Martin spoke towards the importance of levelling as a means toward the government's prime objective of creating jobs."
Louise Comeau of the Sierra Club presented a study called "The Rational Energy Plan," which found that a renewable energy and energy efficiency strategy including a carbon tax could cut government costs significantly enough to reduce the GST from 7% to 5% in a few years time, while reducing the deficit and creating jobs. Job creation resulting from the plan was estimated at up to 100,000 jobs per year, or 1.5 million person-years of employment over the term of the plan. The numbers in her study were verified by Informetrica, a well-known consulting firm specializing in econometrics. Interested people can order a copy of the Rational Energy Plan from the Sierra Club at 613-241-4611 ($40).
A background paper for the workshop was prepared in advance by the Pembina Institute. The Institute will also be compiling proceedings which should be available in a few weeks. Contact the Pembina Institute at 403-542-6272 or fax 1-403-542-6464 for more information.
The workshop was chaired by Karen Morgan, Chair of the NRTEE task force on economic instruments. IPPSO Directors Jeff Passmore and Stephen Probyn were among the participants in the workshop. Also in attendance was Bob Swartman of the Canadian Solar Industries Association, and numerous government officials, including staff from the Prime Minister's office.
Much discussion focussed on the installation of renewable energy fired district energy systems. Jeff Passmore commented that, "if we're talking about district energy from renewables, we also have to include high efficiency district energy from natural gas." Several people including Sierra Club and Pembina Institute representatives agreed with this, although there was no overall consensus.
Minister Martin was introduced by NRTEE Chair Dr. Stuart Smith. Dr. Smith questioned whether levelling the playing field for renewables is doing enough. He suggested that it is necessary to tilt the playing field slightly in the direction of renewables, at least for a certain period of time. Dr. Smith is a keynote speaker at IPPSO's conference, which takes place in Richmond Hill, Ontario, this October 22 and 23. For further information on this conference, see notice elsewhere in this issue of IPPSO FACTO.
250 MW windplant proposed for Alberta
by David McArthur and Stephen Salaff
Calgary: A new group of windpower developers is proposing to build a large wind plant in the Pincher Creek area of southwestern Alberta, and has won the attention of the provincial premier. Ralph Klein has struck a government task force to assess the proposal.
The developers are York WindPower of Montreal, Wind Power Inc. of Pincher Creek and the German turbine maker Enercon. York WindPower is a wholly owned subsidiary of New York City based York Research Corp., which develops, owns and operates cogeneration and alternative energy projects. Wind Power Inc. is an independent privately held firm which developed half of the Cowley Ridge wind plant.
Meanwhile, the Quebec press reported in early June that York WindPower and Enercon were seeking Quebec government support for the construction of a wind plant near Perce on the Gaspe Peninsula. A turbine manufacturing facility was included in the $285 million package, which would create 400 direct jobs.
The Quebec picture is furthur complicated by the fact that Kenetech's proposed 100 MW wind plant for the Gaspe Peninsula faces significant uncertainty because Kenetech Windpower is the subject of a Chapter 11 backruptcy proceeding in California (IPPSO FACTO, June 1996, p 15).
In an innovative approach to gain support for the Alberta proposal, the York-Enercon-WPI group is seeking allies in the Alberta oil and gas industry, who might choose to help develop the project in order to reduce provincial carbon dioxide emissions, along with provincial utilities which rely on coal-fuelled generation.
Pincher Creek is located in the wind-swept foothills of the Rocky Mountains, and already hosts Canada's largest wind plant, completed by Kenetech in 1994 and now owned by Canadian Niagara Power Limited - a 19.8 MW facility utilizing 52 Kenetech 33 KVS turbines.
The developers have submitted a proposal to the Alberta government for a $1.5 billion wind project, which would be built in stages of 25 average MW each year over a 10 year period. The first power would be generated around 1998 or 1999.
"This plant would benefit the entire electricity system of southern Alberta," says Wind Power Inc. president Dale Johnson. The proponents say that a new Enercon wind turbine manufacturing facility, to be situated in Alberta, would be a key part of the project, which could grow to a reported $5.5 billion investment over 30 years, creating 500 direct jobs and about 2,000 indirect jobs.
"We need a factory to build larger machines," said York WindPower president Dave Ward. "And we need a base load to support the factory while the turbine export market is developed."
Another innovation in the proposal, and the purpose of the approach to government, was to obtain support for "green energy pricing", within the new Alberta power pool, for the electricity generated from the wind farm, said Johnson. "We want a mechanism which would allow consumers to choose green kilowatt-hours, in the form of wind-generated electricity."
A green power price would help realize customer choice, which could stimulate substantial demand for major new renewable energy technology development. Numerous public opinion polls in Canada and the US show that most electricity consumers would prefer to use renewable electricity, if allowed a choice. (See article on green power pricing in this IPPSO FACTO.)
The developers presented their proposal to the Alberta government's standing policy committee (SPC) on natural resources and sustainable development in late July, according to Johnson. The Alberta task force was struck soon after the initial public SPC meeting, when the developers met with Premier Ralph Klein. The task force will examine more closely the economic, environmental and energy supply aspects of the project. Johnson says that the task force, which contains officials from four provincial government ministries and stakeholder representatives, was asked to report by September 20.
Johnson says that "it has become particularly difficult to develop wind power projects in Alberta in recent years...But this new project is attractive enough to get Premier Klein's attention."
Project sponsors say that the cost of new wind energy compares favorably to the cost of electricity from a new natural gas-fuelled plant - at between 3.75 cents and 5.0 cents/kWh. Comparison with a new coal-fuelled plant, which would produce electricity at a higher cost than a new gas-fuelled plant, further increases the competitiveness of wind.
The marginal cost of electricity from Alberta's existing, depreciated coal-fuelled power plants is estimated at between one and 1.5 cents/ kWh, while the average price in the Alberta power pool is about two cents/kWh.
However, "If the provincial government, the power pool, the utilities and all others in the Alberta electricity industry would take full cycle costs of new power generation into consideration, then wind becomes more competitive than fossil fuels," said Johnson.
The Pincher Creek Economic Development Board, which already has a proposal to install wind turbines to meet the baseload electricity of the town, has estimated that the new project would cut carbon dioxide emissions in Alberta by more than four million metric tons annually, providing a valuable credit to the province's existing fossil fuel industry.
However, electric utilities in Alberta, which utilize chiefly coal-fired generation, are thus far neutral in their assessment of windpower, even though securing a renewable component in their generating mix would help them meet their commitments under the federal government's voluntary CO2 emission reduction program. Also, the oil and gas industry in the province is in danger of falling short of its voluntary climate change emission commitments.
Johnson said that the wind developers want to meet the Alberta-based Canadian Association of Petroleum Producers, and to convince them to ask for the delivery of green kWh to their various installations. That would help the industry avoid or at least delay the imposition by Ottawa of strong measures aimed at achieving Canada's emission reduction targets, such as carbon or energy taxes.
"This proposal is a tremendous opportunity for the fossil fuel industry and the renewable energy industry to become partners," said Johnson.
Utilities tell government their emissions are OK
Halifax: Canadian electric utilities have told the federal government that the atmospheric emissions from their fossil-fired power plants "may be sufficiently small as to not warrant further action." In a September 17 submission to Environment Canada's "Strategic Options Process" (SOP), Canadian electric utilities argued that when the economic contribution of power generation is taken into account, power generation is a relatively small contributor to atmospheric pollution.
Although the utilities' study included numerous qualifications, largely because of a lack of scientific data in several areas, the general message was that there is no identifiable health problem and little value in further research. A paper by Bio-Response Systems Ltd., commissioned by the utilities said, with some qualifications, that "there will not be an identifiable public health problem from their potential cancer and non-cancer effects as a result of emissions from fossil fuel-fired electricity generation facilities." It also said, "Except for mercury and particulates, the Canadian Electricity Association believes incremental health risks posed by the SOP substances from the electric power sector are essentially negligible ... or not an identifiable health problem."
IPPSO Executive Assistant Carole Kielly said succinctly, "What did you expect them to say?"
The utilities proposed a detailed plan to focus on research and emission reduction related to particulates and mercury. Under the proposal, particulates would actually have limits placed on it, whereas mercury would only be studied. However, the plan would apply only to new units going into operation in 1998 or later and excludes any "units which will not be in operation after December 31, 2010," with provisions for provincial environmental regulations and/or standards to take precedence if such can be negotiated successfully.
The proposal "does not include any type of performance reporting to the Government of Canada." If adopted, the proposal would commit the government to a number of obligations before any future initiatives under the Canadian Environmental Protection Act could be commenced. These obligations would include "complete risk assessment information," "utility emission inventories which have been reviewed and approved by both utilities and the Government," "full knowledge and understanding of the contribution of emissions from all sectors of the economy, and a rigourous inventory of naturally occuring substances," and other requirements.
"This certainly looks like an attempt to neuter the Canadian Environmental Protection Act in terms of power generation," said IPPSO Executive Director Jake Brooks. What seems to be missing from this discussion, Brooks says, is recognition that fossil-fired power generation is the largest or nearly largest source of greenhouse gas, smog, and acid gas emissions. These contaminants will likely have to be reduced simultaneously. "It's not credible to suggest entirely separate control processes for each group of contaminants. Aren't we going to do something about these other contaminants anyway?"
Ironically for some perhaps, the report does say "harmonization and the reduction of duplicity is a key part of the proposal." Many analysts believe that the utilities' proposal would mean that Canadian power generation emission controls are significantly weaker than those in the US.
The substances reviewed were mercury, inorganic arsenic, hexavalent chromium, dibenzodioxins, lead, trichloroethylene, benzene, inorganic cadmium, inorganic flourides, dibenzofurans, dichloromethane, oxidic, sulphidic and soluble nickel, polycyclic aromatic hydrocarbons, and particulates.
The SOP process itself released a Draft Report of Stakeholder Consultations dated September 5. One part of the report detailed the management options selected for detailed assessment, which include: emission trading, feebates, covenants, performance standards, and voluntary measures. Rejected options include: air quality standards with permits, demand management, mandatory public reporting and pollution prevention plans. Conclusions are yet to be written, but deadlines are approaching quickly.
The utilities' proposal is expected to be countered by other proposals from environmental groups, the Canadian Environmental Network and Society to Overcome Pollution.
For further information, contact Joe Kozack, Environment Canada, Atlantic Region, Dartmouth, Nova Scotia. (902) 426-3664.
Atmospheric Emissions from electric generators
(kg/a except for particulates, which are tonnes/a)
Hg Cd As CrVl Ni Pb F particulates
BC 0 0 0 0 0 0 NA 168
AB 299 175 367 67 1331 700 572000 10213
SK 277 122 5738 361 4137 5017 0 102549
MB 13 19 193 7 68 173 0 5625
ON 403 38 256 83 1435 407 284777 3543
QC 0 1 5 1 168 10 0 447
NB 105 31 126 5 692 86 0 530
NS 183 75 1068 89 2593 367 3034 2396
NF na na 3 na 5383 37 na 1380
utilities 1280 460 7755 613 15806 6796 na 127018
coal 1271 444 7696 608 7462 6647 na 122883
oil 9 16 59 5 8344 149 na 3799
gas 0 0 0 0 0 0 0 168
NUG 18 63 129 598 na 219 na na
other 34800 52900 201600 76500 1019600 1025400 486600 950044
EPG% of total 3.6 1 3.8 1.6 1.5 0.7 na 11.8
- Draft Report of Stakeholder Consultations dated September 5. Environment Canada Strategic Options Process.
Environmental group files NAFTA complaint against Canadian government
Calgary: The Alberta based group Friends of the Oldman Dam have filed a complaint against the Canadian Government with a seldom- used NAFTA Commission, claiming the government is bypassing sections of its own Fisheries Act and Canadian Environmental Assessment Act.
Although the complaint is specifically about a logging road being built by Sunpine Forest Products near Rocky Mountain House, Alberta, it could have far-reaching implications for many other projects, including hydroelectric generating stations.
The complaint, filed with the Commission for Environmental Co- operation on September 9, says that the Alberta Government ignored the recomendations of some of its own fisheries and wildlife biologists to allow the construction of the road, including 21 stream crossings.
According to the Friends of the Oldman Dam, Alberta was able to avoid a full environmental assessment only because of changes made to the federal Fisheries Act in 1995. These amendments exempted construction projects that affect waterways from triggering the Canadian Environmental Assessment Act. Instead, of a full assessment, these projects now only receive a "letter of advice" sometimes written without federal inspectors visiting the site, according to Martha Kostuch of the Friends of the Oldman Dam. She says the advice in the letters often is based solely on second- hand information and advises on how to diminish waterway damage.
Since Alberta biologists found that the logging road would affect fish in the 21 streams the road will cross, Kostuch said they went to the federal government who is responsible for fisheries across Canada. She says they agreed to inspect 2 of the sites only and have not yet ruled as to whether or not to call a full assessment. Meanwhile, Kostuch says, the road is nearing completion.
Though the NAFTA Commission has not decided if they will investigate the complaint, if they do, and if they find against the government, the Fisheries Act may have to be re-amended. The findings of Commission are not binding and no sanctions will be enforced against the Canadian government, however a finding in favour of the Friends of the Oldman Dam would put pressure on the government to act to avoid embarrassment. It would also focus Canadian and international attention on the importance of the Fisheries Act in environmental protection, according to Kostuch, and demonstrate the importance of environmental assessments. It will also show the danger involved in the devolution of federal powers to the provinces, says Kostuch.
NEB allows BC Hydro to export to US at cut rates
Vancouver: Forestry, mining and chemical companies in British Columbia are angry over a National Energy Board decision to allow BC Hydro to enter into a long-term agreement with a US aluminum company to supply electricity at what the companies claim to be half the rate domestic industries pay. The decision, they claim, could lead to a constitutional crisis due to interlapping federal and provincial jurisdictions.
Although NEB has recently given approval for short-term power export contracts to American industrial users, this is the first time a long term, 5-year, contract has been approved. The ruling, made on September 13, also allows BC Hydro to keep the details of the sale confidential and it does not require the utility to offer the same rates to domestic consumers. The deal allows BC Hydro to sell up to 145 megawatts of power to Intalco Aluminum Corp. of Ferndale, Washington, enough to light a city of 50,000 for a year.
According to David Austin, a lawyer for the Independent Power Association of British Columbia (IPABC), if the utility were forced to sell to them at the same rate, its revenue would drop by about $200 million per year. Although BC Hydro will not say what rate it has offered Intalco, they claim it is substantially above the current spot price and is competitive with rates offered by Bonneville Power Authority in Washington. They also say the contract price increases over the five years.
NEB's ruling in favour of confidentiality was in response to Intalco's claim that revealing the rate they are paying will give an unfair advantage to its competitors in an industry where electricity accounts for 30% of production costs. Even though IPABC pointed out that some of its members are Intalco's competitors, NEB ruled that BC companies, "were not able to demonstrate an intention to buy electricity for consumption in Canada because they do not have both legal and physical access to effect a purchase."
NEB also ruled that electricity rates are a provincial matter and British Columbia Utilities Commission recently concluded that, "Retail competition is neither desired nor necessary in British Columbia in the next few years."
"This is a constitutional bombshell," says Austin. "If an electricity producer in Alberta wants to use BC Hydro's lines to export to the United States and thinks the tolls are too high...If Newfoundland wants to proceed with a hydroelectric development in Labrador and wants access to Hydro Quebec's transmission system, is the NEB saying the federal government has no jurisdiction to intervene in the event of a dispute? Has the federal government made a deal with the provinces to stay away from one of the impacts of the restructuring of the North American utility market?"
According to Richard Bryant of the BC Council of Forest Industries, "If there are appeal avenues open, we may very well take them."
Manitoba considers Sustainable Development Act
Winnipeg: Manitoba's Environment Ministry has introduced a draft Sustainable Development Act that, if passed, would ensure that provincial laws and the day-to-day operations of government incorporate the principles of sustainable development.
According to Environment Minister Glen Cummings, the legislation includes legal requirements to ensure public sector management systems, budgets and work practises are sustainable. This would include the practises of provincially-owned Manitoba Hydro. "Everything the government does will be done in a manner that takes into account both environmental and economic considerations," says Cummings.
The Act would establish an independent commission for sustainable development, replacing the Manitoba Clean Environment Commission. The Manitoba Round Table on Environment and Economy would be formally recognized as a legal body, increasing its clout in providing advice, advocacy and education on sustainable development.
A streamlined development licensing process would be created to reduce red tape while incorporating environmental, economic, human health and community well-being considerations. Sustainability principles would be incorporated into new and existing laws and provincial regulatory guidelines would be set, subject to periodic review.
Every four years, a province-wide sustainability report would be issued to measure progress and point out shortcomings, a sort of sustainable development audit.
A process of public consultation will now begin, followed by debate in the legislature. The entire process up to passing the Act into law could take as long as two years and there will likely be amendments made to the legislation before it is passed into law.
SIO releases Electric Power Industry Report series
Toronto: The Social Investment Organization has released a three- part report series examining Canada's electric power industry with the goals of informing potential investors who wish to be socially responsible and educating the electricity sector so that it keeps social and environmental concerns in mind during the approaching period of industry restructuring.
"Though written primarily for the investment community, this report will be of interest to utility managers and policy makers seeking to keep their 'heads up' and position themselves for a vastly altered operating environment," explains Janice Loudon, SIO's Manager of Special Projects.
The first report in the series is the Canadian Electric Power Industry National Roundtable Report and is based on roundtable discussions sponsored by SIO in April, 1996. Participants in discussions included representatives of provincial utilities, independent producers (including IPPSO Board members Paul McKay and Stephen Probyn), the Canadian Electrical Association and the BC Utilities Commission.
The roundtable discussed such questions as: the economic rationale for restructuring; and how restructuring will affect the environment, labour, consumers, aboriginal communities, and social investors.
Part 2 of the series is the Focus Report which, according to the SIO, "Is the most comprehensive review of the social and environmental issues facing the Canadian electric power industry ever published by a fully independent organization." The report was written by founding IPPSO Board member Jay Shepherd, LL.B.
The report begins by examining the history of the industry in Canada and how it developed to the state in which it exists today. It then looks at the economic, political and ideological factors motivating the current restructuring movement and examines possible routes the industry will take, including the inherent dangers.
It examines key environmental and social questions being debated within the industry and identifies key interest groups and how they can best be included in the debate.
Part 3 is a handy Social Investment Profile which gives key statistics, information and viewpoints that can help investors and electrical industry executives make social and environmental decisions.
According to the SIO, "It is (our) hope that the SIO Electric Power Industry Report series helps to advance both understanding of, and commitment to, addressing and resolving the social and environmental issues challenging the industry, in a manner that is both economically feasible and financially responsible."
The general conclusion of the report is, "The electric power industry has an uneven, but relatively good social and environmental performance record. Noticeably, private and public utilities have distinctly different performance records. While excelling in some areas, the average performance of private companies tends to lag that of their crown counterparts."
The strengths of the industry are said to be as follows: it has one of the best employee relations records in industry, it has a good environmental record compared to other industries, environmental auditing is becoming standard, and cogeneration and alternative fuel use is growing.
The weaknesses of the industry are listed as: poor employment equity especially in the private sector; the continued dominance of dirty fuels, nuclear and large-scale hydro; and a growing tendency toward downsizing staff.
To obtain copies of the report, contact the SIO at 366 Adelaide St. E., Suite 443, Toronto, Ontario, M5A 3X9, call (416) 360-6047, fax to (416) 861-0183 or by Email at: sio@web.apc.org.
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Analysis
Churchill Falls debate reveals discrepancies in utility costing
Quebec City: The debate over the Churchill Falls hydro contract between Newfoundland Hydro and Hydro Quebec, which has risen yet again, demonstrates the difficulty that exists in estimating the cost of utility services in Canada. This is a problem that is bound to plague Ontario as Ontario Hydro's assets are prepared to be sold off, restructured into separate business units, or simply placed to compete against alternatives.
The problem lies in how governments and utilities do their bookkeeping. By shifting numbers on paper, utilities and others can present figures designed to support whatever image they want to project to the public. For example, Newfoundland Hydro argues that Hydro Quebec is making $750 million a year in profits from power generated at Churchill Falls, while it pays one tenth of that amount. Hydro Quebec quickly retaliated, however, saying that their profits are nowhere near that figure. According to Hydro-Quebec Senior Vice president Michel Grignon, "I think in large part the people asserting (that Hydro Quebec makes $750 million in profit from Churchill Falls) don't know how to count."
Grignon says that if Newfoundland's figures were correct, Hydro Quebec's profits would be in the $1.5 billion range, rather than the $390 million made in 1995. According to Hydro Quebec's bookkeeping, most of their generating facilities built before 1976, about 28% of their capacity, produce electricity cheaper than Churchill Falls. Underneath this lies great controversy over the real cost of Hydro Quebec's fixed assets.
Like Ontario Hydro, some of those assets have never been properly accounted for, for any one of a number of possible reasons. Depreciation periods can be skewed, liabilities can be dissociated from the asset or ignored altogether, many internal costs can be re-allocated, and accounting categories can be changed. For example, Ontario Hydro recently moved billions of dollars of debt from its nuclear division to its hydroelectric division. Many of these practices have accounting justifications, but they all involve one thing: subjective human judgement. Nevertheless the resulting conclusions often get passed off as though they were hard numbers, like physical measurements, when they are not.
There is no agreement on the theoretical model for pricing transmission services, one of the problems at the heart of the Churchill Falls dispute. To make matters worse, many of the numbers used are not even accounting numbers, but figures derived through studies, based only partly on accounting numbers, along with other figures produced by means of less regularized procedures.
For example, when Ontario Hydro suggests that it's going to be competitive in the North American market in five years, it presents a lot of charts and graphs that appear to be based on accounting. But in reality, every significant number therein is based on the use of other numbers that are not nearly as rigorous as accounting numbers. Ontario Hydro estimates its own performance figures - an exercize that is clearly fraught with conflict of interest. It makes its own estimates of the useful life of its facilities. And it takes a unique approach to calculating its avoided costs. It employs a model and procedure used nowhere else in the world. The procedure has rarely if ever been subject to thorough public review. For a few years it switched to calculations based only on the short-term, and then it went back to long-term. Clearly, there are huge questions about avoided cost calculations, yet it's the central tool used to value efficiency, compare alternative investments, and plan the most fundamental decisions of the corporation.
Clearly, there is more than one way to calculate a utility's costs.
Grignon claims that Newfoundland Hydro made a 25% profit from Churchill Falls last year, while Newfoundand Premier Brian Tobin claims that Newfoundland Hydro is barely breaking even on the project and will be losing money by the year 2000.
The problem inherent in a dispute such as this is obvious, and not just in terms of the contract between the two utilities. If Churchill Falls were to be privatized, how could a fair price for the generating station possibly be determined, and who would be interested in investing in a project that is so sensitive to unresolved cost questions, and has so many other unanswered questions surrounding it?
Transferring this problem to Ontario, how will the province determine the selling price of generation assets, since the current book values are based on imaginary suppositions and profits that are not based on a competitive market? What will be the measures employed to determine if the playing field is level?
One of the problems with Britain's recent privatization program in the electricity market was that the true value of its generation assets was underestimated. Values were set based on the conditions that existed under a government-run monopoly. When the market changed to a private competitive one, streamlining and other efficiency improvements brought huge profits to investors. The public, though it has seen cheaper rates since privatization, has been critical that they haven't seen greater savings.
Quebec is trying to make its electricity utility look strong and profitable in order to be as attractive as possible to foreign or out-of-province investors. Quebec's economy has been battered by the uncertainties of the separatist question and needs to maintain an image of stability.
Premier Tobin and other federalists are using the situation, which was settled by the Newfoundland Court of Appeal and the Supreme Court of Canada in 1988, partly to criticize Quebec Premier Lucien Bouchard's stand that Quebec can separate unilaterally. They argue that if Bouchard can ignore Canadian law (recent court rulings have so far implied that Quebec cannot separate without the approval of the remaining provinces, although the matter is not yet settled), then they can ignore court rulings in regard to Churchill Falls.
Tobin may also be using the situation to ease the problem of providing electricity to a new nickle smelter proposed for the province to smelt ore from Inco's Voisey's Bay development. According to Rick Gill, Senior Vice President of Inco subsidiary Voisey's Bay Nickel Company Ltd., his company is looking to invest $1 billion in a new smelter to process ore from the huge Voisey's Bay reserves. Constructing this smelter in Labrador or the Island of Newfoundland would make sense geographically, but would require 200 to 300 MW, or more, of electricity. There are unsettled questions about Voisey's Bay in terms of unresolved Native rights claims.
Under the contract with Hydro Quebec, Newfoundland Hydro has the right to recover up to 300 MW from Churchill Falls at the same rate as Hydro Quebec pays, but it is already recovering 162 MW of that amount. Newfoundland Hydro also maintains 250 MW of surplus capacity on the island that it reserves for emergency use. It could use that capacity in the short term to supply a smelter, but would soon have to build more capacity at great cost, or purchase electricity, at real market rates, from Hydro Quebec.
Reform Party Leader Preston Manning is also using the situation for his own political purposes. Long critical of what he calls federal handouts to Quebec, Manning is suggesting that Ottawa deduct $750 million from transfer payments it normally gives to Quebec, and divert the funds to Newfoundland instead.
Perhaps the time has come for a national or even international conference on how to go about standardizing utility accounting practices. Otherwise it will be very difficult to know what a level playing field is. (We also may have trouble settling certain disputes between provinces.)
Ferranti-Packard gets two transformer orders
St. Catharines: Ferranti Packard Transformers of St. Catharines, Ontario was recently awarded two contracts totalling over $2 million (US) in sales.
The first order is for transformers ranging in size from 7.5 to 90 mva for a new Sacramento Municipal Utility District/Campbell Soup co-generation project in Sacramento, California. The order was placed through American-based CNF Constructors who design and build power plants throughout North America. The equipment will be delivered by November 1996.
The second order is for 9 rectifier units for a new Algoma Steel processing mill in Sault Ste. Marie, Ontario. The units, ranging in size from 7.3 to 13.3 mva, were ordered by Georgia-based Siemens Energy and Automation and will be delivered by October 18, 1996.
Ferranti-Packard Transformers is one of five business units of Rolls Royce Industries Canada Inc. and operates plants in St. Catharines and Guanajuato, Mexico.
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Westinghouse and Hydro-Quebec develop hydrogen turbine
Greenfield, Quebec: Westinghouse Canada and Hydro Quebec have formed a partnership, under a World Energy Network (WE-NET) program, to develop a global energy system based on a hydrogen- fuelled turbine generation system.
WE-NET is a program of Japan's New Energy and Industrial Technology Development Organization, which has a 28-year mandate to develop high-efficiency, environmentally benign energy technologies. Hydrogen is considered to be a clean and abundant fuel capable of producing electricity efficiently, but it is also a highly unstable gas which reacts easily and is very difficult to store for any length of time. It has, however, been tested successfully for small-scale energy requirements such as automobiles.
The Westinghouse/HQ project will develop a combustive turbine with an energy conversion efficiency greater than 60% with an eventual electricity output of 500 MW. An initial test plant with a 10 to 50 MW output will be built in Greenfield, Quebec beginning in 2002, and a full scale plant is scheduled for construction in 2015.
The sea-side location at Greenfield provides favourable ambient temperatures, air pressure and relative humidity that will help keep the hydrogen stable. Hydrogen will be delivered to the site in a cryogenic (extremely cold) liquid form and will be used to power an air liquification unit which will produce pure oxygen for combustion.
Energy analysts are of course concerned about the explosive potential of liquid hydrogen, and the cost of the energy 'embedded' in it.
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Sinkhole at W.A.C. Bennett Dam may cause shortages in electricity supply
Hudson's Hope, BC: A 40 metre deep sinkhole discovered in June on BC Hydro's W.A.C. Bennett dam, and a second sinkhole discovered in mid-September, could cause shortages in supply for BC Hydro if repairs prove to be lengthy. This has fuelled concerns of the province's industrial ratepayers who are angered about a long-term contract just signed between the utility and a Washington-based aluminum company. BC Hydro will export power to the American company at reportedly half the rates of provincial industrial customers (see story elsewhere in this issue).
This development could put BC Hydro in a situation were it's providing cut-rate electricity to American customers at a time when it must import electricity to meet the demands of its own domestic customers.
Currently, BC Hydro's generation capacity at the facility, which accounts for about 2/3 of the utility's overall capacity, has not been seriously affected. However, the specific cause of the sinkhole remains a mystery to investigators. It is believed it may be related to a bedrock settlement gauge, a 6" diameter vertical pipe extending from the bedrock to just below the surface of the earth-filled dam. "The weakness in the dam may have found its way to the surface via that pipe," says BC Hydro spokesperson Dave Read. "It's not that the pipe caused it."
Test drilling into the dam around the sinkhole, which has been filled with gravel, has been suspended for safety reasons by order of the province's water controller. It will resume after water levels have been lowered in the dam's reservoir. Although the superstructure of the dam is not believed to be in danger of failure, BC Hydro has estimated that it will cost at least $10 million to determine the cause of the sinkholes. Part of this will go toward a new access road which must be built to get drilling equipment in to the second sinkhole, about 450 metres from the first.
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Alberta oil producers form electricity lobby
Calgary: A group of 10 Alberta-based oil producers, concerned with escalating electricity requirements in oil-field production, have formed an electricity lobby.
The Senior Petroleum Producers Association, officially launched in August, will try to negotiate better rate options with Alberta's Power Pool and might intervene in future rate applications by Alberta's utilities.
"The need for this association has been building for the past several years, as the relative cost of electricity to petroleum producers has been rising," says Association Co-ordinator Dale Hildebrand of Optimum Energy Management Inc. He says that, because Alberta's oil fields are aging and require more advanced technologies to extract crude, more electricity is now required to produce a barrel of oil than in the past. He says that for some producers, electricity costs are second only to personnel expenses in manageable production costs.
"Coupled with the restructuring of the electric utility industry to make it open to future competition, the time has come for (oil) companies to have a stronger voice in how they receive and pay for the electrical services they use," says Hildebrand. He says the Association will suggest changes to streamline the construction, operation and accounting functions of the province's utilities and hopes to open discussions soon to reach negotiated settlements.
The 10 charter members of the Association are: Anderson Exploration, Canadian Hunter, Canadian Natural Resourses, Crestar Energy, Enermark, Morrison Petroleums, Norcen Energy Resources, Northstar Energy, Poco Petroleums and Renaissance Energy.
NEB recommends new intervenor funding program
Ottawa: The National Energy Board (NEB) has recommended to Federal Energy Minister Anne McLellan that a new intervenor funding program be introduced which would include an independent panel of advisors to decide on levels of funding. All funding awarded would be recovered under NEB's existing cost recovery program.
In a report to McLellan published in May, but not publicly released until July, NEB called for a budget-based program in which annual allotments from federal coffers are disbursed to approved intervenors.
Spending authority for this program would rest with NEB. One of the reasons for this option being chosen is that it can be implemented under the Board's current mandate, requiring only a Parliamentary-approved spending authorization. "Despite some administrative complexities," according to the NEB report, "This is the preferred option for implementing intervenor funding, in the absence of specific legislation, due to its flexibility."
NEB would delegate funding approval authority to an officer not connected to the regulatory process in question and applications would be screened by a committee of independent advisors. A post-hearing audit would take place to ensure proper use of the funding program.
Two other funding options were considered by the NEB in the report which McLellan requested in December 1995. One was a program funded by voluntary industry contributions, the second was a tolling methodology program in which the gas pipeline industry would provide funding and recover the money through tolls. Both were considered by NEB to be less flexible and more complex to administer than the recommended program.
NEB invited interested parties to comment on its proposal by September 9, but recognizes that, "A substantial degree of public consultation will be required," before any intervenor funding program can be implemented.
International News
Babcock & Wilcox get $100 million Korean contract
Cambridge, Ontario: Babcock & Wilcox Power Generation Group of Cambridge Ontario has been awarded the first Korean contract for flue gas desulphurisation equipment.
Hyundai Heavy Industries Co. Ltd. awarded the $100 million (US) contract to B&W in June to provide the equipment, controls and overall construction for ten 500 MW coal-fired generating stations for Korea Electric Power Corporation. The plants are expected to be operational by June 1998.
The 6-unit Hadong thermal plant and the 4-unit Taean thermal plant will employ wet limestone, gypsum-producing scrubbing systems that will remove 90% of stack emissions of sulphur dioxide.
B&W Senior Vice President Paul Koenderman says the Korean market for both boilers and environmental equipment is expected to be lucrative over the next decade as total generation capacity in the country is doubled to 60,000 MW to meet the rapidly growing needs of the economy. This contract gives B&W a important foothold in this market.
TransAlta increases stake in New Zealand utility
Wellington, NZ: Alberta based TransAlta Energy Corporation spent $82 million (Can.) in July to increase its ownership of New Zealand Capital Power (NZCP) from 49% to 100%.
NZCP is an electricity distribution company that supplies power to New Zealand's capital and second largest city, Wellington. TranAlta also holds 41% of EnergyDirect Corporation Ltd., another distributor in the Wellington area. TransAlta will probably move to merge the two firms, giving them 63% ownership of the resulting company. This move has already been approved by the Boards of both companies.
TransAlta is also spending a further $59 million to retire NZCP's debt. This move is the latest of recent investments by TransAlta in the Australian and New Zealand markets, which it has identified as favourable markets, closely matching TransAlta's experience and expertise as well as being sound investment markets.
Parsons gets contracts in Trinidad, Nova Scotia
St. Catharines: Parson Turbine Generators Canada, Ltd. was awarded two contracts in August for gas turbine generator work totalling about $10 million (Can.).
The first contract was awarded by the nationally-owned Power Generation Company of Trinidad and Tobago. Parsons will install new blades in a 50 MW steam turbine set installed in the capital of Port of Spain in 1964. The blades will be manufactured at Parson's St. Catharines plant.
The second contract is from Nova Scotia Power for the upgrade and refurbishment of the 150 MW Unit #2 steam generator at the Point Tupper Power Station. Parsons originally built and installed the generator in 1973 at the plant located in Port Hawkesbury, across the Canso Strait from Cape Breton Island.
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Canadian utilities try to convince FERC of their openness
by David McArthur and Stephen Salaff
Hydro Quebec, Ontario Hydro and other government-owned electric utility monopolies in Canada are under indirect pressure from the United States Federal Energy Regulatory Commission (FERC) to open their markets to competition from domestic and US electricity suppliers.
These utilities rely on lucrative electricity exports to the US to maintain their profitability, but such exports are now at risk unless the utilities offer reciprocal and comparable service to US utilities.
Hydro Quebec and Ontario Hydro have both established US subsidiaries to exploit new wholesale market opportunities in the US, but these utilities may not obtain the crucial marketer licence from FERC until their monopolies at home are substantially modified or ended.
Hydro Quebec has invested much effort to maintain or increase exports to the US in an effort to meet FERC requirements. Moreover, this issue was central in the dismissal of Hydro Quebec's former CEO Benoit Michel.
Ontario Hydro
However, the most recent public development in Canadian export marketing was at Ontario Hydro, which announced in August that it has established a US subsidiary Ontario Hydro Interconnected Markets Inc. (OHIM Inc.) "to take advantage of emerging export sales opportunities and expand its business in the US market."
"For many years Ontario Hydro has been active selling electricity that is surplus to Ontario's needs to neighbouring utilities in the United States," explained Dave Goulding, President of OHIM Inc. To maintain the benefits of these sales in the face of restructuring in the US electricity industry, "we need to establish a US subsidiary which we believe will provide substantial opportunities for sales beyond the international border."
In 1995, Ontario Hydro's revenue from traditional exports, where the buyer takes title to the electricity at the international border, was $220 million.
OHIM Vice President Bruce Mackay said that OHIM "may apply" to FERC for a marketers license. Such a license would appear crucial to OHIM's commercial options, by allowing it to hold title to electricity in the United States, which it could deliver at market- based rates directly to the home markets of its customers. Without a FERC marketers license, OHIM could sell only to utilities, brokers and marketers at the international border.
Mackay noted that whereas TransAlta Enterprises Corp., a subsidiary of Alberta-based TransAlta Utilities Corp. has received a FERC marketer license, FERC in October 1995 denied the market- based rate application of the Energy Alliance Partnership of Hydro Quebec Energy Services (US) with two natural gas companies, Noverco of Montreal and CNG Energy Services of Pittsburgh (IPPSO FACTO, February 1996, p 33).
With its near total monopoly on a closed provincial market, Ontario Hydro's situation appears nearer to that of Quebec than it does to Alberta, which has a new power pool offering wholesale transmission access and a form of competition in electricity supply.
In May, Ontario Hydro asked FERC to rehear certain portions of its landmark Order 888 which charts the course to a fully competitive, nondiscriminatory open access wholesale market. These clauses of Order 888 establish reciprocity requirements for foreign electric utilities as a condition for obtaining open transmission access under the open access tariffs mandated by FERC for public electric utilities.
FERC had not rendered its decision on any petitions for rehearing at press time. However, FERC has been in negotiations with Hydro Quebec.
Hydro Quebec
In the Hydro Quebec case, FERC ruled that the Energy Alliance "must demonstrate that Hydro Quebec offers non-discriminatory wholesale access to its transmission system that can be used by competitors of Energy Alliance." This would include competitors in both the US and Canada.
According to Claude Dube, Hydro Quebec's Vice President for external markets, FERC has indicated in recent discussions that it might accept adaptations to full open access that reflect "the structural differences that exist between Hydro Quebec's network and the adjoining US networks, most notably the presence of a large integrated provincial power pool and public ownership of its assets." Dube said that the transmission access reciprocity requirements proposed by the New England Power Pool (NEPOOL, a power pool which closely integrates most New England electric utilities) would place "unreasonable" demands on Hydro Quebec, beyond those which FERC may require."
Hydro Quebec is disappointed that NEPOOL's regional transmission group proposal, in its present form, would not embody the flexibility shown in recent negotiations with FERC.
A regional transmission group is a voluntary organization of electricity transmission owners and users formed to facilitate transmission access. Several RTGs formed in response to open access provisions of the 1992 US Energy Policy Act, the first being the Western Regional Transmission Association, in which BC Hydro and its marketing subsidiary Powerex are founding members. An RTG to include New England states is under discussion.
Meanwhile, Hydro Quebec bolstered its export marketing effort in related deals it completed in February 1996 with two Vermont utilities - Central Vermont Power Public Service and Green Mountain Power - which give it access to 94 MW of capacity on the Quebec to New England Phase 2 transmission line for five years from mid 1996. Central Vermont will provide Hydro Quebec with 54 MW of transmission capacity for $7.9 million. In addition, Hydro Quebec is paying Green Mountain Power $5.6 million for 40 MW of transmission capacity.
The two deals form a single marketing concept in which all three parties will help to sell Hydro Quebec power, and gain from the sales.
Moreover, HQ Energy Services, a Hydro Quebec subsidiary, recently joined with three US energy companies to form Green Mountain Energy Partners in Vermont, to compete in the emerging US retail electricity market and to target the retail wheeling pilot program in New Hampshire, the first state to sign residential retail customer service into law (IPPSO FACTO, June 1996, p 28). More than 40 states are now considering similar schemes and are looking closely at how events in New Hampshire proceed.
Benoit Michel's view of Hydro Quebec's restructuring effort.
Hydro Quebec's official account of its dismissal of former President and Chief Executive Officer Benoit Michel was challenged in a lengthy letter of defence which Michel published on July 27 in four Quebec newspapers.
Hydro Quebec's new President and CEO Andre Caille was hired away from Montreal based natural gas distributor Gaz Metropolitain Inc., a subsidiary of Noverco. As President and CEO since 1987, Caille promoted Gaz Metro's entry into the deregulated US natural gas market, and his appointment is the most recent signal that the Bouchard government in Quebec is augmenting Hydro Quebec's bid for US marketer status.
Caille replaced Benoit Michel, who lost his position in July in a bitter power struggle with Hydro Quebec's former chair Yvon Martineau, a political appointee of ex-premier Jacques Parizeau. Then Lucien Bouchard forced Martineau from his post in mid September, and a new chair had not been named at press time.
From his candid account of his dismissal, Michel was trying his best to restructure Hydro Quebec to meet FERC requirements.
In a terse press release on July 4, the public utility had portrayed Michel as resistant to vital changes, including the implementation of competition in electricity supply. The Hydro Quebec board alleged that during his short term of seven months of a three year contract, Michel was unable to lead the utility through a major restructuring in a period of government mandated budget restrictions and cost cutting.
In his unusually frank and direct response, Michel indicated that before his abrupt termination, he was in fact rapidly implementing a new management structure, unbundling of functions, and other changes at the utility to conform with the FERC open access requirements. Michel was also preparing Hydro Quebec to meet the requirements of a new Quebec regulatory organization for which legislation has been drafted.
"The first phase of the project modified the senior management structure to create business units separating the main activities of the company (production, transportation, distribution and marketing)," he wrote. "The structure was unanimously approved by the board on May 2. I was also responsible for the subsequent phases of the project that were presented at the same board meeting," he indicated.
Michel claimed that the management structure he promoted would make utility operations less cumbersome, while clearly dividing all the regulated activities from all the non-regulated ones for administrative and accounting purposes.
Michel's letter indicated an acute awareness for Hydro Quebec to conform to FERC's rule. He wrote that since 1985, Hydro Quebec has had export sales of about $5.4 billion, of which 60 percent are in the short-term market.
He indicated, "Hydro Quebec is well-positioned for the opening of markets that represent a very important business prospect for the company. However, in view of the reciprocity requirements of FERC, if Hydro Quebec wants to benefit fully from the opening of US markets, it will have to agree to some form of opening of its own network. This would allow Hydro to have direct access to bulk purchasers rather than sell at a lower cost to intermediaries."
Michel added that "on top of having to respect the FERC's reciprocity requirements, Hydro Quebec will also have to abide by other requirements governing the separation of its activities in terms of administration and accounting if it wants to benefit from the opening of US markets. The FERC deadlines for conforming to these requirements are very short."
Green pricing moving forward in US
by David McArthur and Stephen Salaff
Pioneering "green pricing" programs have begun at an innovative group of United States electric utilities. This potentially revolutionary concept allows residential and other utility customers to pay a premium on their electricity bills to underwrite the construction and use of renewable electricity generation.
Up to 80 percent of customers surveyed approved of these programs. These utilities conclude that green pricing increases customer satisfaction and brand loyalty, both important goals in a competitive market.
Implicit in the green power pricing underway is the democracy of customer choice, which promises to allow retail customers to choose renewable power over other electricity generation options.
Numerous public opinion polls in Ontario and elsewhere show that most electricity customers would prefer to use renewable electricity if allowed a choice. Consumers show a marked preference to minimize the consumption of coal, nuclear, and other environmentally questionable forms of generation.
The authoritative Public Utilities Fortnightly cited in August 1996 a research study at Ontario Hydro which examined 599 municipal and utility commercial customers and 320 retail commercial customers. The study projected commercial and industrial participation equivalent to the support shown by the 4,153 residential customers who were surveyed. When asked "How much more per month would you be willing to pay to increase the amount of 'Green Electricity' generated in Ontario?," commercial customers proved willing to pay premiums from 300 to 700 percent higher.
A green power program allowing customer choice could potentially enable all customer classes to shift their demand away from less desirable, traditional forms of generation, and encourage the rapid commercial development of major renewable energy resources.
Green power pricing in the US was most likely a precursor of the "Green$hares" program proposed by Ontario Hydro's Brian Kelly to fund future Renewable Energy Technology (RETs) projects (IPPSO FACTO, December 1995, p.9). Greenhouse gas reduction credits can also be a facet of green power pricing proposals, which could potentially make them highly attractive to customers and industry.
Green power pricing may also be a means of preventing renewable electricity from being priced out of the emerging competitive free market in electricity in the US, which could otherwise favour the lowest cost suppliers based on price alone, including fossil fuel generation and other environmentally unfriendly forms of generation.
Green pricing in the Massachusetts retail wheeling pilot project
Perhaps the newest and broadest application of the concept of green pricing is to retail access pilot projects, which allow customers to choose the source of their electricity supply from a wide variety of utility and non-utility generators. Green electricity could be one of several attractive options offered to consumers.
Such a competitive pilot project is already underway in the Massachusetts Electric residential and small business retail wheeling pilot. This pathbreaking program is being offered to 10,000 customers in the Massachusetts cities of Lawrence, Lynn, Northampton and Worcester by Massachusetts Electric, a subsidiary of the New England Electric System (NEES). Massachusetts Electric services these cities and is the state's largest electric company, with 949,000 customers.
The request for proposals solicited bids for up to 100,000 megawatt-hours per year, half of which is being offered to both residential and small business customers. The RFP encouraged bids from suppliers in three price categories: a lowest cost supply; a green pricing rate at a premium price; and a third category of power which could be combined with conservation or some other value-added service.
Environmental Futures Inc., a Boston-based energy and environmental consulting firm, is acting as the program administrator handling the RFP for NEES. By July 31, the RFP closure date, 40 proposals were received from 15 suppliers, consisting of power marketers, utilities, municipals and independent power producers in several US states.
Some nine suppliers to be prequalified by Environmental Futures, would be allowed to compete for customers in the four cities. Suppliers offering green power will be evaluated on the basis of price as well as non-price aspects, such as how the projects impact air quality and environmental offsets. Suppliers must identify the source of their power and explain how they will market the power to customers. Massachusetts Electric will continue as the distribution company, and will deliver the power, and supply metering and other services.
Environmental Futures will then send the winning names and services offered to customers, who will choose their electricity suppliers, based on price, environmental profile, or other attributes. Bidders' names and details of their bids, as well as winning bids, are expected to be announced this fall. The program is scheduled to begin by January 1, 1997, and to continue for one year.
This residential RFP is phase 2 of the NEES retail competition pilot. Phase 1 offered 40 MW of industrial demand to competition.
The NEES pilot, if successful, could become the model of other retail projects across North America offering green power at green prices.
Utility green pricing programs
The Fortnightly reviewed seven green pricing programs at US utilities. It notes that green pricing is not just for residential electricity consumers, but "a substantial niche market of commercial and industrial customers that are favorably disposed to green electricity" exists as well.
However, most of these green pricing programs are somewhat restrictive, when compared to the NEES pilot. The seven programs allow customers to fund and access only renewable generation sanctioned, owned and controlled by a utility. Even then, only certain forms of green power are available, for limited applications.
Seven US utilities have started green pricing programs, with up to 3 percent of residential customers participating. Green pricing is applied in three ways: customers can purchase renewable electricity as a product at a premium; customer premiums can contribute to a particular renewable generation program; and customer bills can be rounded up to the nearest dollar to support renewable electric generation.
"The most popular residential programs to date are those in which customers pay the lowest premiums" for green power, noted the Fortnightly.
The Fortnightly described seven existing programs:
- Public Service Co. of Colorado (PSCC) has two programs. The Renewable Energy Trust (RET) Program accepts monthly pledges from customers to fund accelerated renewable generation construction. Some 5000 customers participate, with an average monthly premium of US$1.70 and annual revenues of $102,000. This program collects the most revenue of the seven.
- A second PSCC initiative, the RET Round-Up Program, rounds up customers bills to the nearest dollar to support renewable generation. Some 7,000 residential customers participate, with an average monthly premium of $0.50 and annual revenues of $42,520.
- Wisconsin Public Service Corp. has the SolarWise for Schools Program, where monthly pledges support the construction of photovoltaic systems on high school roofs. Some 744 customers participate, with a premium of $1.70 and annual revenue of $15,204.
- Gainsville Regional Utilities (Florida) solicits monthly pledges for photovoltaic generation systems. Some 657 customers participating, $3 premium, $25000 annual revenue.
- Sacramento Municipal Utility District (California) has a PV Pioneers Program, where PV systems are installed on customer roofs for a $4 monthly premium. Some 340 customers are participating, $4 premium, $16320 annual revenue.
- Traverse City Light and Power (Michigan) has a Green Rate Wind Project, which supplies customers from a 600 kW wind turbine for $0.083/kWh, with a $0.0158/kWh premium. Some 263 customers are participating, $6 premium, and annual revenue of $18960.
- Detroit Edison (Michigan) has a SolarCurrents Program, where customers purchase a share of capacity in a PV system, for about $6.59 per 100 watt increment. Some 195 customers participate, with a premium of $9.89, and annual revenue of $23,130.
- Niagara Mohawk Power Corp. (New York) has a GreenChoice Program, which charges $6 per month. Five-sixth is spent on renewable energy projects, and one sixth on tree planting. Some 154 participate, with a premium of $6 and annual revenue of $11,088.
Several of these programs are very new, so participation and annual income are expected to increase in several cases.
Green pricing for Alberta?
In southwestern Alberta, the town of Pincher Creek has proposed a green power rate as part of a proposal to build several wind turbines in the area.
In a much larger and more recent project proposed for the same area, York WindPower of Montreal, Enercon GmbH of Germany, and Wind Power Inc. of Pincher Creek have proposed a 250 average MW wind power park, in addition to a wind turbine manufacturing facility. The proponents are lobbying the Alberta government to establish a green power pricing system, coupled with greenhouse reduction credits, as part of the proposal (see article in this IPPSO FACTO).
Green power marketing
Another exciting green power trend in the US is the emergence of the non-utility "green power marketer." One or more such marketers have already bid on the NEES retail pilot discussed above. þ recent example of this new type of marketer is the independent power developer Calpine Corp. of San Jose, California, which plans to market green power in California and the Pacific northwest. Calpine owns and operates three geothermal plants totalling 67 MW in northern California, and sells their energy to Pacific Gas & Electric.
Calpine is also developing a 45 MW geothermal project in southern Oregon, planned to start-up in 1999, and has a memorandum of understanding to sell 30 MW of the output to the Bonneville Power Administration. It will market the remaining output to industrial companies. Calpine also owns and operates gas-fired projects.
According to the Utility Environment Report, August 16, 1996, Barrett Stambler of Calpine's regional office in Portland, Oregon, believes the company will be in a unique position to provide such green products to the marketplace. He suggests some companies will choose to diversify their energy mix in the same manner that homeowners choose between fixed-rate and variable rate mortgages. Green power offers a secure supply at a stable price even though it may be priced slightly higher, he indicated.
Calpine is one of an emerging breed of North American power marketers which will offer wholesale and retail customers large amounts of increasingly preferred green power at competitive rates. This will include hydropower, windpower, geothermal and other forms of generation.
Governments edge closer to international controls on greenhouse gases
by David McArthur and Stephen Salaff
Concern that emissions from fossil fuel combustion are contributing to "discernible" global climate change led 150 governments, nearly the entire world community, to agree for the first time on the principle of legally binding national limits on emissions of greenhouse gases, which will be established over coming months.
This accord emerged in mid-July from the Geneva "Conference of the Parties" (COP-2) to the international Framework Convention on Climate Change (FCCC). COP-1 was held in Berlin in spring 1995.
The agreement acknowledged that most nations are not achieving the existing FCCC goal of a return of greenhouse gas emissions to 1990 levels by 2000, and that more effective new measures are needed. The initiative which sparked the agreement was provided by the United States, in a speech by Timothy E. Wirth, Undersecretary for Global Affairs on July 17, near the end of the COP-2.
The United States "recommends that future negotiation focus on an agreement that sets a realistic, verifiable and binding medium- term emissions target," said Wirth. "We believe that the medium- term target must be met through maximum flexibility in the selection of implementation measures, including the use of measures such as reliable activities implemented jointly and trading mechanisms around the world." This appears to be a major about- face, since for the past eight years, official US policy has been that there should be only "voluntary controls."
IPCC findings endorsed
Fundamental to the strong new position for binding targets were the findings of the Intergovernmental Panel on Climate Change (IPCC), which the governments endorsed at the Geneva meeting.
The COP-2 Geneva declaration indicated, "The balance of evidence suggests a discernible human influence on global climate. Without specific policies to mitigate climate change, the global average surface temperature relative to 1990 is projected to increase by about 2 degrees C (between 1C and 3.5C) by 2100, and the average sea level is projected to rise by about 50 centimetres (between 15 and 95 centimetres) above present levels by 2100. Stabilisation of atmospheric concentrations at twice pre-industrial levels will eventually require global emissions to be less than 50 percent of current levels."
Wirth said "the IPCC's findings meet the highest standards of scientific integrity...The science calls upon us to take urgent action; the IPCC report is the best science that we have, and we should use it."
Berlin and Geneva
The first Conference of the Parties (COP-1) held in Berlin in April 1995, concluded that existing steps to achieve greenhouse gas emissions stabilization by year 2000 are inadequate. COP-1 created a legal process that would enable the developed countries to take appropriate action for the period beyond 2000.
Wirth said in Geneva that the US "is committed in these negotiations to ensuring that all countries -- developed and developing -- take steps to limit emissions, consistent with the mandate agreed upon last year in Berlin."
The Geneva declaration commited the governments to "quantified legally-binding objectives for emission limitations and significant overall reductions within specified timeframes, such as 2005, 2010, 2020, with respect to their human made emissions by sources and removals by sinks of greenhouse gases not controlled by the Montreal Protocol (which covered gases which affect the ozone layer)."
The Canadian stance
Canada's Environment Minister Sergio Marchi said in Geneva on July 17 that, "While both the rate and distribution of climate change worldwide is still uncertain, Canada does not look upon this uncertainty as an excuse for delaying action. Let there be no mistake. The threat of climate change is real and present, and the cost in human discomfort and suffering is incalculable."
Marchi said, "it is Canada's belief that science has spoken in a voice that is loud and clear. Our national government, including provincial and territorial jurisdictions, strongly supports the findings of the IPCC's Second Assessment Report as the most authoritative and comprehensive analysis of climate change to date. It is our belief that humanity will ignore its findings at its own risk."
Marchi continued, "Just as we accept this threat as real, we must also accept the reality that our efforts to limit greenhouse gas emissions are not working as well as we had expected." He noted that Canada's "voluntary challenge and registry" (VCR) has been the chief Canadian effort thus far. A meeting of federal, provincial and territorial energy and environment ministers will be convened this fall to assess where we are, and more importantly, to chart the course ahead, he indicated.
"Getting our own house in order is a priority for the Canadian government, and it will be guided by principles of openness and transparency."
Marchi's speech suggests that he could call for legally binding greenhouse gas emission limits enforced by Environment Canada to supplement the VCR at the upcoming ministers' meeting.
Insurance industry action
Fear of the effects of climate change was clearly a motivator to the unexpected Geneva agreement. Highly influential at the COP-2 negotiations were representatives of 57 international insurance firms who demanded "early substantial reductions" in greenhouse gas emissions.
A position paper on climate change submitted to the Geneva conference by the 57 companies, who are members of the UN Environmental Program Insurance Industry Initiative on Climate Change and the Environment, highlighted the industry's concern that, while the effect of climate change on the frequency or severity of extreme weather events remains unknown, it is clear that even small shifts in regional climate zones or storm patterns could lead to increased property damage. The insurers also point out that climate change could potentially have large implications for investment activities as society anticipates and adapts to the new climate regime.
"When a major industry such as the insurance sector starts to worry, so should we," said Elizabeth Dowdeswell, the Canadian Executive Director of the UNEP. "While some industries think more about the costs of taking action against climate change, insurers know from experience how expensive it can be when people fail to protect themselves adequately from risks."
The position paper concluded that human made climate change will lead to shifts in atmospheric and oceanic circulation patterns. This will probably increase the likelihood of extreme weather events in certain areas. Such effects carry the risk of dramatically increased property damage, with serious implications for property insurers and reinsurers.
The insurance industry is currently under stress from a series of "billion dollar" storms since 1987. Insurance industry settlements for storm damage in the first half of the 1990s totals some $48 billion, about three times the figure for the 1980s. This has led to dramatic increases in claims, reduced availability of insurance, and higher premiums. These higher losses are the result of extreme weather events combined with the expansion of high-value infrastructure.
Moreover, "climate change and society's response to it may have important repercussions on stock markets," said Hans Alders, UNEP's European director. "Products and industries that are heaviliy dependent on climate or energy may become less attractive to investors. An early, planned effort to control greenhouse gas emissions would reduce the probability of abrupt stock market reactions."
The steering committee for the initiative includes General Accident (UK), Gerling-Konzern Globale Reinsurance Company (Germany), N.P.I.(UK), Sumitomo Marine & Fire Insurance Co. (Japan), Swiss Reinsurance Co. (Switzerland), and Uni Storebrand (Norway).
Opposition discredited
The Geneva agreement turned its back on the "Climate Change Coalition" (CCG), an association of utilities, large industrials, fossil fuel providers and manufacturing firms, which has lobbied to nullify the IPCC report conclusions. Holdout countries including Australia, China, and OPEC members were also isolated.
Also discredited were a body of some 100 American and European scientists holding a minority view, who publicized the "Leipzig Declaration" in Geneva during the conference, condemning proposals to reduce global warming, including international controls and taxes on energy, and warning that there is still no scientific consensus on the subject of climate change.
The scientists who created the IPCC reports have strongly defended their conclusions, and refuted allegations that their conclusions are not a consensus of the majority of the world's scientific community.
Canadian studies
In July 1996, Environment Canada released the "Mackenzie Basin Impact Study," a regional study on the effect of climate change in Canada which found evidence of warming in the Mackenzie Basin in northern Canada, which includes parts of Alberta, Saskatchewan, British Columbia, the Yukon and the Northwest Territories (IPPSO FACTO, July 1995, p 19).
The 1.5 degree centigrade warming this century has lowered lake levels and thawed permafrost in the area, and these and other effects would become more pronounced as warming progresses by 4-5 degrees C until the middle of the next century. The area may be providing an early indicator of the effect climate change can have on an ecosystem. Other Canadian climate change impact studies are underway.
Natural gas usage keeps the UK on track
John Gummer, the British environment secretary of state, described a study by his government on the effects of climate change on the United Kingdom. He predicted increased extreme climate events such as droughts, flooding and storms as warming over the next 30 years pushes climate zones northwards by as much as 200 kilometres, with concommitant adverse effects on agriculture and the economy (IPPSO FACTO, July 1995, p 19).
Yet the UK is one of the few countries in the world which is on track to meet its Rio commitments, and has actually reduced its carbon dioxide output over the past five years by 5 to 8 percent, thanks largely to its significantly increased use of natural gas to replace coal in power generation.
A new direction
The Geneva declaration indicated that "Significant reductions in net greenhouse gas emissions are technically possible and economically feasible by utilising an array of technology and policy measures that accelerate technology development, diffusion and transfer; and significant "no-regrets" opportunities are available in most countries to reduce new greenhouse gas emissions."
In tune with this are three principles underlying the new US stance, which should guide the new multilateral negotiations, according to Wirth:
- The negotiations must focus on outcomes that are "real and achievable," to avoid the prospect of truly draconian and economically disruptive policies in the future.
- The US will continue to seek "market-based solutions" that are flexible and cost-effective; Wirth also proposed emissions trading.
- The agreement should lay the foundation for continuing progress by all nations in the future...all nations -- developed and developing -- must contribute to the solution to this challenge.
At the end of his statement, Wirth concluded, "In summary, we have come to the conclusion that the current structure of the Convention is less than ideal. Performance under the current regime -- or lack thereof -- suggests that a new model must be considered. Next steps must be structured in a way that will help produce the desired results -- not just more rhetoric. We believe that circumstances warrant the adoption of a realistic but binding target, leaving it to individual governments to decide the most appropriate measures needed to meet the agreed target. We are convinced that the target must be both realistic and binding because it is only through the surety of a commitment of this nature that governments will take their obligations seriously and the only way we can be assured of progress."
"We are also convinced that it is the target that should be binding, not the individual measures, thus allowing maximum flexibility in implementation. Continued use of non-binding targets that are not met makes a mockery of the treaty process. It leaves the impression that rhetoric is what counts rather than real emission reductions -- an outcome that is both unacceptable and counterproductive."
ATCO deal to build largest Australian Cogen
Calgary: Calgary-based ATCO Ltd. signed a partnership deal in July between their wholly-owned subsidiary CU Power Australia Pty. Ltd. (CUPA) and Boral Energy of Australia to build that country's largest cogeneration project.
The $170 million, 180 MW station will be built in Osborne in the State of South Australia and will sell electricity to the Electricity Trust of South Australia (ETSA Corp.). Thermal energy will be delivered to a soda ash production plant in this suburb of Adelaide.
According to CUPA President Graham Lock, "The cogeneration plant makes commercial sense for CUPA and Boral Energy because as operators we can use natural gas in a double process which maximizes the efficient production of electricity and steam, and sell both products at very economic prices."
Construction will begin this fall and is expected to take 20 months to complete, creating 200 local construction jobs. It will utilize a 120 MW gas turbine equipped with advanced emission- control equipment and a 60 MW steam turbine. Gas consumption for electricity production in the State of South Australia will actually be reduced as a result of this project. Enough natural gas to supply about 150,000 Adelaide homes will be saved. As well, carbon dioxide emissions, a major greenhouse gas and source of smog, will be reduced in the State by about 150,000 tonnes per year.
New York State seeks to lower business power rates
Albany, NY: Two New York State legislators sponsored a bill in July that, if passed, will reduce electricity rates for businesses in the State and, they say, spur job growth.
Senator Dale Volker and Assemblyman Paul Tokasz say their bill will create 45,000 jobs in the state at a cost to residential electricity customers of "only pennies per month."
Volker and Tokasz released a statement claiming that New York's businesses pay an average of 60% more for electricity than neighbouring jurisdictions, making new investments or business expansions in the state less attractive than expanding or investing into other states or provinces.
Currently, the New York State Power Authority has 11 MW of electricity which it can allocate to businesses at cut rates in order to maintain customers or encourage new investments and growth. According to the Authority, this program has helped 220 business customers and helped create or keep 150,000 jobs in New York since the program began in 1987.
Volker and Tokasz, however, say this is not enough. Although they recognize that restructuring of the power market, including open competition, expected within 2 to 5 years will probably bring cheaper rates, they say that is too long for some businesses to wait.
Their legislation would expand the amount of electricity available for allocation under the current program by including any power produced at the Fitzpatrick Power Plant that is "voluntarily relinquished" by the Authority's customers. The Authority would also be enabled to allocate any other surplus supply it could find, although this "would constitute a minute portion" of what privately-owned generators sell commercial and industrial users.
The bill has not yet received first reading in either house of the state legislature, and it is as yet uncertain how much support it will have.
Oil-rich but power-poor
Saudis consider privatization to handle 'energy crisis'
Riyadd, Saudi Arabia: Despite Saudi Arabia's vast wealth of oil and natural gas, the country is currently facing an 'energy crisis' of its own as rapid demand for electricity has outpaced the growth in generation.
As a response to this problem, the Saudi government, a staunchly conservative Islamic absolute monarchy, is now considering privatizing its electricity market because it cannot pay the $40 billion (US) needed by the turn of the century to expand the generation and distribution system in the nation.
A rapidly modernized and affluent population has led to increases in electricity demand four times greater than industrial growth during the 1990s. Insufficient growth in generation capacity has meant routine blackouts in parts of the country and industries either turning to diesel generators or putting new investments on hold. Summer peak demand, when air conditioners are considered an essential in the desert kingdom, is currently growing at 10% per year.
According to the top Saudi electricity official, Mahmoud Taiba, "Every consumer can use half the energy he is now using without any inconvenience. Every day there is a new street, a new transformer, a new line. The situation now is very difficult."
During the 70s and 80s, Saudi's became used to seemingly unlimited sources of revenue as high oil prices and the world's dependence on Saudi oil brought huge revenues into the kingdom of about 15 million people. Large amounts of this revenue was spent on impressive infrastructure works in the country, including hospitals, roads & highways, office towers and airports. Electricity generation and distribution, however, curiously lagged behind. While demand doubled during the 80s, capacity only increased by 50%.
The world's energy situation has changed drastically since those days, however. Oil prices have fallen sharply, new sources have been found outside of the Persian Gulf region, and the industrialized nations have been steadily moving to alternative sources of electricity. Now, while Saudi Arabia has everything most countries would need to fuel massive economic growth, it no longer has the cash flow to pay for the new electricity generation capacity it needs to realize that growth.
This is why the kingdom is now considering privatization, including at least partial foreign ownership, as a solution. This will not be as easy an option as it may appear on the surface, however.
The Saudi people are conservative, culturally independent and traditionally are wary of allowing any foreign influence, particularly in key aspects of Saudi society. Electricity rates in the kingdom are extremely low, being heavily subsidized, and there is resistance to dramatic increases. In 1995, residential rates were doubled, yet still remain among the lowest in the world. This means that even the cheapest and most efficient generation technologies will not be profitable for foreign investors.
The use of the country's vast reserves of oil (1/4 of the world's known reserves) for electricity generation is also not a viable option. Strict OPEC production limits that are necessary to stabilize low oil prices in today's markets would require Saudi Arabia to divert exports for electricity production, reducing the country's main source of revenue.
The most serious obstacle to privatization is the state of the country's four regional utilities. All are state-owned with heavy debts and are not fully interconnected, making transmission across the country difficult, if not impossible. The Red Sea coastal area around the second largest city, Jeddah, and the holy city of Mecca is completely cut off from the east in terms of transmission lines, as well as oil pipelines. Industrial customers in this region have a reputation for not paying their utility bills as well, after years of government leniency and favouritism.
The oil-rich east is more promising for foreign investment. The Saudi government signed a contract in July with Mitsubishi Heavy Industries Ltd. of Japan to build a $1.1 billion (US), 2,400 MW natural gas-fired plant on the Persian Gulf coast. The Saudi Eastern Electric Company will own the plant, which is receiving 50% of its financing from American and Swiss banks. The reason for the willingness of foreign investors to be involved in this project is that the main customer will be the state-owned Saudi Aramco Oil Company, the second largest oil company in the world.
The Saudis are also currently seeking an outside investor to build, own and operate a 1,500 MW generation facility near Jeddah. They are also seeking to raise rates further to make foreign investments profitable, and are considering forcing princes and ministers to pay their utility, telephone and airfare expenses; something never done before.
CORRECTION
In the article "Brock University cogeneration system a quiet success" published in August 1996, the line which read as follows is wrong: "Reciprocating engines were chosen over turbines because of their ability to operate modularly, and the fact that maintenance can be performed by relatively low-skilled mechanics."
The line should have read: "Reciprocating engines were chosen over turbines because of their ability to operate modularly, and the fact that maintenance can be performed by personnel without stationary engineer certification." IPPSO FACTO apologizes for the error.
Organizational News
IPPSO Board proposes fee increase
Toronto: IPPSO's Board of directors reluctantly agreed that fee increases are the best way to keep the organization healthy in the coming year. At its September meeting, the IPPSO Board authorized a resolution increasing individual membership fees to $250 from $150 per year. It also increased corporate member fees, and codified a system to identify the number of votes and the number of secondary members associated with each type of membership.
The fee proposal will be put to the membership for a vote at the annual general meeting on October 22.
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