by Randy Hurst
TORONTO -- Ontario Power Genera-tion will hasten "decontrol" of its share of electricity generation in Ontario by selling two of its major thermal power plants, the Lakeview coal-fired generating station and the Lennox natural gas and oil-fired generating plant, within the next year. But OPG president Ron Osborne has refused to attach a price tag to the stations.
"It's going to be an auction process and we will obviously expect to extract the highest value. We won't do that by putting a price on it," he recently told a news conference. "It's up to investors to come up with their best shots," he remarked.
Under deregulation, the utility must cut its market share from 85 per cent to 35 per cent in 10 years, and is shedding power generation plants to meet that goal.
The first phase involves the decontrol of 4000 MW of mostly fossil-fuelled generation by 2004. This is roughly the amount of generation that Toronto would need on a winter day..
The second phase, to be completed by 2010, involves the additional decontrol of OPG assets so that OPG will represent no more than 35 per cent of the supply options available to the province.
"We have many decontrol options. We could swap generation, lease our facilities, or sell assets. The result will be more players and more choice for electricity customers," he said.
Ontario Energy Minister Jim Wilson asked Ontario Hydro to cut its market share as quickly as possible after industry leaders told the government last fall they would like to see deregulation progressing faster.
"Our goal is to meet our phase 1 objective of decontrolling 4000 MW prior to the market's scheduled opening in November. This would be more than three years earlier than required," he said.
OPG hopes to sell the plants before Ontario's electricity market opens to competition in November. Mr. Osborne expects both U.S. and Canadian buyers to show an interest in the Lakeview and Lennox plants.
In all, Ontario Power has more than 31,000 MW of capacity, including mothballed nuclear power generating stations.. The Lakeview and Lennox plants account for 44 per cent of OPG's thermal power generation.
Mr. Osborne said he will consider all options to divest the utility of the stations.
As far as what to do with the revenue from such asset sales, he said that he will discuss with the province, (which he refers to as the utility's shareholder), how much money will stay with OPG to invest in future projects and how much will be used to pay off "standed" debt incurred by the former Ontario Hydro.
"We will have to satisfy them we have good investment opportunities. Failing that, they'll take it all," he added.
Those investments could include expanding into the United States, which the OPG president plans to use a way of maintaining its competitive position in the North American market while shedding assets in Ontario.
"Over time, we will need to have facilities in the United States," he commented.
North American Electricity Reformation
The U.S. electricity industry is currently going through a period of electricity reformation and restructuring follows that of other major industrial sectors -- such as telecommunications, natural gas and financial services. In the United States, the pace of deregulation is increasing. Five years ago, fewer than 10 states were restructuring their electricity sectors. Today, there are at least 40.
"We're seeing U.S.electricity industry consolidation on a massive scale. The proposed merger of Unicom and PECO in the U.S. represents combined assets of $31.8 billion (U.S.), and brings together two companies with major nuclear programs." he said.
The planned $30 billion (U.S.) merger of American Electric Power with Central and South West Corp. will create one of the largest generators in North America at 38,000 MW. These would be major energy powers stretching across large parts of the continent. He predicted that within a few years power producers will think nothing of operating on both sides of the border.
``There will be a seamless northeast continental marketplace,'' he said. ``Ontarians will buy from the States, and the states will buy from Ontario.''
However optimistic he may seem no one knows how this north-south pool will work when residential electricity prices, for instance, are 20 cents (Cdn.) In New York State and 6-8 cents (Cdn.) In Ontario and even less in Quebec. With such a price disparity between these two grids, in theory it would be much less profitable for Ontario generators to sell electricity to Ontarians when they could secure markets in New York State and likewise, less profitable for New York State generators to secure contracts with Ontarians then selling electricity on the south side of the lake. It seems that the only solution to this problem is for prices to increase dramatically in Ontario, something pointed out by many critics of deregulation.
Over the past year or so, in response to the Ontario government's announcement that the electricity market would be deregulated, a number of companies have announced new electricity generation projects here in Ontario. The most recent was Sithe Inc., which is planning to build two 800 MW plants in Mississauga and Brampton. They will join TransAlta's 525 MW generating station planned for Sarnia, and a number of other announced projects totalling an additional 600MW.
"We look forward to competing with these companies on a level playing field where all participants are subject to the same market rules," he said.
"We are also moving quickly on another front. Last fall we began seeking public-private partnerships for our Bruce Nuclear facility near Kincardine," he said. "This includes 3,000 MWs at the temporarily laid up Bruce A station, and a similar amount of operating capacity at our Bruce B station. We have already met with several potential partners and expect to report soon to our shareholder on these discussions," he added.
British Energy PLC and Philadelphia-based Peco Energy Co. have both said they want to move into Canada's nuclear industry, possibly through their joint venture AmerGen Energy Co.
When added to the 2700 MWs of planned independent generation in Ontario, the 1700 MW that non-utility generators supply today, and the 4000 MW that can be brought into the province through interconnections with other jurisdictions, by this time next year Ontario could see up to 15,000 MW provided by other companies.
If this plan holds up, non-OPG sources could control more than 40 per cent of the electricity generation available to the province.
"Competition in electricity generation will be a reality. In the meantime, we are getting ready. We intend to be very competitive, and we look forward to proving it," he said.
Electricity Distribution Consolidation
On the electricity distribution side, Ontario Hydro Networks Company (OHNC) has signed agreements or letters-of-intent with about 20 Ontario municipalities to acquire their electric utilities, including Chalk River, Deep River, Cobden, Carleton Place, Russell Police Village, and Arnprior in eastern Ontario, and Artemesia, Wyoming, Forest, Grand Bend, Arkona, Malahide, North Dorchester, Ailsa Craig and Thedford in southwestern Ontario. It is negotiating with many other municipalities across the province. OHNC is a wholly-owned subsidiary of Ontario Hydro Services Company.
"With our size and experience we can offer a very attractive package of price, reliability and service that others can't," explained David Collie, OHNC Director of Municipal Relations.
"Merging these assets into our distribution system will improve efficiency and eliminate unnecessary duplication. And our customers will reap the benefits of these cost savings," he added.
The acquisition program is consistent with the Ontario Government's objective of improving efficiency in the province's electricity distribution sector through rationalization and consolidation. All agreements are voluntary and must be approved by the Ontario Energy Board.
By selling to OHNC before November, 2000 the municipalities will avoid the 33 per cent provincial transfer tax applied to proceeds from sale of utilities. OHNC will also set up municipal advisory committees to ensure that local officials continue to have input into all electricity issues affecting their communities.
Most recently, OHNC and Artemesia Township signed an agreement of purchase and sale at the end of June 1999. The Hydro-Electric Commission for the Township of Artemesia serves approximately 500 customers in Artemesia Township (which includes the former villages of Flesherton and Priceville).
"We're very happy the sale has been approved and we can now complete the transfer of customers and facilities to OHSC," explained Jim Harrold, Reeve of Artemesia Township. OHNC has been providing service and power outage response for Artemesia Hydro customers since July 1, 1999. On January 1, 2000, Artemesia Township contracted with OHNC to provide a full utility management service, including customer service, billing and inquiries, until the OEB granted approval for the transaction.
"Merging local utility assets into OHNC will improve efficiency and eliminate unnecessary duplication in local electricity distribution," said Eleanor Clitheroe, OHSC President and Chief Executive Officer.
"We have made every effort in close co-operation with Artemesia Hydro to make this transition smooth and easy for customers. With our extensive distribution network, highly-skilled provincial work force and history of service to the people of Ontario, we are a major player in the province's electricity market and are in the best position to drive efficiencies in the distribution sector through consolidation of local distribution companies," she said.
Nuclear Power And The Environment
During 1999, OPG made progress towards the goal of world class nuclear performance. At one time, Ontario's nuclear plants were rated at the top of the world's nuclear reactor performance ratings. Then, through retubing programs and shutdowns for other reasons, the units fell to the bottom quartile of the nuclear power industry. Over the past two years they have moved up slowly, making headway against a North American nuclear industry that is also registering performance improvements.
"There is still a gap to bridge. Our regulator, the Atomic Energy Control Board, has identified a number of priority areas for improvement. We are working to meet their expectations, which match our own," Mr. Osborne remarked.
"Our nuclear improvement progress has been slower that we hoped. This reflects the enormity of the task. We remain committed to reaching our overall nuclear performance objective of top quartile performance by 2003," he added. OPG also plans to return to service the four units of the Pickering A nuclear plant.
"This project is subject to all regulatory approvals, including the approval of an environmental assessment. We are also having our cost estimates analysed independently, to confirm the soundness of our approach. The Pickering re-start would add 2,000 MW of what promises to be, without exception, the lowest cost energy in the province on an incremental basis," he predicted.
"Our environmental performance is another competitive strength. Over 99 per cent of our installed generation has received ISO 14001 certification -- the international standard of excellence in environmental management. Our environmental management systems are subject to regular external audits. We are one of the first generating companies in North America to have all its major facilities registered under this standard. Collectively, our electricity production facilities produce some of the cleanest power in our airshed -- which stretches from Tennessee to Michigan and into Ontario," he said.
"Let's look at our nuclear stations, which produce virtually no acid gases or greenhouse gases of any kind. Thanks to nuclear energy, our air is considerably cleaner than it otherwise would have been. Between 1971 and 1999, use of nuclear power in this province has avoided11 million tonnes of sulphur dioxide, which causes acid rain; 2.5 million tons of nitrogen oxide, which contributes to acid rain and smog; and 1.2 billion tonnes carbon dioxide, which is a greenhouse gas that contributes to global warming," he added.
"Nuclear energy is making a major contribution to our environment. If we as a nation are really serious about meeting Canada's greenhouse gas emission targets as set by the Kyoto Conference on Global Warming, then I submit that one of the best ways to do that lies right here in this province -- with the 9,000 MW of nuclear power OPG currently operates and the 2000 MW of additional clean, competitively priced power from our proposed restart of Pickering A -- not to mention our 7,000 MW of hydroelectric power, which also has no emissions," he said. ET