BC Hydro had another exciting, interesting and challenging year in 1998. The following summary briefly describes some of the key initiatives and programs in which the company was involved, and highlights some of the company's achievements.
Branding Campaign
In March, BC Hydro launched an ambitious branding campaign to position itself for greater success. The campaign focuses on improving customer service, implementing new, innovative products and services, and greater involvement in local and provincial-wide environment initiatives.
Branding is enabling Hydro to better prepare for increasing competition in the emerging energy market, changes in the electric utility industry, and increasing customer expectations.
Net Income Of $167 Million for First Six Months of Fiscal 1998/99
BC Hydro's net income for the six months ended September 30, 1998 was $167 million, $22 million higher than that earned the same period last year. This increase was primarily due to an increase in net income from electricity trade.
Total revenue from domestic sales also increased, from $1,001 million for the first six months of 1997 to $1,025 million for the same period this year. Large industrial revenues were $20 million higher than for the same period last year. Customer growth increased domestic revenues in the other sectors.
Light industrial and commercial revenues increased by $3 million compared with the same period last year, mostly due to an addition of 3,934 customers. Residential revenues were $4 million higher than the same period last year, again, a result of almost 25,000 new customers.
Powerex receives new export permits
Powerex, BC Hydro's power marketing arm, is set for its next 10 years of electricity trade with the United States due to new export permits issued by the National Energy Board in October. The Permits are valid until 2008 and outline the terms and conditions under which Powerex's short-term trade activities with the U.S. can take place.
The 10-year term of the new permits is double that of Powerex's previous permits. Powerex can now sign contracts of up to five years' duration under the blanket authorizations. And while Powerex will continue to focus its activities in the West, the new permits also allow Powerex to export electricity from all points across the country for the first time.
VOXCOM
A new partnership between VOXCOM Security Systems, Canadian Airlines and BC Hydro is providing Hydro's customers with a special offer on a complete VOXCOM home security system, as well as 2,500 Canadian Plus points from Canadian Airlines.
This partnership reflects the utility's commitment to meet customers' desire for more product choice. In addition, this joint venture is helping create jobs in B.C. The initiative reflects a growing trend of increasing business partnerships among various industries.
Fort Nelson Gas Turbine project
BC Hydro and TransAlta Energy Corporation will install a $30 million. 45 megawatt (MW) gas-fired combustion turbine facility in Fort Nelson to meet the current and future demand for electricity in the region. The joint venture project is forecast to meet Fort Nelson's electricity requirements for the next 20 years.
The project will increase reliability, reduce the number and length of power outages in Fort Nelson, and generate an abundant supply of electricity to help fuel the region's future growth.
Water Use Plans
BC Hydro, and the federal and provincial governments are jointly developing a public process to better manage the competing demands for the water BC Hydro uses to produce power at its hydroelectric facilities.
Planning involves a review of BC Hydro's historic water licenses in consultation with a wide range of external constituents, including federal and provincial government ministries and agencies, First Nations, local interests and communities. The review aims to balance use of water to serve B.C.'s broad social, environmental and economic needs.
The provincial Government's guidelines for the water use plans were developed in consultation with stakeholders including BC Hydro. Management and policy committees have also been established.
BC Hydro, DFO reach interim agreement on Cheakamus River Flows
BC Hydro and Fisheries and Oceans Canada (DFO) reached an agreement on interim water flows in the Cheakamus River. The interim agreement was developed with the consensus of the Squamish Nation, the Steelhead Society of B.C., the Ministry of Environment, and the Ministry of Fisheries. It will remain in place until additional fisheries studies are completed and a water use plan is prepared.
The new interim agreement will allow flows to more closely resemble natural water flow patterns. It is also expected to significally increase habitat available for fish over historic flows from Daisy Lake reservoir.
Fisheries Renewal British Columbia Contribution
BC Hydro contributed $7 million of new funding for fish habitat projects including $5 million in funding to Fisheries Renewal BC (FsRBC). The FsRBC funding will support community-based salmonid renewal projects to assess, clean-up, and conserve local fish habitat and revitalize fishing communities. The $2 million will be spent on BC Hydro fish enhancement projects on river systems affected by Hydro operations. The money is in addition to funds already allocated by BC Hydro for fish enhancement projects.
Bridge River Agreement
BC Hydro and Fisheries and Oceans Canada signed an agreement resolving issues relating to fisheries resources at Hydro's Terzaghi dam, and on the Bridge and Seton Rivers near Lillooet.
The agreement recognizes the delicate balance and trade-offs between meeting the needs of fish and the requirements of operating and efficient hydroelectric system to generate reliable, low-cost electricity. The pact returns water to a portion of the river which has been dry for 50 years and restores it for use of salmon.
BC Hydro's Youth Energy Services Team
This past summer, ten Youth Energy Services teams - consisting of ten members each - worked throughout the province appearing at high profile community festivals, sporting events, cultural activities, and shopping areas. The Youth Energy Services team members promoted Hydro's expanding range of products and services, demonstrating the company's commitment to change and being more customer-focused.
Alberta Power Limited
For Alberta Power Limited, 1998 was a year of challenge and change as Alberta's electric industry moves further along the road to deregulation.
In April, 1998 the Alberta Legislature amended the Electric Utilities Act ,which came into effect at the beginning of 1996 and outlined the deregulation of Alberta's electric industry. The amendment specified a process for deregulating existing utility-owned generating plants and set out a timetable for moving to full retail competition.
Alberta Power continues to participate in discussions related to deregulation. Important issues to be resolved include the role of retailers and wire owners in the new world, rules for competition, and the information/settlement systems that will be needed to support retail competition.
Along with other players in the industry (including utilities, the power pool and the transmission administrator), Alberta Power has been working hard to deal with a shortage of supply during the transition to full retail competition.
A number of rate and tariff issues are also in front of the Alberta Energy and Utilities Board. In July, Alberta Power filed a phase 2 rate application with the board, which included a proposed 'direct access tariff.' This rate, required by the industry structure legislation, is the first stage of customer choice. It will allow some customers to choose whether to take energy from their local distributor or directly from Alberta's new power pool.
Alberta Power also continues to organize its internal structures and processes for a deregulated environment. In 1998, the company established two new subsidiaries, ENERGEN and Ashcor Technologies Ltd.
Ashcor markets fly ash from one of Alberta Power's coal-fired generating stations, while ENERGEN specializes in meeting the needs of industrial customers in the resource sector. The company provides generating units up to 25 megawatts and power distribution systems, including interconnection with utility systems. It draws on Alberta Power's 70 years of experience in serving remote and isolated locations.One of Alberta Power's major operating challenges last year was created by one of the warmest, driest winters on record. Throughout May, forest fires threatened power lines serving major communities such as Fort McMurray and Grande Prairie. Personnel worked long hard hours to save power lines and restore damaged facilities in the Swan Hills and Slave Lake areas, where two of the largest fires took place.
In a less dramatic context, customer service was also the focus of another important initiative last year -- establishing a call centre to help customers with billing and other service inquiries. The call centre gives customers the benefits of central service and more convenient access by telephone, along with Alberta Power's traditional ability to respond quickly from its field offices.
EPCOR
1998 was a strong year for EPCOR; one noted for new business ventures.
EPCOR joined Engage Energy, a subsidiary of Westcoast Energy of Vancouver, and Coastal Energy of Houston, Texas to form Encore Energy Services, a natural gas/electricity energy marketing alliance. Encore offers products and services designed to improve the management of energy costs and price risk for municipal utilities, large commercial and industrial customers.
We also entered a cross-marketing partnership with Voxcom Security Services.
On the generation side, we announced our intent to expand Rossdale Generating Station with a $90 million, 170 MW project that will increase our overall generating capacity by 10 per cent. It is a combined cycle project with waste heat from the new gas turbine being used to repower an existing unit. We plan to begin construction May 1999, with the plant in operation by January 2001.
We signed a letter of intent with NOVA Chemicals and CU Power International for a 40 per cent stake in a $320 million, 400 MW cogeneration project at the site of a NOVA manufacturing facility in Joffre, Alberta. With CUPIL, EPCOR will market surplus power from the site. Construction began in the spring, and is expected to be complete by early 2000.
The most dominant issue in 1998 was the ongoing deregulation of Alberta's electric industry with the second phase of deregulation legislation introduced in April.
The legislation determined a transition period to ensure owners of generating units built pre-1996 are not left with stranded costs, and that provincial customers who shared in the costs of the units, receive any residual benefit from them.
To do this, a model of power purchase arrangements (PPAs) was adopted. These are essentially long-term contracts for each generating unit in the province built before 1996. The PPAs will be auctioned off in 2000 and will determine our cost recovery and rate of return for the next 20 years. Annual regulatory approvals and readjustments end once the PPAs come into affect January 1, 2001.
Both transmission and distribution wires will be provincially regulated in the new world. As a natural monopoly, this business is not suited to competition.
The retail business becomes competitive in a couple of stages. First, some large industrial customers gain direct access to the Power Pool in 1999. In 2001 customer choice begins for all other customers in Alberta. Though undefined, there will be a Stable Rate Option to provide a five-year transition period for customers.
Rules for competition are still being determined through provincial regulations. EPCOR is working with the government to resolve any concerns.
Key issues in 1998 included Alberta's electricity supply, Year 2000 readiness, climate change, and the ownership review of EPCOR by our Shareholder. We see these issues, and deregulation continuing to be critical in 1999.
Ahead, EPCOR plans to not only maintain its current position in the market, but grow. Given the dedication of our people, EPCOR is confident 1999 will be a successful year for achieving growth, adding shareholder value, and embracing a competitive industry.
TransAlta Corporation
TransAlta is preparing for growth in a new energy marketplace. In recent years the company has broadened its geographic focus and entered select regional markets in Canada, Australia, New Zealand and Argentina. This growth is founded on an eighty-eight year history of managing TransAlta's core operations of Generation and Transmission & Distribution.
Integrated approach TransAlta organizes its business along five distinct business lines; Generation, Transmission & Distribution, Energy Marketing, Independent Power Projects and New Zealand. Each business line is a pillar that supports TransAlta's success. Each line of the business draws on the competencies and knowledge in other business lines. Similarly, the regulated and non-regulated sides of the business reinforce each other. "Our non-regulated business delivered strong results and continues to contribute to overall growth,"said Stephen Snyder, president & chief executive officer. "We expect the passage of Alberta legislation that moves the industry toward less regulation, will increase certainty and, over time, reduce the regulatory burden we face."
Managing growth
In 1998 TransAlta completed agreements to develop five new cogeneration projects in Canada and abroad. New power projects account for 1,500 megawatts of additional generating capacity by 2001. TransAlta won the bid to develop a $400 million cogeneration plant in Sarnia, Ont. "TransAlta was able to come up with the best proposal to help Sarnia take advantage of competition coming to Ontario's electric industry," said Mike Ireland, senior business development officer for the Sarnia-Lambton Office of Economic Development. The new plant will provide low-cost thermal and electric power to the region, fit within the Ontario government's plans to restructure the electricity industry and give TransAlta the opportunity to expand its presence in Ontario. TransAlta has also pursued a growth strategy in New Zealand since 1993 through its subsidiary, TransAlta New Zealand. The subsidiary now serves 530,000 customers in three key, urban markets making it the largest retailer of electricity in that country. This subsidiary sold its electricity lines business and focuses on generation and serving retail customers.
Working collaboratively
TransAlta has been working with other power producers in Alberta and the Power Pool to manage the rapid increase in demand for electric power due to a strong Alberta economy. A number of industrial cogeneration projects will ease the demand placed on the overall system. Excess power not used for industrial purposes is available to the Alberta Power Pool.
Working with industry partners goes beyond matters of supply and demand. TransAlta is working with industry partners across Canada and North America to proactively address the risks presented by the Year 2000 or Y2K issue. TransAlta developed its plan to address the issue after consulting with large customers, other utilities and national industry organizations. In 1998 the focus was on converting and testing core systems for Y2K compliance. In 1999, the focus is on developing and testing contingency plans and the communication of these plans to key stakeholders.
TransAlta is actively participating in critical national policy discussions that will help create the best national response to future greenhouse gas targets. TransAlta's commitment to environmental issues received international recognition from the World Business Council for Sustainable Development in 1998. TransAlta is one of four companies to receive recognition for its progress in implementing voluntary approaches to address climate change. "We are pleased that a Canadian company has set an example for the international business community," remarks Christine Stewart, Canada's Environ-ment Minister.
SaskPower
In 1998, we continued our efforts to position SaskPower as a customer-focused enterprise for the new millennium. We're working to ensure that the package of price, value and service we offer can compete with the best in the marketplace.
The transition to a competitive marketplace is longer than originally anticipated, but the urgency remains. We're taking advantage of this window to sharpen the focus on our core business mission - providing reliable, safe and cost-effective power to our customers province-wide.
In support of that mission, our number one business priority is Year 2000 readiness, and it is being addressed as such by our management and employee team corporate-wide.
We launched a key business initiative, the SaskPower Delta Project, in 1998 to improve how we do business in such areas as work management, materials and supply, financial planning and budgeting, and human resources.
Business process change is critical to our ability to retain customers, expand our business and provide appropriate financial returns today and in the future. These process changes will be supported by a new corporate-wide information system, SAP (Systems, Applications, Products in Data Processing). Scheduled to go live in 1999, the project is a major part of our efforts to improve customer service, prepare for increased competition and enhance shareholder value.
We continue to explore every opportunity to generate power and add supply as cost-effectively as possible. Our Power Production staff are renewing equipment and improving processes at existing power stations, pushing to get more out of these stations without building expensive new generating capacity.
Following an extensive evaluation of options, we concluded negotiations with Husky Oil and TransAlta in our first large-scale cogeneration power purchase. Starting December 1999, this power purchase will see us buy 210 megawatts of power annually for 25 years from the natural gas-fired Meridian Cogeneration Project, a joint venture by Husky Oil and TransAlta at the Husky Oil Lloydminster Upgrader in Saskatchewan.
Financial performance is essential to our success, and we delivered solid results in 1998, remaining on track to reduce our debt by more than $500 million over five years. We're continuing to move for changes in our tax structure, including the level of coal royalties that we pay to our shareholder, the provincial government.
We also initiated discussions with our shareholder related to the timetable and process of deregulation, and we're preparing detailed recommendations on deregulating the industry in Saskatchewan. And because we feel the optimum model for competition in Saskatchewan can best be determined with the input of our customers, we've established various working groups to gather input. Whatever model of deregulation is ultimately proposed and approved will require legislative changes to the Saskatchewan Power Corporation Act.
We're working to ensure that SaskPower champions a truly competitive spirit in all aspects of our operations. The more competitive we are, the more successful we'll be at keeping customers and keeping rates as reasonable as possible - and the more successful we'll be at keeping jobs and continuing to support Saskatchewan's economic and community well-being into the 21st century.
Manitoba Hydro
As Manitoba Hydro closes the decade, it does so as a billion dollar company with a high level of customer satisfaction and power reliability. The Corporation has just completed one of its most successful years ever, having made significant inroads into meeting its financial targets while establishing new operational and financial records.
Net income for 1997-98 reached $110.5 million, up from $101 million last year. Export sales were $297 million compared to last year's record of $267.7 million. Total generation of electricity was 34 billion kilowatt-hours, the fourth year in a row that a new record was established in the generation of electricity.
These records were, in part, attributable to the unusually abundant water supplies experienced in the early part of the year. Recent changes to the Manitoba Hydro Act have enabled Manitoba Hydro to take full advantage of its membership in the Mid-Continent Area Power Pool. As a result, the utility has benefited from higher prices in an expanded export marketplace.
For the second consecutive year, Manitoba Hydro announced it will not be seeking any increase to its customers' electricity rates in 1999. This further establishes Manitoba Hydro as an energy provider with rates that are among the lowest in the world and places the utility with a decided competitive advantage over other jurisdictions.
Based on second quarter results, financial indicators are pointing to continued improvements. Manitoba Hydro now has a debt/equity ratio of 86:14 compared to a ratio of 95:05 only five years ago. We are on schedule to meet our target of 75:25 in the year 2005/06. Together with the achievements of the previous four years, Manitoba Hydro has demonstrated its commitment and ability to manage capital expenditures despite ongoing requirements to invest in safety, reliability, and customer service.
Our relationship with aboriginal communities and communities affected by our past operations remains a key focus for us. The development of an aboriginal pre-placement training program to enable aboriginal people to gain experience in three of the technical trades that are important to Manitoba Hydro is a recent initiative that has generated much interest.
One of the projects currently underway is the construction of a rock weir on the Churchill River that will raise water levels in the vicinity of the Town of Churchill to enhance the use of the river by the people and to improve aquatic life. The Corporation is also continuing to make every effort to work with the Cross Lake First Nation, the last of five communities to implement the Northern Flood Agreement.
In keeping with the changes occurring in the energy sector, Manitoba Hydro has developed partnerships with Centra Gas and is also pursuing discussions with the Northwest Territories Power Corporation (NWTPC) for an exchange of energy resources and services. Manitoba Hydro continues to offer its expertise to industrial customers and other utilities.
The eradication of the Year 2000 "millennium bug" is being given the highest corporate priority. A Year 2000 task force has been in place for over two years to deal with the isuse in two areas. One area is examining the utility's business computer applications. The upgrades to our business computer systems are expected to be completed by the end of 1998. The other area is related to the operation of our power generating and delivery systems. It is planned to have all of Manitoba Hydro's power systems and devices with Year 2000-sensitive dates ready by April 30, 1999. Manitoba Hydro is also coordinating its Year 2000 preparation plans with other electrical utilities throughout North America.
New Brunswick Power Corporation
Financial Performance
Point Lepreau Assessment & Performance Improvement
Natural Gas & Deregulation Opportunities
Reorganizing for Greater Efficiency
Nova Scotia Power
1998 Highlights:
Nova Scotia Power is the principal supplier of electricity in Nova Scotia, providing reliable energy and related services to nearly 430,000 customers. With $2.8 billion in assets, the company's operations include over 95 per cent of the generation, transmission and distribution of electric power throughout Nova Scotia. Nova Scotia Power had 1997 revenues of $750 million. ET
Manitoba Hydro continues to work on adopting approaches to improving our environmental performance under Canada's electrical utilities Environ-ment, Commitment and Responsibility program. We remain on target for the implementation of processes consistent with the ISO 14 001 standard, which will ensure compliance with the requirements for CEA membership.
As the new millennium approaches, I am assured that Manitoba Hydro will meet the challenges ahead with the high degree of reliable service, exceptional customer service, and low cost energy that our customers have always expected from us.
Ontario Hydro
1998 was an extremely eventful year for Ontario Hydro, both in our role as the province's electrical utility, and also in our preparations for the success of our new companies in the future competitive Ontario electricity marketplace.
The year began in dramatic fashion with the January ice storm that devastated eastern Ontario and Quebec. More than 600,000 people were without electricity as a result of the ice storm, some for as long as three weeks. Ontario Hydro employees, assisted by employees from other utilities, did a superb job of rebuilding the system and restoring power in what must be considered record time. The ice storm disabled 30 per cent of Ontario Hydro's distribution system, requiring the replacement of more than 12,000 poles, 2,000 transformers, 83,500 insulators and 2,800 kilometres of wire conductor in a 24-day period.
As the year drew to a close, Ontario Hydro was tackling another major challenge - forming our new successor companies, allocating our staff to the companies, and preparing for competition in the Ontario electricity marketplace in the year 2000.
The passage of Bill 35, the Energy Competition Act, by the Ontario government, will end Ontario Hydro's monopoly and introduce competition next year. It will also see Ontario Hydro split up into two successor companies - Ontario Power Generation Inc. to generate electricity and Ontario Hydro Services Company Inc. which will be responsible for transmissin, distribution and retails sales and service.
There are many other 1998 events that could be mentioned. For example, we began to make progress in our nuclear recovery program, improving performance at our three nuclear sites. We also made major strides in our Year 2000 program, completed a successful station containment outage at our Bruce nuclear site, and reached agreement with the Power Workers' Union on new collective agreements.
We have accomplished a lot and Ontario Hydro employees should look back on the year with pride.
Looking ahead to the rest of 1999, our comprehensive Y2K program will continue as will our preparations for the transition to successor companies. The provincial government has appointed strong, business-oriented Boards of Directors for Ontario Power Generation and Ontario Hydro Services Company. The new successor companies will begin operation on April 1, 1999 in preparation for the new competitive environment that is just around the corner.
As the competitive electricity market in Canada evolves, the thrust at NB Power remains steadfast - to enhance value to the owner, customers and employees.
Efforts during 1997/98 focused on strengthening the utility's position as a reliable, low-cost energy provider by reducing debt, improving business processes, enhancing service and upgrading nuclear performance at the Point Lepreau Generating Station.
Progress towards these objectives has been made. Business fundamentals, including cash flow, controlled spending, lower debt, strategic investments and customer care, are demonstrating steady improvement.
Net loss for the year was $21.2 million compared to $19.4 million in 1996/97. The loss before scheduled draw-downs from the generation equalization and fuel channel removal accounts was $43.1 million compared to $87.4 million last year which signals a significant improvement in operating results. Remaining reserve accounts now stand at $8.8 million, which will be credited to net income next year. NB Power does not intend to establish such accounts in the future.
Despite the loss, NB Power's financial performance improved significantly over the previous year. Operating revenues surpassed expectation and expenses were generally in line with budgets. Revenues were bolstered by an average 2.9 percent rate increase, load growth and higher export sales. Operation, maintenance and administration costs increased as a result of spending on the Performance Improvement Program at the Point Lepreau Generating Station and information technology initiatives. Operating cash flow grew to $163.1 million from $129 million last year. Debt reduction was $44.3 million and is approaching $100 million over the past two fiscal years.
To ensure the maximum economic benefits from the Point Lepreau Generating Station, NB Power engaged the services of Hagler Bailly Inc. to complete a comprehensive analysis of short and long-term technical and economic factors affecting the station's future performance. The analysis indicates that a major refurbishment of critical plant components will be required sometime around the year 2008. Indications are that refurbishment may be economically desirable; however, it is too early to make that determination given the uncertainties which exist today.
Until major refurbishment is required, continued operation rof the nuclear facility is attractive to NB Power. NB Power's business interests are served by preserving asset value at the Point Lepreau Generating Station and taking action to ensure safe, reliable operations. The Hagler Bailly assessment forms the basis for a long-term operations strategy for the facility.
The availability of natural gas and new transmission access regulations will allow NB Power to forge innovative partnerships to redevelop infrastructure.
NB Power's objective is to take advantage of economic and environmental benefits of natural gas while mitigating competitive impacts. There is the likelihood that export benefits will be reduced as natural gas is utilized in New England. There is also the opportunity to use natural gas to generate electricity in New Brunswick for to gain significant benefits.
Merchant plant developments are being made possible by transmission access regulations implemented January 1, 1998. This first step towards more open access allows other utilities and independent power producers to move electricity through and out of New Brunswick to external markets.
Meanwhile, the Provincial Govern-ment has begun public consultation on electricity deregulation to explore further changes to its energy policy.
We believe that restructuring NB Power into functional business units will allow for more accurate performance measurement, while promoting greater accountability and efficiency in Generation, Nuclear, Transmission & Distribution, and Marketing & Customer Service.
Nova Scotia Power continued in 1998 to pursue our vision "to be the customer's choice in energy and services" through four core strategies: build our business, reduce costs, build customer loyalty and develop employee commitment.
The exciting opportunities offered by Sable Island natural gas play a role in each strategy. Gas is expected to come ashore in November 1999, and Nova Scotia Power will be there. We are aggressively pursuing the long-term strategic options which deliver the greatest benefit to our customers, employees and shareholders.