Monday 20 October 1997
Mr Tom Adams
Mr Norm Rubin
Mr Maurice Strong
Ontario Clean Air Alliance
Mr Jack Gibbons
SELECT COMMITTEE ON ONTARIO HYDRO NUCLEAR AFFAIRS
Chair / Président
Mr Derwyn Shea (High Park-Swansea PC)
Vice-Chair / Vice-Président
Mr Monte Kwinter (Wilson Heights L)
Mr Sean Conway (Renfrew North / -Nord L)
Mr Doug Galt (Northumberland PC)
Mrs Barbara Fisher (Bruce PC)
Mrs Helen Johns (Huron PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Floyd Laughren (Nickel Belt ND)
Mr John R. O'Toole (Durham East / -Est PC)
Mr Derwyn Shea (High Park-Swansea PC)
Clerk / Greffière
Ms Donna Bryce
Staff / Personnel
Mr Lewis Yeager, research officer, Legislative Research Service
Ms Anne Marzalik, research officer, Legislative Research Service
Mr Richard Campbell, consultant
Mr Robert Power, legal counsel
The committee met at 1709 in room 228, following a closed session.
The Chair (Mr Derwyn Shea): We are prepared to carry on now in public session. I'd like to welcome the deputants, the witnesses for this afternoon and for this evening. For the record, to remind us, this committee has been in session since 2 pm. It is now almost 5:15 pm. It has been in private session on briefings and it is now prepared to return to the witness schedule.
In response to several of the requests of the committee, you will note that the clerk has been moving quickly to try to present some documentation that will be dealt with over the next two or three days. So that will give you an opportunity to read, mark, learn and inwardly digest and be prepared to deal with these matters when they come forward in the next several days.
The Chair: Having said that, now we turn our attention to the presentation scheduled for 5 pm by Energy Probe, and I welcome Tom Adams and Norm Rubin. If they will, for the purposes of Hansard, identify themselves and whoever else they may wish to bring forward to the witness table, we'll carry on.
Mr Tom Adams: Good evening, Mr Chairman and members of the committee. My name is Tom Adams. I'm the executive director of Energy Probe. With me is Norm Rubin, Energy Probe's director of nuclear research.
Energy Probe is a national environmental and consumer advocacy organization specializing in energy issues. In Ontario our foundation represents approximately 20,000 supporters. We have been actively addressing issues related to Ontario Hydro for about 25 years. Since 1982, with the publication of a book by our still-working colleague Larry Solomon called Breaking up Ontario Hydro's Monopoly, Energy Probe has been advocating a power system based on the principle of customer choice.
Mr Doug Galt (Northumberland): On a point of privilege, Mr Chair: There seems to be a problem with the audio. I'm not sure what's going on.
The Chair: I agree with you. It's something with the sound level. It's not your problem, Mr Adams. It's just a problem I think of the volume. We will ask our technician if they can just double-check that.
Mr Adams: Do you want me to speak up?
The Chair: If you can do that as well. It may be the volume's not picking up. Okay, it's boosted right up, so try again.
Mr Adams: For the purposes of our presentation today, we want to briefly summarize what went wrong, and why, with Ontario Hydro's nuclear program. We want to outline the extent of Ontario's nuclear dilemmas and address two questions we consider key to the committee's deliberations: What can we expect to go wrong or right in future, and where does Ontario go from here?
When we conclude our remarks, we will be running through the recommendations that are attached at the back of the presentation package you received just now.
The presentation binder that was supplied to you on Friday contains materials, mostly of an archival nature, designed to illustrate some of the key moments in Ontario Hydro's nuclear history. As the materials document, Energy Probe clearly warned Ontario Hydro about the business risks of nuclear investment in 1981. We attacked the official estimates of nuclear cost as incomplete and inadequate in 1989. From 1989 through 1991 we analysed and published the declining nuclear performance and a mathematical model of that performance. It has since accurately forecast the outcome of the production from the nuclear plants.
In all three cases, our predictions were based on factual evidence that's come true. In all three cases, Ontario Hydro and its political masters continued to increase the province's nuclear risks despite all of this evidence.
The Chair: Let me just pause for a second. I want to give you help. We want to make sure we hear. This is very important. Would you just move to the other microphone. Let's see if we can get your dulcet tones coming through. Try that again, please. Just test it out for a moment.
Mr Adams: The scope of Ontario's nuclear problems is sweeping and grave. I think this is working better. The health and security of Ontarians and our environment is threatened by the continuing operation of our nuclear plants. Taxpayers and ratepayers are facing probably tens of billions of dollars of costs caused by uneconomic nuclear investments. Electricity reliability in Ontario is now hanging by a thread. To keep the lights on this winter, Ontario Hydro is hoping to restore Bruce units 3 and 4 to partial service, having declared on Friday they're not going to attempt to restart Bruce unit 1. The four-unit Darlington station is now limited to 55% of full power due to the discovery of a design flaw, and they're hoping to restore that to full power.
If these units are not restored or if other unexpected difficulties arise, we could see a number of negative outcomes for customers. Industrial customers would be cut back first. Following that, Ontario Hydro would make an appeal to customers to cut consumption. If that was not sufficient in balancing supply and demand, they could opt to brown out the province with planned voltage reductions, as they did in 1989, or possibly engage in more drastic measures.
I'll turn the comments on the question of what went wrong, the safety of Ontario's reactors and the role of liability to my colleague Norm Rubin.
Mr Norm Rubin: Energy Probe agrees with Ontario Hydro that their nuclear problems can be attributed to bad management. But our analysis is much more fundamental than Ontario Hydro's. They focus on the bad management of reactor operating staff. We think the worst management decisions were the decisions to bet tens of billions of dollars on an experimental, untested and inherently unsafe technology. Those errors were made in the 1970s and early 1980s. They were compounded by Hydro management decisions throughout the 1980s to maximize nuclear production and delay nuclear maintenance. Those decisions successfully deferred Hydro's day of reckoning until Darlington was virtually complete. Hydro thwarted the short-term goals of its critics. Hydro also slashed its own wrists financially and politically in the longer term. The 1980s were a triumph of political gamesmanship and empire-building over wisdom and prudence. Unfortunately, Ontario Hydro management is still playing for a Hydro win rather than an Ontario win.
The creative nuclear accounting that let Hydro pretend it was a provider of low-cost electricity in the 1980s is reaching even more absurd lengths in the late 1990s. As a result, Hydro is planning to run fiscal deficits comparable in size to this government's painful spending cuts. In addition, Hydro is planning to leave our children with environmental liabilities for nuclear cleanup that will cost $15 billion in today's dollars, according to Ontario Hydro's own estimates. Just as in the 1980s, the goal is to freeze the price of electricity, while the cost of electricity continues to skyrocket. That strategy may or may not work until the next election, but it can't work for long.
More ominously still, Hydro is still applying wishful thinking in nuclear safety. Throughout the IIPA report, despite its rather honest and brutal examination of Hydro's human failings, there is a laboured attempt to convince the reader that the Candu reactor is an inherently safe, forgiving piece of technology. It is not. It's worth remembering that virtually every analysis of real-world technological disasters, from Bhopal to Chernobyl to the Challenger, has found that a root cause of each of those accidents was that the owners overestimated the safety of their technology.
Many Ontario residents now know that a federal law called the Nuclear Liability Act protects Ontario Hydro and all its suppliers from liability for any reactor accident except the most trivial. Specifically, Hydro's insurers would be held responsible for the first $75 million of damages. The designers, suppliers and builders would not be responsible for any damages at all. The federal Parliament could appropriate funds for victims, if Parliament chose to do so. As some of you may know, Energy Probe, the city of Toronto and Dr Rosalie Bertell were unsuccessful in striking down this law in the lower court and were unable to proceed to appeal, largely because of Ontario Hydro's energetic courtroom defence of this federal law. Bottom line: If, God forbid, there is a major reactor accident in Ontario, the polluter will definitely not pay.
Meanwhile, as Ontario Hydro's reactors continue to shut down, we are entering a period of instability and high risk, for a number of reasons. I've iterated three: Morale among Hydro's nuclear operators is now at an all-time low, and understandably so; the field of nuclear energy and reactor safety, which used to appeal to some of the best and brightest of technology students when I was in university, before I had these grey hairs, is now correctly seen as a dead-end job; in addition, Hydro can no longer afford its traditional style of gold-plated engineering to solve its nuclear problems, simply because Hydro's customers and competitors can now undercut Hydro's costs and its prices.
We think this situation places an unrealistically difficult burden on the federal Atomic Energy Control Board, an agency historically much closer to and more comfortable with the nuclear industry than the concerned public. In short, we believe it's unrealistic for this committee to expect a safe sunset for nuclear energy in Ontario, especially as long as those who can do the most to protect the people at risk are artificially protected from being responsible for their neighbours' losses.
Mr Adams: Before we turn it over to questions, I'd like to just run through the recommendations we've proposed and have attached at the back of the package.
First, we recommend the committee find that the eight reactors at Pickering A and Bruce A should be written off and the units permanently closed.
Second, we urge the committee to investigate all opportunities for financing future nuclear investments outside of the public purse.
Third, we have a series of recommendations on improving financial reporting and the accuracy of Ontario Hydro's reports of expenditures and liabilities.
Fourth, we recommend that Ontario Hydro be broken up, with a view to permitting customers to buy power from producers of their choice and making producers accountable to both customers and investors.
Finally, we recommend that Ontario begin a transition to a regime of full nuclear liability.
With that, I'd like to invite any questions that committee members might have for either of us.
The Chair: All right. I'll begin with the Liberal caucus for the questioning today.
Mr Monte Kwinter (Wilson Heights): I'm just curious to find out exactly where you are coming from. For example, are you absolutely opposed to nuclear energy of any kind or are you just concerned about the specific technology that's in the Candu and the lack of maintenance and the problems that are concerned with that?
Mr Rubin: I don't think anybody on our staff, for example, is religiously or unalterably opposed to the splitting of nuclei. I'm certainly not. I certainly approve of a number of medical uses of nuclear technology.
I guess the answer is the latter. But I do think that the large-scale generation of centralized electricity with the kind of technology we're using today is on its way out, and properly so, and that the more the public as a whole, the investors and the neighbours of this technology know about it, the more quickly it will be phased out.
Whether 50 years from now, 100 years from now, there will be a generation technology, an energy technology that involves nuclear fission, or indeed nuclear fusion, is a good question. I don't have a firm answer on that. I think some of those technologies, some of the future technologies, have been oversold as badly as today's nuclear fission was oversold when I was a kid. Electricity too cheap to meter, safe, environmental etc -- all those things that some of us are old enough to remember as the dreams of tomorrow. Well, it's today and it's not true.
Mr Kwinter: Have you done a comparison in other jurisdictions that are heavily dependent on nuclear energy as to what their status is and what their safety records are?
Mr Rubin: We've certainly seen that the forecasts for future investment, for ongoing investment in nuclear power, which were very aggressive around the world, even 19 years ago when I started working in this field for Energy Probe, those forecasts have vanished and now we're discussing the rate at which we're going to shut reactors down. Except for a few despotic regimes in Asia that are still looking to invest money, we're basically backing out and the debate is over the rate at which we're backing out. We have that international comparison. Ontario is certainly not unique in shutting down reactors that on paper have decades more life left to them.
Mr Kwinter: The reason I am asking you these questions is that in your recommendations you suggest, "The committee should urge the government to investigate all opportunities for financing future nuclear investments...." It would seem to me there is a contradiction. On the one hand you're saying, "Get rid of these things," and on the other hand you're saying, "Here's a recommendation of how you should finance future nuclear investments."
Mr Rubin: Yes, I understand how we confused you, and we probably confused most of you with that, so let me hasten to clarify that. We are now in a situation where Ontario Hydro is planning a nuclear recovery plan. That plan, in addition to recognizing the costs of shutdowns and replacement power and some other items that are being visited on Ontario Hydro, also envisages the investment of new money, to the tune of roughly $1.6 billion. That's the money we're addressing in that recommendation.
We would like our provincial income tax form to have a little box where we can checkmark, "No, thank you," so that money will be on somebody else's bill, because I am sure I speak for Tom and myself in saying we don't have investors' confidence that that money is going to be money well-spent and we would like not to be investors. We don't think the taxpayers, your constituents, should be unwilling investors in that nuclear recovery plan.
Fortunately, there seems to be a pool of willing investors, namely, the members of the Power Workers' Union and the society. They have over and over and over, shall we say, out-Hydroed Hydro in their enthusiasm for putting new money into old reactors. We hope this committee could find a way that was both reasonable and legal to put those two loose ends together and let the people with the most enthusiasm invest and stand to benefit if they're right in their enthusiasm.
I would love to see a situation where the Hydro pension plan, for example, doubled its money by making wise investments in nuclear recovery. If they lost their money, then that's also the right answer. But I don't want in, and the taxpayers should get out of this dole and let this industry stand as an investment, because that's what it is. It's a speculative investment. We now know how speculative. It's too late to claim we don't know.
Mr Floyd Laughren (Nickel Belt): Welcome to the committee. I wanted to ask you about your recommendation 4, at the end of your presentation: "The government of Ontario should break up Ontario Hydro with a view to permitting customers to buy power from producers of their choice and making power producers accountable to customers and investors." I think I understand the concept, but I don't know how it works, where that fits with the privatization agenda and where it fits with the debt Ontario Hydro now has, in the neighbourhood of $32 billion, and where it fits with the private sector operating nuclear stations that are of, as you would put, a dubious quality or safety standard. I wonder if you could help me out there. What happens when you break up Ontario Hydro in terms of the generation, the distribution, the retail end of it? Can you expand on that a bit?
Mr Adams: We have a number of concerns about the way Ontario Hydro is currently managed. One of them is that the good parts of the operation, the financially successful parts of Ontario Hydro, are subsidizing the rest of it. As a result, the good parts are being driven into the ground.
The problems that were identified in the IIPA report, about the failure to adequately invest and maintain resources and the problems of communication not moving through the corporation appropriately, those problems are not at all restricted to nuclear. They're happening in the other assets as well.
What we've got is a pool of good assets -- a transmission system, hydro-electric and transformation resources -- that are not in proper repair. They haven't been maintained. We've seen, for example, some hydro-electric stations -- they should be the patrimony of Ontario -- that have been run into the ground. Ontario Hydro's had a number of pen stock ruptures. These are the pipes that carry the water down into the turbine generator that have not been appropriately maintained and have ruptured. One of the principles in this unbundling proposal, breaking up the assets of Ontario Hydro, is to prevent this kind of thing from going on.
The whole concept of retail competition in electricity has been demonstrated in Ontario in natural gas, where --
Mr Laughren: Excuse me. You're not just talking retail distribution here, though, are you?
Mr Adams: No, we're talking about retail competition in the purchase and sale of the commodity itself.
Mr Laughren: And generation too.
Mr Adams: That's absolutely right. For the commodity of electricity, there are many close analogies. There are electricity jurisdictions elsewhere that have been successful in moving in this direction. The state of Victoria, Australia, for example, is a very exciting example. But the example we have in Ontario of the progress in natural gas deregulation is another good example. Twelve years ago, when we started to deregulate the gas markets, Energy Probe was very active in gas -- we've been close observers. What we saw there was an innovation that hadn't been tried and hasn't been tried elsewhere. When the competition was opened up in the retail gas market, it was opened up not just for big industrial consumers of gas but also for small residential customers. The benefits have been very evenly shared.
Mr Laughren: But be fair, now. There's a big difference when you're dealing with Hydro, which has this cumulative debt and so forth, and facilities like the nuclear facilities. I don't think it's a fair analogy. But anyway I really want you to deal with that issue of those stranded assets and the debt Ontario Hydro has.
Mr Adams: In the natural gas industry, when deregulation was first brought in, there was a major stranded cost problem. It was dealt with by a mechanism called Topgas. It related to the contracts the local distribution utility had with suppliers of gas in Alberta and the transmission utilities that carried the gas here. It was dealt with. It was efficiently managed. It allowed the transition to take place.
One of the principles that guides a lot of our policy recommendations is to not let the past be an impediment to making good decisions in future. We have some past and some historic liabilities that we have to deal with. That's very important and very significant. It's a question of dividing up the cost and who pays what and how much and what the total pie will be.
If we leave Ontario Hydro alone, our assessment is that the liabilities will continue to build. We want to cap the liabilities and deal with them, but deal with them in such a way that allows us to move forward.
Mr John O'Toole (Durham East): I haven't had a chance to go through all your material, but I am a little bit familiar with it from the past. I think you'd agree primarily, without being too simplistic, that we do need power. Our whole society is based on having some source of power.
Mr Adams: No disagreement.
Mr O'Toole: That's establishing that you're not going to just operate under candles. I sort of naturally flow to that. Following it, are you basically opposed to nuclear, without oversimplifying the issue, or is it the Candu technology?
Mr Adams: First of all, we're not opposed to electricity. Electricity is nice stuff.
Mr O'Toole: We've established that. I'm trying to establish sequentially here that, first, we want power; now I'm asking, are you for or against nuclear? That's kind of easy and straightforward, or is it that simple?
Mr Adams: The available nuclear technologies, including the ones that are used in Ontario, we think are not in the public interest.
Mr O'Toole: How I'm going to ask my next question is, so you're in favour of fossil, then, of some sort, gas or coal or something?
Mr Adams: We think there need to be alternatives.
Mr Rubin: There are alternatives.
Mr O'Toole: How are we going to provide the 20,000 megawatts or whatever it is we need? How are we going to actually provide it, windmills, pedal-operated turbines?
Mr Adams: Right now Ontario Hydro is in court preventing a couple of the alternatives from coming into being, alternatives that are very environmentally responsible and economically attractive, district heating cogeneration stations in both cases. One is located in the city of London and another one is in Ajax. The Ajax facility is interesting because it's fuelled with wood waste; it doesn't use fossil fuels. It uses fossil fuels to some extent, I think as a startup fuel, but its primary fuel is biomass that would otherwise go to a landfill site.
Mr O'Toole: So you're not for energy from waste or any of those kind of European strategies, are you?
Mr Adams: We think Ontario needs a very diversified mix of energy supplies. We think if we open the market up, the market would come up with a lot of good solutions: industrial cogeneration, combined cycle, gas-fired generation, district heating cogeneration, a certain amount of renewables from waste fuels like landfill gas, for example, or waste wood or biomass.
Mr O'Toole: You're for a diversity of supply-side. I want to get down a little bit more to your traditional role. Have your past criticisms of Ontario Hydro been fully recognized by the IIPA report?
Mr Rubin: No. As I indicated in my presentation, the IIPA report, while listing most of the known failings of staff and management and some of the cultural problems within the stations and a number of things that are very important to get on the public record, maintains the argument that this is an inherently safe technology. They don't use those words in that order, because I think the authors would realize it's not true if they said those words exactly that way. But the impression is given that this is a technology that's basically as safe as houses, however we really have to have good management when we run it.
I think all you have to do is lean back for a minute and squint and say: "What if these people were running a marshmallow factory or what if they were running the facility in Ajax that's turning wood waste into electricity and heating homes in the Ajax region at the same time? What if we found beer bottles in the control room of that facility? Would we have to have a big press conference and have everybody show up and make it front-page news?" The answer is no. The reason is obvious: because one is an inherently unsafe technology and the other one doesn't have that problem. This is a technological problem, and IIPA has not acknowledged that and Hydro has not acknowledged it.
Mr O'Toole: So you haven't really agreed with the IIPA report because it sort of legitimizes the nuclear side. Whether it's the writer itself, it's more of a HRM problem. How do you think the government should deal with, or for that matter the last several governments should have dealt with the correctness of that decision on handling a stranded asset or whatever you call it? Say there were decisions to make with respect to alternative supplies. How do you propose the distribution of this liability should be managed? The cost-recovery plan is a bad plan, then?
Mr Rubin: The cost-recovery plan is not about distributing stranded assets; the nuclear recovery plan is about shaping up the B stations while Hydro makes believe it doesn't own the A stations. We've suggested a couple of amendments to that. One of the amendments is that Hydro in effect make believe it doesn't own the A stations for the rest of Hydro's life. The second part is that the new investment, something approaching $2 billion by Hydro's reckoning -- it might turn out to be more -- that money not come from government-guaranteed funds.
If you look at the 1981 exchange I had with Hugh Macaulay, the brighter than average chairman of Ontario Hydro, and you look at his response and how wrong his response was, knowing what we know now, and you ask yourself, "How could such a clever fellow be so stupid on that day?" I believe you would come to the kind of conclusion we came to: He was under incentives to come up with the wrong answer; he was under virtually no incentive to come up with the right answer.
We've suggested the investment community of Ontario and North America be more involved in balancing fear and greed in making investment decisions in technology to generate electricity, because that's one of the things they do well. Government doesn't seem to balance fear and greed very well when buying industries or when making business decisions.
Mr Sean G. Conway (Renfrew North): I want to come back to the recovery plan as Hydro has proposed it. Taking into account environmental considerations and financial factors, do you have any particular additional comments to make with respect to the specifics of the non-nuclear part of the recovery plan, as best you understand it today?
Mr Rubin: You're talking about the plan for replacement power?
Mr Conway: Yes.
Mr Rubin: Certainly my response is that we're dealing with monopoly power. This is just the way the utility company in China or in the former Soviet Union would have made these decisions. Hydro has always said there's a choice here between coal and nuclear. They've always been wrong, except in one narrow framework. If you set up a corporation like Ontario Hydro, you will find it gravitates to those two rotten choices; it always has.
The things Hydro is trying to beat off with a stick, the things it's fighting in court, the things it's fighting with special sweetheart deals to its major power consumers that the rest of us can't get, despite the fact that we have a democratically responsible, publicly owned monopoly -- I can't get the deals that Suncor and the oil companies and the rest can get. Isn't that ironic? Those things that Hydro is fighting off with those heroic measures are the solution. They are not coal-fired central generating.
Mr Conway: The fundamental evil remains, not just nuclear but monopoly of any kind? Because I think there would be --
Mr Rubin: I'm not sure it's true in principle, Mr Conway. It is true in the universe we inhabit that the unaccountable monopolies, the centralized monopolies in the electricity business around the world choose the nastiest sources of electricity, and the people who are risking their own buck to try to make a buck by generating electricity happen to gravitate towards high-efficient, relatively renewable, nicer technologies. I just sort of woke up to that situation. I'm not sure it's inherently true. There may be parallel universes in which it goes the other way, but we live in this one.
Mr Conway: But certainly it is your view that this current and longstanding difficulty, malaise and worse at Ontario Hydro has not been helped by the fact it has been a monopoly, correct, in your view?
Mr Rubin: Yes.
Mr Conway: What I want to know is, if monopoly is part of the problem, do you have any advice to the committee? Since there is no question that people like yourselves have been substantially vindicated by the recent testimony of people like Mr Farlinger, accepting that we will not see a continuation of Hydro's monopoly on generation, can you give the committee any thought or advice around regulation? There are those who would argue it's not just monopoly, public or private -- it doesn't really matter -- but it's that this has been a monopoly, in this case a public monopoly, that has been unregulated, unlike the gas sector to which Tom was referring earlier. Do you have any comment, any view about a new regulatory framework for this unfolding electricity sector?
Mr Rubin: Let me first address a small part of that, and then I'll let Tom handle the rest. One important part of that is nuclear regulation, by which we usually mean safety, public health and environmental regulation. I have certainly been a long-time critic of the way that activity is carried out and have urged the province and many earlier select committees, for example, to get the province involved in that regulatory vacuum.
In all fairness, the AECB regulatory vacuum isn't quite as vacuous as it used to be on the reactor safety side; it is still pretty vacuous on the routine emission and environmental side. The province continually looks the other way, whether it's tritium in drinking water or whatever. The province loves to say: "That's a federal matter. They know it. It's not our jurisdiction." "Oh, it is our jurisdiction? Oh, well, it's not our expertise. We'll find a way not to deal with it." That part has to be fixed. That's obviously not the whole story on regulation, because there is also market regulation, and we'll let Tom talk about that.
Mr Adams: On the market side, in terms of rationalizing Ontario's electricity system along the principles that have, for example, been guiding the gas market, what we have is a very effective, efficient regulatory agency through the Ontario Energy Board that controls the transmission and distribution system, and that model of having open public regulation of the transmission and distribution, which are inescapably monopoly aspects of the electricity business, is an effective model.
What we are recommending for this unbundling of Ontario Hydro is to separate the naturally competitive enterprises and let the market rule, but with the monopoly aspects, the transmission and distribution system, you make them subject to something like the Ontario Energy Board.
Mr Conway: Norm has done a very good job at describing from his point of view the problems with the public enterprise that is Ontario Hydro, but there would be those who would argue that if we open up, particularly on the generation side, and have a competitive marketplace, that if we get Bechtel or if we get Hughes Energy or if we get the Acme Private Energy Corp of Nowhere, USA, or France or Britain, we may find that the kind of business practices of Ontario Hydro, big and powerful as they are, may not in fact be the province of Ontario Hydro alone.
What would you have to say to those critics who would argue that the business practices and the behaviours of Ontario Hydro, so articulately and ably described by your colleague a few moments ago, may in fact attach to other big players in the sector, whether they are public or private, and how does that get dealt with by some kind of new regulatory environment?
Mr Adams: The key for us is to demonopolize the parts of the enterprise these people might be engaging in. If they're purchasing generating assets, they need to be beholden to their customers, and we think customers will do a pretty good job of --
Mr Conway: But how do they get regulated? If you look at the US and Britain, one of the things that is striking about the new environment is that very quickly a couple of major players -- it's been a move, by and large, to fewer, bigger players.
Mr Adams: I don't accept that suggestion. If you read the financial press, it appears there are all these mergers going on. In fact many have been struck down by US regulators, for example.
Mr Conway: The British government had to intervene just a year and a half ago at the cabinet level to stop consolidations that were occurring in that marketplace.
Mr Adams: If you take the British electricity market as an example, when they demonopolized their electricity system in 1989, 100% of the market was controlled by three big companies. Now their market share I think is down to under 60% and falling. The competitive players jumped in the first five years to 11% of the market, and since then I think they're at 17% of the market. There are other players in the market as well.
The point is that if you have good rules of operation, if you have an independent system operator and you have efficient regulation in the transmission and distribution system, the kind of market power concerns you are raising can be dealt with by ensuring that the pieces are small enough.
The Chair: Mr Laughren.
Mr Rubin: Excuse me, Mr Chairman. Can I add just a couple of words to the answer there? Because we didn't talk about environmental regulation, and I don't think any of us wants to suggest for a moment that there isn't a need for regulating, for example, what comes out of smokestacks, what goes into public water bodies. These are things that have to be regulated whether the owner of the facility is public or private.
Right now I certainly see on the nuclear side sweetheart regulation, privileged pollutants coming out of the nuclear generating stations, but if those nuclear generating stations were made private tomorrow, were sold off, given away, whatever, those problems don't go away. Heck no, they're still there. And the problem of regulating acid gas emissions is one that actually needs regulations to be changed. They should have been changed already, because our current regulations really only apply to Ontario Hydro. That's silly. It's not the name of the corporation that determines whether you can acidify a lake or not.
For example, in our submissions to the Macdonald committee, we were quite clear on a number of changes that have to be made to environmental regulation whether or not the system is restructured. Some of them are made easier by restructuring, some of them are made harder, and we went into that in an appendix to our brief.
The Chair: That was a good question, Mr Laughren.
Mr Laughren: I'm trying to get a picture, the same kind of picture you have in your mind, of energy at the end of the day. I'm wondering, is there any part of Hydro you would not privatize?
Mr Rubin: I can give you my answer to that. My answer used to be that there was no advantage to privatizing the transmission grid, that it was a public carrier in the benefit of all and that it was part of the birthright of Ontario etc, and that it's role was to be a public clearing house in effect where producers of electricity and purchasers of electricity met.
I have since changed that view, and now, partly through dealing with private monopolies a lot more than I used to, namely, the gas monopolies whose regulatory hearings and quasi-regulatory meetings I attend fairly regularly, I see that privately owned monopoly working at least as well as the publicly owned monopoly in Ontario ever has. The key, of course, is public regulation. Public regulation, combined with private ownership, I think is an extremely potent mechanism for getting the public interest views heard and maintaining leverage over the monopoly.
There is a certain lack of leverage. If we had the Ontario Energy Board telling Ontario Hydro to do A, B, C and D, or select committees -- and we've all been involved with select committees telling Hydro to do A, B, C, and D -- the key question that's never answered is, or else what? With a private monopoly that's publicly regulated that answer falls into your lap: or else we cut your rate of return next year. It is obvious. It is a sharp instrument. It is ever present. It makes private monopolies pay a lot of attention to the happiness of the regulators.
My current answer is that except for, for example, the political unwillingness of the population of Ontario to part with Niagara Falls -- that I believe is a reality; therefore it would be foolish to lead by playing into the hands of PWU ads, because they're right, the public doesn't want to sell Niagara Falls -- so let's not sell Niagara Falls, from a public policy point of view, I don't believe there's a part other than the regulatory institution itself that has to be publicly owned.
Mr Laughren: That part of your vision I believe I understand. The second part that I don't understand is the role of nuclear at the end of the day. Do you see nuclear continuing to be a supplier of energy in the province, let's say privatized for argument's sake for the moment, and if so, for how long?
Mr Rubin: The short answer is nobody knows. I'm on the steering committee of the Campaign for Nuclear Phaseout. The title of that organization makes its goals clear. The sooner the last reactor shuts down, in general the happier I will be. I don't think it's a good technology. I think it's a toxic, inherently hazardous technology. That said, it is conceivable the rules could be set up so that neighbours of nuclear stations are protected, so that environmental regulations are enacted, so Mr Andognini and his pals could slap the Hydroids around the face enough times that they behave in an exemplary, near perfect manner for long enough to combine -- I mean, he believes that good management can combine high reliability and economic output with safety, with safe management. He can demonstrate, he and his team, some places where that seems to have been happening for the last few years.
Personally I don't think it's sustainable in the long run. I think the technology will out. I think ultimately you are dealing with trade-offs between safety and economics, but I've been wrong before. I also was willing to bet against the privatization of the nuclear reactors in the UK. It has now happened. They seem to be success stories in combining good management on the bottom line and in the safety indicators. Obviously, if you have to be a neighbour of nuclear reactors, it's better to be a neighbour of well-run nuclear reactors than poorly run nuclear reactors. If they're well-run, they will run for longer before they're shut down, either by irate neighbours or irate regulators or lack of economic performance.
Mr Galt: I would like to follow through with some of the questioning that Mr O'Toole -- you were expressing concern about safety. We had a presentation by the Atomic Energy Control Board, a very impressive presentation, and what I'm hearing from you is you either don't have faith in or don't trust the AECB.
Mr Rubin: I think that's right. First of all, the AECB, as I indicated in my presentation today, is trying to push water uphill by trying to enforce safety. The AECB is a tiny organization compared to Ontario Hydro. The incentives on Ontario Hydro are intentionally cockeyed. Ontario Hydro labours under a Nuclear Liability Act that says, just in case your constituents -- those of you who represent constituents near nuclear generating stations -- suffer losses of billions of dollars due to, god forbid, a nuclear reactor accident, that it isn't Ontario Hydro's problem. It's not on their bill. They have fought recently and hard to make sure that cockeyed law stays exactly where it is.
In that crazy environment in which we have forgiven the potential polluter in advance for doing the unthinkable, it is then extremely hard to enforce safety even if you have enough troops and if they're sharp enough and if they're vigilant enough and if they think like critics; in other words, if they're aggressive, if they're loyalty is to public health and safety and not to the industry. I have questions about all of those ifs.
Mr Galt: A moment ago you talked about the British system which is of interest and you talked about privatization of nuclear reactors. The man and woman on the street here in Ontario is pretty concerned about privatization of the nuclear reactor. Why do you think this is so great in Britain?
Mr Rubin: I think what's happened in Britain, as you probably know, is that Maggie Thatcher, determined to build a bunch of new nuclear reactors, and determined to privatize the electricity system, found out towards the end of 1989 that you couldn't have both of those things, because the private sector would not invest a nickel in existing nuclear reactors, much less new nuclear reactors.
She chose privatization and kept the nuclear reactors in public hands. I thought, as I indicated a moment ago, they would remain in public hands. What has happened since is that the public entity that ran the nuclear reactors in Britain shaped itself up apparently, and whipped itself into shape where, with relatively minor public guarantees to the private owners of nuclear reactors, willing investors could be found. As I said, I was surprised by that, but a number of indicators are up, including their output and including their safety indicators. Tom Adams wants to add a few words to that if he may.
Mr Galt: Just quickly, you're saying if there's to be nuclear out there you would prefer it to be private, is that the bottom line?
Mr Rubin: One of the reasons why --
Mr Galt: With good regulations.
Mr Rubin: Again, coming back to what I said to Mr Laughren, I think regulation is much more powerful when whoever is regulated has something to lose. When you're regulating Ontario Hydro, it's like regulating the government. It's not exactly clear what you threaten them with. With a private entity it's crystal clear.
Mr Adams: I don't want to leave you with the impression we are advocates of the British system. Keep in mind that when they sold the nuclear plants in the UK, they sold eight stations. The price they obtained was equal to about half of the cost of construction of the last of the eight stations. It's like building eight houses as a developer and selling them for the price of half of the cost of construction of your last unit. The value of these assets as represented by market prices just shows an incredible, incredible loss to the public purse. So that's nothing for the British public to be at all proud of. I just wanted to complete your perspective on our views of the UK system.
Mr Galt: You talked in your last recommendation, I think it's recommendation 5, you don't exactly say privatization; you talk about breaking up and it's very suggestive. We're sitting here with this stranded debt and that's got to go some place. If that was to happen according to your recommendation, what would you propose be done with this stranded debt?
Mr Adams: We think the stranded debt ought to be divided. Part of it becomes the liability of taxpayers and part of it becomes the liability of future electricity customers.
Mr Galt: For what reasons?
Mr Adams: Well, for a couple of reasons. The primary reason why taxpayers ought to take a portion of this burden is that when Ontario Hydro was borrowing money, we the taxpayers of Ontario co-signed the cheques. So we really, from a legal point of view, have acquired a liability there. Ontario should be good to stand behind its name. We should not walk away from our obligations. That's an unsavoury prospect, to have taxpayers bail out Ontario Hydro, but I think legally that's part of the answer. The reason electricity customers ought to pay is related often to history.
One of the groups you'll probably hear from will be the Association of Major Power Consumers in Ontario and the Municipal Electric Association. Both of those organizations were vociferous advocates for nuclear expansion. Up until very recently they were proposing Darlington B and C and D. Some of the key customer groups are really part of the problem here, so I think it's appropriate that electricity customers share a portion of the burden.
In allocating costs to electricity customers, one of the things we want to do is ensure we do it in such a way that cost recovery, those surcharges on the bills, interferes as little as possible with the decisions that customers make, or that other energy producers might make. What we're proposing is something like a transmission charge or a hook-up charge. It's a cost associated with the privilege of being connected to the grid. That's unavoidable by customers who self-generate and customers who take all their requirements from the grid.
The Chair: Thank you very much committee. We have gone past the time. Mr Adams, Mr Rubin, thank you very much for appearing before the select committee. I appreciate your time and your interest. The committee will now stand adjourned until the hour of 7 pm. I will remind members of the committee that very light refreshments are prepared for you in the dining room. If we'll be back promptly on time, please, our next witness is Maurice Strong, the former chairman of Ontario Hydro.
The committee recessed from 1801 to 1901.
The Chair: The committee will be in session again, please. We continue with our witnesses, and at this hour I'm very pleased on behalf of the committee to welcome Maurice Strong to the stand. We appreciate you attending the committee and we look forward to your comments and a chance to visit with you for the next hour. We're in your hands.
Mr Maurice Strong: I do appreciate this opportunity of making myself available to this important committee, because I believe the issues before you are of very great importance not only to the future of Ontario Hydro but to the future of Ontario. I believe inasmuch as the time is limited, sir, that I could best serve your purposes by addressing the issues on your mind rather than giving you a dissertation, but I'm quite open to any questions. Unlike the times when I have appeared here with my Ontario Hydro hat on, I have not had the benefit of extensive briefing. I will rely on my memory, but I will respond to all of your questions as fully as I can.
The Chair: I'll begin the questioning as we work around by caucus. Mr Strong, you remember how the process operates. Let me begin with Mr Laughren.
Mr Laughren: Mr Strong, it's the first time I've seen you without a hat on, but I'll take you at your word that you are indeed bareheaded and begin to ask you to recall some things when you were at Ontario Hydro. In the public press you've used some very strong language, as I recall, about the nuclear program at Hydro. I'm wondering if when you were there, you had a sense that the nuclear program was in as much trouble as we seem to think it is today.
Mr Strong: Mr Laughren, I did not know all of the particulars that have emerged of course, but we did have a very deep concern. Right from the very beginning I was very concerned that it was very difficult even as chief executive officer to really get a handle on the nuclear. For example, it took me over a year to get reliable figures on the actual cost of our nuclear. We'd always been told it was very cost-efficient and economical, but the way I was told this isn't the way we did our accounting. We did manage to pull those figures out, but that was an indication.
Also, on the issues of operating, we had a structure that did not lend itself to accountability. As you will recall, we made some changes to divide Ontario Hydro into discrete business units, of which of course the largest single one was indeed Ontario Hydro Nuclear. We put in a senior management person and instituted a process of attempting to ensure that it was operating and functioning well.
I will go into further detail if you wish, but we were very concerned with nuclear. One of my principal priorities was to try and get on top of the nuclear issue in the company.
Mr Laughren: I don't want to put words in anybody's mouth in particular, but I think you were regarded in a lot of different circles as a bit of a wizard. Whether you would depict yourself that way or not, I don't know. That's why it's so surprising, I think, for some of us to understand how it was that as CEO at Hydro you were unable to get a handle on all this and remained, in a sense, frustrated by your own people.
Mr Strong: Mr Laughren, I am no wizard.
Mr Laughren: Those are my words.
Mr Strong: I certainly am not an expert on nuclear. But we did take some very real steps, one on the financial side that I have just referred to, but in addition to that we called in experts. We had a team from the Institute of Nuclear Power Operators from the United States, not nearly as extensive an exercise as later came, but nevertheless we did, and in light of that we established procedures to deal with the issues they had flagged, as we did in respect of the Kenneth Hare report, which had been commissioned before I took on my role.
I met with Ken Hare. I was very deeply concerned with the issues he raised, and we established procedures and a change of management that we thought would deal with that issue. When you do that, you have to allow a certain amount of time to see how those things function. At the same time, I was absolutely amazed that after years of dependence on nuclear power, we did not have at the board level a nuclear power oversight committee. We established that during my period of time.
So we took a series of measures, and I think the records of the company will also make it clear that I personally rated nuclear safety -- this will show from minutes, I think, and also from communications with staff -- as one of our central priorities.
Mr Laughren: Did Mr Farlinger strike a responsive chord in you when he referred to the nuclear division as behaving as a cult?
Mr Strong: I guess Mr Farlinger would choose perhaps different words than I would, but there's no question there is a cultural issue there. Remember that for years Ontario Hydro Nuclear was in fact a construction and engineering company. It was driven and led by the need to construct new nuclear plants.
One of the things that I looked at in respect of Darlington, for example, was: What alternatives did Ontario Hydro management and board consider before committing themselves to Darlington? Did they examine other possibilities like natural gas? I found to my surprise that they had not. The only alternatives they had considered were how big the plant should be, where it should be located. No suggestion, in the record at least -- and I was quite concerned about that because I think it emphasized a point that emerged in my experience, that the company had been in effect totally taken over by a nuclear culture, largely a construction and engineering-oriented culture.
Mr Laughren: It sounds like the current nuclear recovery program that we're dealing with, quite frankly. How much time do we have, Mr Chair?
The Chair: I'm doing 10 minutes for the first round, Mr Laughren.
Mr Laughren: Thank you.
You made reference, and I didn't quite catch it, to having someone come in and give you some advice on the nuclear division, but it was Carl Andognini, who is an American expert, who actually came in and did, as you know, the Andognini report and so forth. Is there some reason that you didn't do that?
Mr Strong: Yes, because we had the reports of the atomic energy agency. We had the reports of the peer review group that I just mentioned from the Institute of Nuclear Power Operators, I believe it's called, and we had extensive reviews of our own and we set up a board committee process. At that point, maybe wrongly in retrospect, it did not appear that we needed any more. We had been given a pretty clear idea of what our problems were and we went to work to solve them. Obviously, the solutions didn't move the situation as far or as fast as we would have liked, as we now see.
Mr Laughren: You made reference to the board having a nuclear oversight committee, I think you said, that consisted of board members. Was there support from the bureaucracy within Hydro, the Hydrocrats, as some of my colleagues refer to them, for that oversight committee?
Mr Strong: Yes. The oversight committee had access to all of the management and professional technical capabilities of Ontario Hydro Nuclear. They also had a chairman for most of that period, Dr Reynolds, who was a very distinguished nuclear expert. They also had the capacity to consult others if they wished to do so.
Mr Laughren: Did they come back to you as an oversight committee and express their frustration at not being able to -- was that not the seed of your problem at that point?
Mr Strong: Well, there were a number of concerns and frustrations indicated by various members along the way, including me. The committee was a very active committee, a very concerned and demanding committee. It was by no means a passive or ritualistic committee.
Mr Laughren: When you were engaging in the part of the downsizing which I guess was linked to the freeze on rates as well as the freeze on nuclear development, were you under the same impression -- and here I must confess that I was under the impression when that happened that the reduction in staff would be because there was going to be no more nuclear development. Therefore, basically the construction wing of Hydro would not be required -- I exaggerate a bit, but would not be required -- and that's where the reduction in staffing would come from, not from the nuclear division, which perhaps needed the staff that was there. Were you under that kind of impression, or did you know better?
Mr Strong: Obviously, the bulk of the separations in that area were in engineering and construction, and we actually abolished that as a separate unit. However, we didn't abolish that capability totally. We reduced it significantly and abolished it as a separate entity.
I think the records of the company will show that I was insistent that our reductions in personnel and costs would not compromise nuclear safety. I believe the minutes of the board will even show, or the committee at least, that I insisted that any such case should be brought to my attention. If there was any attempt to have cost-cutting or personnel-cutting compromise nuclear safety, it should be brought to my attention.
Mrs Barbara Fisher (Bruce): Good evening. I'd like to follow a little bit along the lines of where Mr Laughren left off and then come into the technical changes that were needed that didn't happen, and maybe why.
I would like to focus a little bit on the staffing issue. I assume you know something of the IIPA or have read it, the Andognini report?
Mr Strong: Yes, of course. I'm not used to hearing it by those initials, because I live in New York these days.
Mrs Fisher: It's a long name and we just try and abbreviate it and keep going.
I guess some of the focus of my questioning is going to go around the staffing issue. I see the IIPA report as a very significant review of the human resources problem. It doesn't get into a lot of the technical inadequacies in terms of the structure and that type of thing; that comes up in other reports that we'll address in a minute.
I know you were there when a large number of the staff were bought out, is how I'll put it, with this package that allowed people to leave. As you know, I am from the Bruce, and I recall the effect that had on the community. I would say that at that date, that time and space, if you will, that in fact you did give some consideration to the impact that would cause in the community. I congratulate you for that. However, I am a little bit concerned that none of the same consideration has been given to the recovery plan from the IIPA that's before us now, which is very significant.
I would ask you this: Can you remember the dollar value that was required by Ontario Hydro to buy out those numbers of employees who decided to take that package?
Mr Strong: I probably should remember that figure but I'm not sure I do. It was --
Mrs Fisher: Fifty million?
Mr Strong: I think it was more than that, actually. I can't remember the figure, but I do remember that the individual figures averaged, if my memory is correct, around $170,000 -- we were criticized for that -- and the payout on those was something like four years.
Mrs Fisher: Given the report now before us, do you think maybe there could have been a better strategy put in place in 1993 for 1994 buyouts that would have put us in a better position today in terms of recovery? For example, maybe they shouldn't have been bought out. Would you agree with that?
Mr Strong: No, I wouldn't. It's easy to look back. If you had the luxury of being able to take decisions in light of all the information, I suppose you might have modified them to some degree. But the fundamental purpose of that exercise was to flatten out the management organization, to reduce unnecessary personnel, and not in any way to compromise safety. If any of those things occurred, they occurred contrary to our instructions and our purposes.
Obviously, we didn't solve the problem. Remember, this problem built up over many, many years. The problem of converting a nuclear company primarily concentrating on development and construction of new nuclear facilities into one that was stable and concentrating on operations -- the operations people earlier on were more or less at the second tier. That doesn't happen overnight.
Mrs Fisher: What I just heard you say was to flatten out the management numbers or whatever the word was.
Mr Strong: At the management level.
Mrs Fisher: Yes. I guess that meant to make sure there was an application of adequate hands on the floor or in the shop to make sure that safe operation was maintained. Can you tell me that that happened? I hear that's not exactly how the downsizing happened at all.
Mr Strong: I was assured that was happening. It was one of our primary concerns. Again, I think the records of the company will demonstrate that we -- at least I thought we were taking every possible step to ensure that would happen.
Mrs Fisher: Let me describe how I see it and maybe then we can just say, "Would you agree or disagree with that?"
When I look at it today -- and I can only look at my location in terms of eight of the 20 units, but I'm not unaware of the other ones of Mr O'Toole's riding where we have Darlington and Pickering affected -- I would say that perhaps it wasn't done strategically at all. It was, "Whoever wants to take it, take it." It tended to be, how I recognize the buying out, that the most senior who weren't really going to be impacted that significantly on retirement took it -- those were the high-priced buyouts, if you will, high price in terms of dollars -- and those who were more afraid of never being there, those people who had come in that Ontario Hydro had invested hundreds of millions of dollars in in training hours, in the zero to what turned out to be eight-year capacity -- not just three and four years as they thought in the beginning of the announcement, but it turns out to be eight.
I would say that perhaps there was no strategy put in place on that buyout. In fact, the IIPA report today reflects exactly on what should have been anticipated, instead of having to look back now in history and finding the mistake. That's how I see it. Would you agree with that scenario?
Mr Strong: I couldn't put it like you do. You're obviously very familiar with these things. I wouldn't put it exactly as you did by any means. It was true that because of the union requirements, we had to have the buyout be available equitably to people, but we at the same time had a program of trying to take special measures to ensure that people who shouldn't be lost didn't leave.
Mrs Fisher: But we did. If I recall, at the very next licensing hearings that I attended on behalf of the community at that time, the chair of the AECB board of directors, Dr Bishop, indicated -- I think it was to you as a chair at the time, through your staff -- that we were putting that licence at risk because we were diminishing the numbers in each of the trades that required licensed numbers of people per trade. I would say that decision was made, I'm sorry to say, between 1992 and 1995.
Let me ask you this question: If that's a fact, as we've said to Mr Farlinger and Mr Fox and Mr Andognini -- those who were here last week -- we've already paid the price. The mistake is a mistake. If we accept the fact that a mistake is a mistake -- and there's no sense, in all due respect, hiding behind it. Instead, admit it's a mistake. If the human resource problem is a problem, why do we not go back out right now and buy made-in-Ontario Hydro workers who would still want to be there?
If that was the case, would you not agree -- the policy was put in place when you were there that a bought-out Hydro worker couldn't return to the workforce. If you were there today as the chair of Ontario Hydro and you knew that the human resource problem was one of the significant, stymieing factors in progress for the continued operation of the nuclear program, would you change your mind today on that policy and say that if we can find those trained workers who we've invested in -- could you bring them back and put them back to work?
Mr Strong: I would apply the same concern that I had at the time, but I would apply it with a lot more knowledge. If the condition prevailed today where the problem was human resources -- and I think the report makes a compelling case for that; I certainly can see that -- then I would do everything that we had to do to change --
Mrs Fisher: So you would reconsider it?
Mr Strong: Obviously, yes. We all learn from experience.
Mrs Fisher: I don't know where I'm at in time, but I have one more question that I'd like to get at, and it has to do with the technical problems. As you know, I try to do my homework and be familiar with those as well. I think you know that I have done that in the past.
There have been growing technical problems on site even when you were there as they related to pressure tube problems -- at least the initiation of recognition of that -- and also of course the nuclear reactor retube requirement.
Are you aware that in fact some private sector investors -- earlier today somebody suggested it would only be in the interests of the Power Workers' Union and the society's pension plans to look at this -- were looking to put money in an equity position into a retube of the Bruce A site?
Mr Strong: I don't recall any specific proposals of a kind that one could actually examine and evaluate, but I recall hearing about that possibility.
The Chair: Thank you very much. Mr Conway.
Mr Conway: Mr Strong, good to have you at the committee. I want to follow up on some of the earlier questioning. I was struck, like a lot of people in Ontario, back in the summer, the weekend of August 16 and 17, where you gave quite a fulsome, some might say startling, interview to the Black press, as it's sometimes known, the Southam chain. I'm just going to quote from the Ottawa Citizen and/or the Kitchener-Waterloo Record. The story ran across the system. You're responding to the release of the so-called Andognini report and Hydro's response.
You basically said that you were really upset to hear some of this. "These people were obviously sincere in trying to protect this precious nuclear flame of Ontario's, but even with that, I cannot concede that it was right to withhold information from the board. This even borders on being, well, even criminal. It's very serious." That certainly captured headlines everywhere, and it certainly captured my attention.
I wanted to come back with that as a backdrop, because the impression -- more than the impression -- left by your article, your interview with the Southam press in August of this summer, was that there was a lot going on about the safety and the operating standards at these nuclear power reactors that neither you nor your board knew a great deal about. I have some problems with that now.
Not that I expect the board or the chair to know all of the details, but about 10 days ago Dr Agnes Bishop came to this committee, the chairperson of the federal regulator. Dr Bishop left with us a very interesting set of documents covering the federal regulation of Ontario Hydro Nuclear assets from the period of about 1986 through to 1996-97. There is throughout this a consistent pattern of high-level concern from the regulator to the highest people -- the board chair, the presidents at Ontario Hydro -- about these very matters.
I will draw to your attention that on November 4, 1991, according to these documents, we have a meeting of the then-chair of Ontario Hydro, Mr Eliesen, senior nuclear power people from Ontario Hydro, including Mr Elgin Horton, well known to you, I'm sure, and federal regulators. In this meeting of November 4, 1991, Mr Horton confesses to the federal regulator that he and his colleagues at Ontario Hydro Nuclear -- this is in the presence of the then chair -- are embarrassed and humiliated about their ongoing difficulties in dealing with the problems -- serious problems, apparently -- at Ontario Hydro Nuclear. That's November 4, 1991.
On October 14, 1992, we have the president of the Atomic Energy Control Board, René Lévesque, writing to Mr Eliesen, your predecessor, where for the first but not the last time the federal regulator is expressing a concern about cuts to staff, as the previous member was addressing, and the impact of those cuts on the operating capacity of Ontario Hydro Nuclear.
These are but two of several references in this documentation that involve the senior leadership at the federal regulator and very senior people at Ontario Hydro: former chairs, head of nuclear power operations. It is impossible for me to believe that during the time of your chairmanship these kinds of concerns were not brought to your attention.
Mr Strong: Well, indeed, Mr Conway, they were brought to my attention. I don't recall all the details, but one of the things I did first was to read all of these and try to bring myself up to speed. It was very clear that we were not exercising the degree of control. That is one of the reasons why on my initiative we created a nuclear oversight committee, and it is one of the reasons why we created an accountable unit in nuclear. It was one of the reasons why we installed new management and a new structure. All of these things were designed to deal with these problems.
Mr Conway: I accept that, obviously, but what concerns me now, as I look at what documentation this committee has, Mr Strong, is that your intentions were obviously good, but the reality is -- and particularly in areas like the reduction in personnel that was aggressively pursued, for a lot of good reasons, under your leadership -- we have at the outset the regulator expressing very real concerns about what this would do, now vindicated by what we've heard in some of the testimony before this committee. What seems incredible to me is that, given the federal regulator's concern about the impact of staff reductions, about the impact of deferred maintenance, no one reported back to you by 1994 and 1995 that this program that you were pursuing was in fact undermining the very recovery that you and everybody wanted.
Mr Strong: No, it was not that we just sat back and waited for those things to arise. We had frequent meetings. I insisted that every single issue that was brought up by the regulators or by the peer review committee be addressed. Now, in retrospect, it is clear that they weren't fully addressed. That is so, and I'm very disappointed in that, but the fact is that when you're making significant changes in a corporation, you've got to give the processes you put in place -- you've got to give some credibility to the information you're getting back. If I were to wander around forever in a nuclear plant I wouldn't be able to understand what was wrong.
Mr Conway: I understand that, but are you telling this committee, Mr Strong, that given, for example, what Elgin Horton said in that November 4, 1991, meeting, neither he nor any of his successors during your term as chair of Ontario Hydro ever came back to you and said, "Maurice, we are cutting too deeply into the operational capacity of the nuclear power division"?
Mr Strong: Some of that did arise, and as I indicated before, Mr Conway, that was my concern too. That is why you will see in the records of Ontario Hydro that I insisted that our cuts would not -- I believe, if I recall rightly, you will even see in the board of directors' or at least the committee's minutes that the cuts would not compromise. Now, I have not got the personal capacity to determine whether that is being observed or not. I specifically asked on one occasion, and I believe the record will show that, that any such instances be referred to me so I could deal with them.
Mr Conway: But the reality is that over the course of that four-year period of 1992 to 1996, culminating in December 1996, where the federal regulator very nearly shut down Pickering GS because it was so concerned about the slide in operational standards at that power plant, nobody ever came back to you at the senior level and said, "This problem is bad and getting worse, and your plan for recovery is, rather than helping it, undermining it"?
Mr Strong: No, not the latter, because it's true that the Pickering incident, like everything else that happened, occasioned a further examination of what we could do to improve things. It was clear that we had not gone all the way, by any means. But remember, the nuclear had really run without much control or accountability, except from within the nuclear itself, until that period. It took some time to establish the systems of control and accountability, and some further time to see whether they could possibly work. They did begin to work, but obviously in the three years that I was there we did do some things which I'm amazed were not done previously.
Mr Conway: I accept that.
Mr Strong: We started the process; obviously we didn't complete it.
Mr Conway: But if one looks at the documentary evidence that has been presented to this committee, it's hard not to conclude that throughout the late 1980s and certainly through the 1990s two problems were really beginning to undermine the operating record and the operating safety of the nuclear power division at Ontario Hydro. One was too many of the wrong people leaving the division and not being replaced. Second, very important maintenance was being deferred while the utility was pushing productivity to the absolute greatest extent possible, thereby producing very attractive revenue numbers, particularly in 1994 and 1995.
It just seems now that when I look at all this material -- because one of the mandates of this committee is, what went wrong? -- it's very clear from the documents I have that senior people were raising concerns about deferred maintenance and manpower. I just find it hard to accept that the president and the CEO and the chair were up on the 19th floor not being made aware of this.
Mr Strong: Mr Conway, that is not a correct analysis. We were not aware of every particular, that is true, but we certainly were aware of the need for improvement. One of the principal preoccupations of the people on our floor was in fact to try and ensure that those problems were dealt with. You'll see, if you examine the record, that this was a primary preoccupation.
Mr Conway: I think a primary preoccupation would be once the president of the Atomic Energy Control Board says, in late 1992 and throughout much of 1993 and 1994, "We are really concerned about these staff cuts. The wrong people are leaving and they're leaving in far greater numbers than is acceptable." I would like to think that information is going right back up to you --
Mr Strong: Of course it is.
Mr Conway: -- and there is a specific action plan to stop the haemorrhaging.
Mr Strong: And so there was.
The Chair: We'll start the next round. Just before we do, a question that flows out of the questioning of Mr Conway and several others: Mr Strong, what measures did you instruct staff to put into place to measure the impact and/or effectiveness of the cuts? What were the benchmarks?
Mr Strong: I cannot recall the specific technical benchmarks, but I established a clear policy, which was that our cuts must not compromise nuclear safety.
The Chair: Having said that -- and you've indicated to the committee that there may be some suspicion about the efficacy of the information coming forward to the board -- if that's the case, what steps did you take to put into place for the board approval mechanisms and monitoring mechanisms to be assured that your actions were being followed and that they were not harmful to Ontario Hydro?
Mr Strong: We undertook some changes in management, changes in the demands as to what information had to flow up to us and to the nuclear oversight committee once we established that. In every case where we received a report from the Atomic Energy Control Board or from the peer group review that I mentioned, we reviewed that in depth, both at the senior management level and then at the board committee level. We undertook a program of measures which we believed would resolve the issues. We knew they wouldn't resolve them instantly. You don't solve problems like that instantly, but I believe the records will be very clear to show that we undertook very explicit measures, and not only that, but we oversaw them. Having said that, it's very clear from what has happened since that they still were not sufficient.
The Chair: Did you use a third party to validate?
Mr Strong: In a sense, a lot of this comes from third parties, because the Atomic Energy Control Board is itself a third party.
The Chair: The only other question I'd ask is, in your sense, is the board of Ontario Hydro capable of managing Ontario Hydro?
Mr Strong: The board as a board has the responsibility for management, but that responsibility is exercised primarily by selecting, in conjunction with the government, the chief executive officer and overseeing the management functions that chief executive officer exercises. No committee can actually do the management, but the board is responsible for the management.
Mr Laughren: I'll just follow up very briefly on that, because I have a couple of other questions I want to ask. There's a long history of Ontario Hydro and its relationship with government, regardless of political stripe. I think a lot of politicians have basically thrown up their hands and said, "Ontario Hydro is a government unto itself and they'll do as they will." Following up on the Chair's question, I'm wondering to what extent is Ontario Hydro, I think the largest corporation in Canada in terms of major assets, manageable by a board of directors that's all part-time, meets once a month, probably gets snowed under the week before each board of directors meeting with information, a lot of which they probably can't comprehend? If I was on that board, I'd be in that position. If that's true, if I'm at least on the fringes of reality here, how do you resolve that? How do you change that?
Mr Strong: I don't think any board can exercise executive management. The board has to put the management in place, it has to give it direction, it has to hold it accountable, but it cannot substitute for the executive management. It is true that virtually all boards of directors are part-time people who bring their wisdom, their experience to the table. It's important to have a mix of the right kinds of experience, and that has varied from time to time at Ontario Hydro, but basically I think we've had a good board. Certainly, when I was there, I felt for the most part our board was a very good and well-balanced board, especially when we rounded it out during the latter stages with some business people etc. The board issue is an important one, but the really important issue is the executive management.
May I say, Mr Chairman -- this is a side comment -- I've left Ontario Hydro, but I'm still an Ontarian and I'm still deeply committed to Ontario and to Ontario Hydro. I very much hope your committee properly looks into the past, but frankly, the fundamental issue that has concerned me all the way through is the future of Ontario Hydro and our vulnerability. This has illustrated that vulnerability. I've been trying to get attention to the question of how vulnerable Ontario Hydro is from a future point of view. I think that vulnerability grows as we defer action on the fundamental issues. What kind of energy mix are we going to have? Are we going to out of this experience suddenly slide into a commitment to a new generation of nuclear, refurbishing old plants? Frankly, I don't have the answers, but I hope this committee will address this fundamental issue.
Mr Laughren: I'm glad you raised that because I'm wondering whether or not you've had an opportunity to have at least a passing glance at the recovery plan put before the Hydro board on August 12 and approved.
Mr Strong: I have, sir.
Mr Laughren: Do you think that's a reasonable recovery plan?
Mr Strong: I'm very impressed with their analysis of the issues. Obviously this is a very experienced group. They addressed the nuclear issue only. They did not address the larger issue of, what alternatives does Ontario Hydro have and does Ontario have and to what extent should those alternatives be examined before making a whole new generation of commitments of billions of dollars to nuclear?
Mr Laughren: I've got to get this off my chest.
The Chair: I'd be disappointed if you didn't.
Mr Laughren: The day before the recovery plan was presented to Ontario Hydro, the Minister of Environment and Energy at that time wrote a letter to the board suggesting to them that they examine all the various options and consider carefully the recovery plan. It's a letter to Mr Farlinger:
"You can appreciate that the government expects all options will be thoroughly evaluated and assessed by the board before decisions on a full recovery strategy are taken. We also anticipate that any future supply alternatives will be consistent with competitive prices and be financially sustainable in an open market."
That's a very direct letter to the chair of Ontario Hydro. That's on August 11. On August 12, this rather complex recovery plan, although it dealt only with nuclear, you're absolutely right, Mr Strong, was dropped in front of the board and they approved it. If I was Norm Sterling, the minister, I would be beside myself with frustration and anger at the board having so summarily dealt with that report. If I hear you correctly -- and I don't want to put words in your mouth. You wouldn't allow me to even if I wanted to or tried to -- I hear you saying that you think other options should be considered as well and not simply the recovery plan that's been dropped in front of the board by Mr Andognini.
Mr Strong: Mr Laughren, you will agree that it would be not feasible or desirable for me to comment on the actions of the current board, because I'm not there.
Mr Laughren: I wouldn't agree with that.
Mr Strong: But my general position, based on my earlier knowledge, not necessarily on that particular decision, is that the most fundamental issue we face in Ontario is the future of our energy mix. Where are we going to get our future energy supply? Are we going to do it by refurbishing the nuclear or partially refurbishing the nuclear? To me, that is the fundamental question we must face. As some may know, shortly after the current government came into power, I made a speech.
Mr Conway: Quite an interesting speech. I have a copy of it in my hands.
Mr Strong: Yes, proposing some things that one wouldn't like perhaps, but making it very clear that this province cannot delay, without horrendous risk and cost, on the decisions on the future structure of our electric power industry, the role of Ontario Hydro in it, what kind of an Ontario Hydro it will be, what the basic mix of supply will be. These are fundamental questions. I have been very concerned about the lag in addressing these and I frankly foresee that we're going to pay a heavy cost for that delay.
Mr Laughren: Could I ask you a final question? I must be almost out of time. Do you think Hydro can deal with this recovery plan, which is very expensive, while continuing to have a rate freeze?
Mr Strong: I do not know enough about the current figures. I cannot give you an analytical answer, but it would seem to me from my previous experience that it will be a very difficult act of financial acrobatics to do that.
Mrs Helen Johns (Huron): Good evening, Mr Strong. I have been looking over your history, getting ready for you to come today, and one of the things I noticed was that you said quite openly before you were given the position of chairman that the company was in crisis. I think you've also said along the line, as I've read this speech you were just talking about, Competition, Customer Choice and Convergence: A New Structure of the Ontario Electricity Industry, which you gave on July 4, 1995, that the status quo was no longer acceptable, that in 1992 the company had had debt, that there were continually problems in the nuclear division.
You were quite outspoken, I believe -- and I gather that's one of your traits, to speak the truth -- about your need to have change and to move forward. Everybody looks at you as you're coming into this position as quite a change agent who's going to do something to affect Ontario Hydro and move it along forward. That, I believe, is the backdrop. In fact, I have an interesting article that I found in a paper about you being at one point the chief executive officer and the chairman of the board and I see Mr Conway here doing quite a dissertation on how that can't really work effectively because the job is so big. Everybody's thinking that you're going to work wonders at Ontario Hydro.
I guess the questions start for me with a discussion about what went wrong when everybody thought the change was going to come about. I specifically want to talk about nuclear today. I know there are changes in other parts of Ontario Hydro that you would like to see. You have the Atomic Energy Control Board telling you that they have changes that have been outstanding for 10 years. You have all sorts of things happening. How come there was no kind of public information about all the things that were wrong and how come we didn't move to a process where there was information about what was wrong so we could understand where we were at?
Mr Strong: I would like to suggest that certainly the public had access to virtually all the information. Sometimes we didn't have it all ourselves, but one of my first tasks -- incidentally, I wasn't the only one said Ontario Hydro was in crisis. I was quoted as saying that, but it was generally conceded when I came into the job that it was in crisis. We did undertake a major reconstruction of Ontario Hydro and I think we were pretty transparent in doing that. We gave full information. I was very available to the press and media and to the board. I believe it was transparent. Of course, we didn't tell them things we didn't know. There are some things that have emerged since that we didn't even know at that time, but fundamentally we reconstructed it.
The company did not have accountable business units. It's a huge company. It was run as one huge entity. We broke it down into individual accountable business units and instituted procedures whereby a management and a board of directors could actually determine whether their policies were being carried out. Now that doesn't happen overnight. It doesn't work perfectly overnight. We undertook a debt reduction program. We moved from a $3.5-billion loss to the largest profit in our history. We cut our staff down to a level where it was something like 30 years ago.
We did that, in my understanding, without compromising safety. We would not compromise safety. Now perhaps we may have erred here and there in our assessment of that. That's quite possible. We're certainly not free of error, but the process of turning around a big company is not something anyone, wizard or not, can do instantly. We set in motion some very fundamental changes that I believe have significantly improved Hydro.
We also set in motion at the same time a process by which we went around the province discussing with local communities -- we called it Hydro 21 -- what they thought Hydro should be in the 21st century. We set up a process of examining, with outsiders and insiders, future options for Ontario Hydro, all of which analysis was made available to the government of the time. We offered to make it available to the new government at that time when it was new and they chose to set out on a different course and establish their own commission, which was perfectly within their prerogative to do.
We still do not have a policy, as I see it, on some of the issues that I raised in that speech, that had been raised in the process I've just described to you, where we were trying to fix up the current Ontario Hydro while at the same time trying to develop a profile of analysis on which we could take decisions for the future.
Mrs Johns: Just to recap what I think you said to me right now, are you saying the public, the government of the day, the Premier of the day, the Minister of Energy of the day were all informed about the problems that were inside Hydro at the time?
Mr Strong: They were informed to the best of our knowledge. Some of the things that have emerged since are things that I certainly never knew about, I have to say: tritium, the issue of copper emissions and things like that, that evoked the comment I think Mr Conway mentioned. There were particular things we did not know, of course.
Mrs Johns: But the things you did know about, you informed the government of the day, the Premier?
Mr Strong: Yes. There was the odd thing, I suppose, that was privileged, but very little.
Mrs Johns: One of the questions I want to ask you, and then I'll come back to this, is, in some of the discussions I've been having -- and we're having the Power Workers here tomorrow. Since there's such a human resource problem that has happened over the course of Ontario Hydro's days, I would like to ask you if there was any kind of government interference in the three years less a month that you were at Ontario Hydro with respect to union contracts and settlements during negotiations?
Mr Strong: The answer is no. This is not a partisan comment, but I have to say that the government of the day was very supportive, including during the union negotiations, which were very tough, when the union leaders went over to see the Premier and he sent them back over to us. He eventually got us both in. I have to say there was real interest but not what I would call interference in management processes.
Mrs Johns: So you felt you had a free hand to negotiate the union contracts that came about, especially in the nuclear division?
Mr Strong: A "free hand" is hardly the way I would describe it.
Mrs Johns: How would you describe it?
Mr Strong: I would say that I had the management responsibility and was backed up in that, to the extent that I needed backing up, by the board and the government, but not a free hand.
Mrs Johns: So the government never at the time said, "You can't let these people go out and strike for fear that we'll damage our assets."
Mr Strong: No. They were concerned about these issues but they issued no order to us. We kept them fully informed, as would be normal, but they issued no order that I would consider to be interference. They took an active interest and a deep concern, but they did leave the negotiations to us. There was -- what do you call it? -- an arbitrator? I think it was called something else.
Mr Conway: Facilitator or mediator?
Mr Strong: Mediator, that's right; sorry. There wasn't anything that I would call interference with management prerogatives.
Mrs Johns: I was somewhat surprised by the comments that you made in the two papers that Mr Conway has already suggested, about it being criminal. I guess this issue has happened over such a long time frame where the taxpayers of Ontario have seen their assets have less of a value; we've seen a $7-billion write-off over the last four years at Ontario Hydro. I was surprised when you said some of the things you said about the criminal activity, if you will. I believe for a political appointee not to make sure that the public knows that their assets are being disseminated, that there is no value, and that there are serious problems in a publicly held organization is probably the criminal activity that went on during that time frame. Would you like to comment on that?
Mr Strong: It doesn't deserve much of a comment, to be perfectly honest.
Mrs Johns: Do you agree with it?
Mr Strong: No, I do not. You're trying to suggest that the management indulged in criminal activity and I think that is a totally irresponsible statement, if I may say. I am a citizen. I am not under your control at this moment, so as a citizen --
Mrs Johns: Do you think political appointees should be telling taxpayers that their assets are being undermined and the value is declining every year?
Mr Strong: I didn't say that. That's what you said.
Mrs Johns: You wrote off $7 billion. Well, in three years you probably wrote off about $5.6 billion.
Mr Strong: That's right, that is correct.
Mrs Johns: So that is a decline in assets.
Mr Strong: No, that is recognizing facts. That is simply recognizing the fact that those assets had lost their value. That's being honest.
Mrs Johns: How did they lose their value?
Mr Strong: They lost their value over a number of years. I already have mentioned to you, in my earlier comments, that one of the things I undertook was an actual evaluation of where our money had gone and how much of it had gone into nuclear. The information I got was that we would need to take a $12-billion write-down of our nuclear. That's not being criminal. Actually, it would have been wrong not to disclose that. I think probably that figure has grown now. The write-down at that stage, we thought the evaluation of our assets -- and I think those papers are available -- was something like $15 billion instead of the $27-billion figure, which represents a write-down of $12 billion. A lot of money, yes, but it would be wrong not to recognize that write-down if it represents actually what had happened. Those assets were worth a lot less than we had been led to believe they were worth.
When I commented to Mr Conway, I was commenting on a specific statement he quoted where I said, if that happened -- "if" -- if they had been in fact hiding information affecting human health, suppressing that information -- "if" -- I didn't make the accusation that they had done it, but if they had done it, that would verge on the criminal. That's what I said. I didn't say all these activities were criminal, and I accuse no one. But if information that is vital to human health and the environment is deliberately withheld, surely by any definition that is certainly wrong. I'm not a lawyer so maybe I shouldn't have used the word "criminal," but it's certainly wrong.
Mrs Johns: You said that you felt there should have been a write-down of $12 billion on the assets of Ontario Hydro?
Mr Strong: I didn't feel that. I had that analysis done and that was the result of the analysis.
Mrs Johns: There hasn't been a $12-billion write-down on Ontario Hydro assets from 1992 through 1995.
Mr Strong: No, we have not taken that write-off. That write-off will be required. That is one of the reasons I have tried to stress that we need to confront the whole question of Ontario Hydro's future: its regulatory future, its financial future, its ownership future, the structure of the industry. We have not. We've been talking about it for years. We've got lots of analysis. We have got to address that.
I just hope this committee, in addition to --
Mrs Johns: Don't you think it's misleading to the public, if you believe the assets are $12 billion overwritten, to record profit in some of those years and to allow the corporation to record profit? Don't you think that's a little misleading to the public who are footing the bill?
Mr Strong: We made it clear not only that those assets were worth at that time, in accordance with our analysis, $12 billion less, but we at the same time made the point that that was probably offset by the valuation of hydro. Because hydro, over the years, had been written down and at that particular point in time -- I can't speak for the current situation -- our estimate was that the write-down in the nuclear would be approximately offset by write-ups in the value of the hydro-electric power.
Mrs Johns: I don't think anybody necessarily believes that, given that we all believe there is a stranded asset there right now that's pretty substantial. I think if we asked anybody in this room, they believe there is a stranded asset being left at Ontario Hydro. Don't you believe there is a stranded asset?
Mr Strong: I know what a stranded asset is, but please tell me what you're talking about and I will give you an answer.
The Chair: Thank you, Ms Johns. I'm in the hands of the committee. I know there is still some considerable interest in continuing with Mr Strong, if Mr Strong can indulge us. We also have another deputation to hear from, but I would at least offer the opportunity for the committee to make one more go-around if that's of interest. We can do it in either five- or 10-minute segments, your choice. A five-minute segment?
Mr Conway: We didn't have our round.
The Chair: You're quite right. I precipitated this just a little bit before you came to your last round. You're quite right. Mr Kwinter, you wanted to have a go at it. Let me ask this question, though, before we go beyond that. I'd like to give some alert to the other deputation waiting, as well as to Mr Strong. Is there a sense the committee has one more quick go-round or not? I'm in your hands.
Mr Laughren: I have no problem with that, except I have a meeting at 9. That's my only problem.
Mr Conway: I'd like to at least have one more round, including the last part of the second round.
The Chair: I covenant to let you have one go at it, but the next one would then be a five-minute round.
Mr Galt: Sure.
The Chair: One more round on that one? All right, fine. We'll come back to that one and then I'll take my 35-minute round and we'll go from there.
Mr Kwinter: Mr Strong, one of the things we have to do in this committee, besides taking a look at what went wrong, is trying to get a handle on, what is the viability of this recovery plan? One of the things I was really taken with was your comment that until you got to Hydro, top management thought nuclear power was cheap. What did you mean by that?
Mr Strong: That compared to other available sources of power for Ontario Hydro, it was the least expensive. It depends a little bit on your assumptions, but that was based upon estimates of real costs which proved not to be correct.
Mr Kwinter: So effectively you're saying that nuclear power is not necessarily cheap and in fact in Hydro's case it was quite expensive.
Mr Strong: One of the great surprises, even shocks, that I experienced was to find that Ontario Hydro, one of the great corporations of this country, with many distinguished managers and boards of directors before, did not even know what the nuclear facilities were costing. I found that almost inconceivable. And they didn't know what was happening either.
I'm not condemning them, because it happened over a period of time, but we had got into a mode whereby we were spending billions of dollars and we didn't even know what the economics of the assets were. This problem with Ontario Hydro didn't just start; it's been deeply entrenched for some time.
Mr Kwinter: That's a concern I have. We have a situation where on August 12 the board formally receives the IIAP report -- they'd had it a week before -- but they also at that meeting approved the recovery plan. You're telling me that here is an organization that habitually has been operating on a premise where they didn't know their true costs. From what you indicate, there are billions of dollars that are floating out there that they have no real handle on. Is that a fair evaluation?
Mr Strong: No, Mr Kwinter, not quite. I said that was the situation that we found when we came to Ontario Hydro. I don't say that we did everything perfectly. We certainly didn't. There were lots of things that we didn't quite in three years get to or do as well as we might have, but we did basically set out to try and find out the real situation. We did so. We set up mechanisms to deal with it.
Now I think the board of directors does have a good deal more information on which to base those decisions than they had at that time, including the knowledge that the nuclear is certainly not worth what they thought it was. They know that now. Indeed, I would think, without knowing the details, that this latest report and the need for substantial new expenditures will change those economics even further.
I think the information is much better than it was, but what I'm saying is that report -- and I'm not an expert on this report -- was a report on nuclear. It did not address the issues of alternatives and the economics of those alternatives, the environmental and other impacts of those alternatives, and I believe that must happen. I don't see how you can make decisions on nuclear alone without taking into account the alternatives, including the economics of those alternatives.
Mr Kwinter: If I could just return to this issue of the $15 billion of write-down or potential write-down. In your statement you said that Hydro spent $15 billion more than the facility was worth. Is that depreciation or did they overspend?
Mr Strong: Just to be accurate, what I said, which was the information I got from the analysis I had commissioned, was that the assets at that time were worth $12 billion less than we had them on our books at. In other words, they were worth $15 billion; they were on our books at $27 billion, but -- and I don't want to be overly repetitious -- overall the corporation could actually absorb that loss because of the undervalued assets that it had, which just happened to roughly correspond to those figures.
Mr Kwinter: The reason I ask is that the actual quote that was attributed to you was, "He revealed that the nuclear unit had spent $15 billion more than what it was worth."
Mr Strong: If I was quoted on that, either they quoted me wrongly or I remembered it wrongly at that time.
Mr Kwinter: That's why I wanted to get a clarification. I just wanted to make sure that they hadn't gone out and spent $15 billion more than they had to spend.
Mr Strong: No, it was $12 billion.
Mr Kwinter: Oh, it's only $12 billion.
There was also a report that you had briefed Premier Harris on the problems at Hydro nuclear and that you had suggested that it would take massive amounts of money to refurbish the nuclear facility. Did you have a handle on how much this massive amount of money was going to be?
Mr Strong: We had undertaken, as I mentioned earlier, some very intensive analytical studies about future options for Ontario Hydro and they disclosed a series of options and vulnerabilities. We made a presentation, I think it was in May 1995, to the then cabinet. When the government changed I personally met with Premier Harris and told him of my concerns. He was very good about it all. He said that he understood those. He said we'd done a decent job of bringing Ontario Hydro along and made it clear that Ontario Hydro had not been in their program and therefore, while they would certainly pay attention to Ontario Hydro, it wasn't in their program. I offered to brief their cabinet, as we had done the previous cabinet. That offer, for whatever reason, I'm not criticizing it, was not taken up.
Mr Kwinter: You haven't answered the question I asked, which was, the indication in the report was that you had mentioned that there was a massive amount of money required to refurbish the nuclear facility. Really what I want to know is, did you have some sort of idea of how much that was?
Mr Strong: We presented no absolute estimates, and they would have been changed by now, but the point we made was that waiting for any significant amount of time would increase our vulnerabilities because -- we didn't have knowledge of all the details that have since emerged -- as the plants were aging, there were going to be some very tough decisions to make and those decisions needed to be accompanied by decisions on the structure of the industry and the other factors that I was mentioning, that they could not readily be made in isolation. My plea was to get these issues on the table.
Mr Kwinter: Mr Strong, if you were the chairman of Hydro today and you'd received the Andognini report, what would have been your recommendation to the board?
Mr Strong: I would have been impressed with the report, obviously. I can't really give an answer because the dynamics of the situation, all the knowledge of it that I would have had if I were in that chair, I don't have now. Obviously I would have taken it very seriously. In principle, I would probably have done very much like the board did in terms of shutting down those plants that the evidence showed should be shut down. I think my previous comments make it clear that I would not, however, move from that to an automatic assumption that what we must do is restore all the nuclear and go into a whole new generation of commitments to nuclear.
The Chair: We'll do one more round, then, down to the five-minute part.
Just before we begin that round, Mr Strong, the impression that seemed to come forward for me, and I'd like you to feel free to correct it if you would, is that when you took over as chairman -- and as has been pointed out, you were at one point both the chairman and the CEO. The impression given, at least to me in my notes, is that at the very best the staff was perhaps not forthcoming. With all the information that you might require or might desire, it has left me with the impression that former chairmen and former boards immediately preceding you carry considerable responsibility for the state of affairs of Ontario Hydro. Would you like to respond to that?
Mr Strong: Well, Mr Chairman, it's not really my nature or business to try to point fingers at other people. I can only describe what I found.
The Chair: Did I misstate myself? Would that be a reasonable impression?
Mr Strong: No. My impression, and I've made it clear, was that I was very surprised to find that the information that I thought in my business career had been fundamental to guiding and managing a corporation at the board level was not available. I didn't say that staff were unwilling to give me that information. Every time I asked for it, I eventually got it. But the way the system was constructed in the accounting system, it was not easy to pull out.
The Chair: But Mr Strong, you gave the impression as well to the committee that it was really much like a dentist drilling for oil. You had to keep going back into the tooth again until you finally thought that maybe you had struck pay dirt. That doesn't strike me as being very forthcoming on the part of the staff. You've also left the impression, at least with me, that former chairmen and boards were in exactly the same position, even more so, and allowed that condition to continue. Now, as a chairman, you do have some responsibility surely to at least respond to whether that's a fair image or not.
Mr Strong: Well, Mr Chairman, I don't believe that you should expect me to try and point the finger at those who preceded me. I don't know the circumstances under which they worked. All I know is what I found there, and what I found there was a corporation with a system of accountability that did not give the board and senior management the basis on which to make the kind of management decisions that they had to make. Now who was responsible for that, past governments, past CEOs, past boards, I do not know.
The Chair: Let me just pick up a final question and we'll go to our last round. Would it be, in your experience, reasonable to place before your board a document that suggests one might spend upwards of $10 billion to $12 billion on a recovery plan, never to have seen that information before, and to expect that to be dealt with appropriately during that board meeting? Is that a reasonable thing to get at?
Mr Strong: I'm not trying be reluctant, but I can comment on things I know about. I find it very difficult to comment on things on which I do not actually know what the situation was. I don't know the inner dynamics and I don't like to be pointing a finger. I have my own inner thoughts and concerns, but --
The Chair: In your experience as chairman then, were matters of that significance dealt with in that fashion by the board, or were they dealt with previous to coming to the board by subcommittees of board, by senior staff, and by the chairman?
Mr Strong: In my experience at Ontario Hydro, they were dealt with at various levels; first of all in the management, then through the committee structure of the board, and then at the board itself.
The Chair: Thank you very much. Mr Laughren, we'll start five-minute rounds.
Mr Laughren: Mr Strong, my colleagues will correct me if I'm wrong on this, but I think it was Mr Andognini, when he was before the committee, when he was asked what underlay all of the real problems in the nuclear division, if he could go back in time and if he had to point out one thing that was a problem -- I think it was Andognini who said this -- he said: "You know what it was? It was lack of preventive maintenance."
It really struck me that we've all been reading about problems at nuclear plants for many years. I don't know when the first set of problems ever came up, but it was a long time ago. It really struck me as bizarre that it would be not a design flaw, not rotten management or lazy workers or any of that, or lack of money, but lack of preventive maintenance. I wonder whether that phrase was ever brought to you as a source of the problem in the nuclear division, because as you say, you knew there were problems there.
Mr Strong: Maintenance, yes. The term "preventive" is not one we used to any great degree, but maintenance, which is by its nature preventive, means keeping the asset up to safe operating standards. So certainly maintenance and training of people, all of these were issues and they were all issues we addressed. In retrospect, if we had had that report back then with all the information they've disclosed, I am sure we would have improved our performance in nuclear at that time. We did not.
You know, these people came in not just for a few weeks or a few days; they came in for months and they actually lived with the nuclear. It took something like that, and I commend Al Kupcis for commissioning that report because he obviously became aware that the measures we had undertaken together were simply not working satisfactorily or sufficiently. Therefore he took some additional measures to get to the bottom and he did. Yes, if I had had that report, I would have acted on it.
Mr Laughren: Either that or resigned.
Mr Strong: That's right.
Mr Laughren: Mr Kupcis was a very straight-ahead kind of witness. He was very frank and very direct, and when people challenged him on the fact that he was a scapegoat in his resignation, he was very clear that that's not how he viewed his fate at all, that he was the CEO and therefore did what an honourable CEO would do once that report came out.
I really would like to go back to the recovery plan, because many of us feel, and I won't speak for my colleagues, but I think there's a lot of people who've read the recovery plan and have heard about it and really do question it for the speed with which it was passed through the board. Was it your experience when you were there that something as complex as that and as expensive as that, incredibly expensive, would come to the board and a decision be expected that same meeting?
Mr Strong: Well, Mr Laughren, you've heard from before, I've very hesitant -- it's not because I'm trying to withhold --
Mr Laughren: No, I'm talking about when you were there.
Mr Strong: I can't say, because I would have -- before it got to the board, I'm sure they went through all kinds of other processes of examination. I can't believe that they would simply get it and act on it like that. I don't want to pronounce on that, because I simply don't know, but any decision of that nature obviously needs very careful, very thorough consideration. Whether it received that, I simply don't know.
Mr Galt: Good evening, Mr Strong.
Mr Strong: Good evening.
Mr Galt: As I read and look over what's been going on with Ontario Hydro and the people of Ontario, I believe we're very fortunate that we have a chairman and a board that's taking the bull by the horns and is going to do something. There's been a thorough investigation and a recommendation's come forward. We have a committee now investigating it.
Looking back at some of your comments, you referred to this as a company in crisis when you came into office, and more recently you talked about it as a nuclear cult -- or culture, sorry -- according to the press. "Nuclear culture" was the term that was used, very close to what the current chair is using. Obviously problems existed, in your opinion. Just prior to that, 1989, I see where they recommended that 16 new nuclear reactors come on stream, in spite of Darlington coming on at some $14 billion, when it started out at $4 billion. Can you make some comments about this culture you were concerned about, this company in crisis?
Mr Strong: Yes, I can. In Ontario there had been almost continuing growth, with a few little interruptions, for several decades since the war. There had been a tremendous need for new energy. There had been great concern for where that was coming from. And there was then this commitment to nuclear; you know, atoms for peace. I recall the early days of nuclear when everybody thought it was a great thing. Ontario Hydro gradually became, in effect, primarily a nuclear company, having originally been primarily a hydro company. It made that evolution. In the course of it, it's management became dominated by nuclear people, which is normal because nuclear became it's principal preoccupation, its principal source of supply.
Yes, you're right. I was amazed when I came in that these 16 plants or something like that were projected, and they continuously projected that the experience of the past would continue into the future. That was the culture, that was the mindset.
They weren't the only ones. Ontario Hydro wasn't alone in all of these things. This tended to be a rather general ethos, but it was not a correct one. It was very clear by the time I got in there that these projections of future growth were not going to take place.
Mr Galt: So you put an end to the 16?
Mr Strong: We did, yes. We took them off the --
Mr Galt: Took it off the books.
Mr Strong: Yes.
Mr Galt: What was your term in office? How long were you there?
Mr Strong: I was appointed for five years. I took about three years, just a couple of weeks less than three years.
Mr Galt: Dr Bishop said there were many recovery plans put forward during your term. How many recovery plans were there?
Mr Strong: In my term?
Mr Galt: Yes.
Mr Strong: We had a number. There wasn't just a whole lot of different ones. There was continuous upgrading. We monitored the situation continuously and as we got new information we tried to improve our program, but I don't think we kept discarding programs and substituting new ones.
Mr Galt: But you didn't have a specific one like is going on right now.
Mr Strong: Many of the same elements, but not exactly in that form, no.
Mr Galt: Of the ones that you did try to implement, what kind of results did you get? What kind of costs were incurred?
Mr Strong: We had the periodic reports, which have been referred to, of the Atomic Energy Control Board. We had the peer review that I mentioned. We had a number of internal reviews. We had Kenneth Hare's report, which was commissioned before I came in but the results of which were still current when I came in and I paid a lot of attention to them. In each case we undertook measures to deal with each of the specific concerns that had been raised in those reports and, as we moved along, we reviewed those and reviewed the performance. In reviewing that performance, you have to rely on the signals that come to you through your accountability system.
Mr Conway: I want to come back, Mr Strong, because you're proving to be a wizard all right. There's a quicksilver quality to this testimony that I'm getting troubled with. I don't want to talk about anything other than your watch.
Mr Strong: Fine.
Mr Conway: On your watch, a three-year period, 1992 to 1995, we have a situation where it is very clear that the federal regulator and other people are saying at the highest level that plans that were started before you got there but accelerated upon your arrival, plans that cut staffing and threatened training and replacement personnel, were having a very real effect on the operating standards at these reactors. The evidence is everywhere.
I find it inconceivable that you, as the chair and for a considerable period of time the president, the CEO, did not hear that and that you did not put in place a specific training plan, for example, because while you were there Darlington was coming to full power. So you would know. There may be lots of little things you didn't know, but you wouldn't have to be very smart to understand that when you're hearing the federal regulator raising these alarm bells, when you've got to be hearing that all kinds of the wrong people are taking the early retirement package and Darlington's coming to full production, you've got a manpower problem. I can't believe that you, Maurice Strong, did not say to your senior executive cadre, "Where's the plan, where are the benchmarks and what specific measures are we putting in place to ensure that something is being done that is going to meet the requirement?"
Mr Strong: Mr Conway, I didn't put it in the aggressive way which you just did, but that's exactly a good characterization of what I did do to respond to these things.
Mr Conway: But it didn't happen and Andognini was here 10 days ago saying they had to start undoing, three years later, the very things that you apparently, and your agents, continued to do through the entire three-year term in which you were chair.
Mr Strong: I don't accept that. I do accept the fact, Mr Conway, that in light of information now available I hope I would have improved my performance, but I spent a lot of my time and a great deal of my attention on exactly these issues. When you've got a corporation with a deep-seated set of traditions, attitudes and values, it takes time and you've got to give some time to see how these things are in fact working. There are no instant cures for these issues.
Mr Conway: I understand that and I don't expect miracles, but I look at what evidence we now have and I can't believe that on your watch something as fundamental to the main part of this company, namely, the operating standards at these nuclear power reactors -- and, again, it couldn't be clearer. Everybody seems to be saying the same thing: Too many of the wrong people are leaving, there is no training plan, not only to bring replacement people on board but to meet the requirements of Darlington GS at full production. Particularly since the federal regulator from 1989 through to 1996 is ringing that bell ever more loudly, surely you as president and chair are responding in more specific and meaningful ways than appears to be the case.
Mr Strong: Well, Mr Conway, you're an expert on these things. You follow them. What I would suggest, and maybe you've already done this, is you look at what we actually did do. Yes, in retrospect, it wasn't enough, but we put in place more measures to ensure the accountability for the performance of nuclear at every level than had ever existed there before. Now it's turned out it wasn't sufficient.
Mr Conway: I don't agree there. I think you did a lot of interesting things and you were quite a remarkable chair of Ontario Hydro -- and I don't expect perfection, please understand that. But I don't accept your assessment. It is not at all clear to me that you in fact did those things, because the reality is that by the end of your watch the situation was worse than ever before. We have a regulator really upset, we have a training situation that's gone from good to mediocre to dangerous, so I don't accept your assessment that on that critical account you did a particularly good job, I'm sorry to say.
Mr Strong: I'm not saying, Mr Conway, that I did a good enough job. I am saying that I did, I believe, everything I could do with the evidence available to me, the resources available to me and the advice available to me. I think we took very drastic measures to ensure the continued safety of those plants. If you look at the board you will see that I was very explicit that any instance in which the cost reduction and staff reduction programs were going to impinge on safety should be brought directly to my attention so I could deal with it.
Mr Conway: Al Kupcis, your colleague, has walked the plank. He's fallen on his sword and taken his measure of responsibility. What should the people of Ontario generally and the ratepayers of Ontario Hydro specifically expect of you in terms of accountability for what happened on your watch?
Mr Strong: I think the evidence will have to speak for itself. Ontario Hydro moved into a position where it was capable of dealing with its problems again, where it was financially viable, where there was a restored confidence in it, where we started to rebuild the morale which had suffered very much during this process. It wasn't perfect. I would not contend it was perfect. I'm quite happy to let them make their judgement; I'm not going to make it for them.
Mr Conway: Towards the end of your three-year mandate -- I find it very interesting because I was reading yesterday your speech on July 4 to the Canadian Electrical Association on the future of Ontario Hydro.
As you're preparing to take your leave at the end of a three-year mandate, if one looks at your key utterances, two things I remember. I remember your talking very directly about a privatization agenda that certainly didn't seem to recommend itself to Mr Wildman, the then Minister of Energy for the Rae government. I remember that.
Secondly, I remember speeches like this one given in July. It's quite an interesting speech, made all kinds of headlines.
But if one looked at Maurice Strong and read Maurice Strong and listened to Maurice Strong in the last half of that last year, you would get the very distinct impression that your primary concern was a fundamental change, a privatization agenda for the provincial utility. You were much more interested -- and quite creative about that, I might add -- and there seemed to be little or nothing in your major public statements in that last six-month period that concerned itself with what ultimately became the substance of the Andognini report.
Mr Strong: I think if you look at some of the statements I made on nuclear explicitly, in that particular speech I was addressing the broad issues of the regulatory, financial and structural issues of Ontario Hydro and the energy industry. That's true. Look, I'm not going to try and suggest that in my three years I did everything right, but I do believe that I broke many years of precedents in which there were deeply entrenched processes in Ontario Hydro which did not permit it to be managed or controlled effectively by management boards or governments. I believe I set up systems of accountability. Al Kupcis's decision to bring in Andognini and his people resulted from a continuation of those processes.
Mr Conway: But surely your own testimony, Mr Strong, makes plain, and we come back to where I began, with the Southam interview, that at the end of it all you're having to stand up and confess, "There were a lot of very important things apparently going on on my watch that spoke to the fundamentals of this largely nuclear company about which I wasn't informed, about which I knew little, and about which I obviously could do little." How is that a testament to any kind of brave new world of better accountability and improved management?
Mr Strong: All I can say, Mr Conway, is that's true: Those things were at the operating levels and they did not emerge, and you're right that that shows that the measures we took were not sufficient. I have no problem acknowledging that. But I can say that the measures we did undertake have made it possible to get a handle on things, to get an understanding and to be able to control Ontario Hydro to a degree that was never possible before. The fact that we didn't do it all then --
Mr Conway: But a reasonable person could conclude that you did that in a sense inadvertently and backhandedly by letting the thing slip to the very edge of the precipice, on which precipice Mr Farlinger stood on August 13 and said: "God, it's run by a cult. It's all out of control. The flat-earth crowd have been right all along." And of course Kupcis fell over the precipice.
The Chair: Thank you, Mr Conway. If you want to make a very quick response to that, by all means do, Mr Strong.
Mr Strong: Mr Chairman, I'll just thank you for your interest, but let me repeat that I believe the Ontario Hydro that I left at the end of my three years was a much better Ontario Hydro than we started with. But we certainly did not rectify all the accumulated ills of the nuclear area. We are still living with them, and I would submit that the most important thing this committee can do now is actually look at the future issues, the issues that I have tried to highlight here and in the speech that Mr Conway has referred to.
I did not recommend privatization per se. I have always said that privatization was a means, not an end, and only one means, but I did suggest that private capital could make an important contribution to the future of Ontario Hydro.
The Chair: Mr Strong, thank you very much for attending the committee. I appreciate your forthrightness and I hope you might be available if the committee chooses to invite you back, that you would be prepared to accept our invitation. I excuse you now from the witness stand. I appreciate very much your being here.
ONTARIO CLEAN AIR ALLIANCE
The Chair: We will turn our attention to the final deputation of the day, and that is the Ontario Clean Air Alliance and Mr Jack Gibbons, who is the chairman. Mr Gibbons, welcome to the committee. I appreciate your indulgence in waiting for us to proceed. We are in your hands, if you will just introduce yourself for the purpose of Hansard and then if you will present your deputation.
Mr Jack Gibbons: My name is Jack Gibbons and I'm the chair of the Ontario Clean Air Alliance. I appreciate this opportunity to address you tonight. I trust you have a copy of our written submission. Our members are listed on the front page.
The Ontario Clean Air Alliance was formed this summer in anticipation of the white paper on electricity competition. The reason we were formed was that we wanted to ensure that electricity competition is combined with cleaner air, not increased pollution. We have put out a paper called Electricity Competition and Clean Air which outlines the new environmental policies which will be necessary in a competitive environment to ensure that we can simultaneously enjoy the economic benefits of competition and cleaner air. We would certainly be glad to discuss that paper with you after the white paper is released.
Our submission tonight to you, of course, is our evaluation of Ontario Hydro's nuclear recovery strategy. We have evaluated the strategy according to three criteria. First, is it consistent with existing environmental regulations and commitments? Second, will it exacerbate human health and environmental problems? Third, is it consistent with a least-cost, low-risk strategy to keep the lights on in this province and to protect human health and the environment?
With respect to the first criterion, "Is it consistent with the existing environmental regulations and commitments of Ontario Hydro?" I would like to address that with respect to numerous pollutants.
First of all, mercury: Mercury is one of the most hazardous air toxics associated with coal-fired electricity generation. It causes kidney, liver and brain damage in people. As a result, there have been two recent important agreements to reduce mercury, one between Canada and the United States and the other one between Canada and Ontario. They both call for a 90% reduction in mercury emissions in the Great Lakes basin by the year 2000. Ontario Hydro's preliminary nuclear recovery strategy will increase Ontario Hydro's mercury emissions by 70%, so at first blush, clearly this nuclear strategy is not consistent with these two important agreements which call for a 90% reduction in mercury emissions.
Turning next to nitrogen oxide emissions, which are also a byproduct of coal-fired electricity generation and which are a precursor of urban smog, in 1991, Ontario Hydro promised the Ontario Ministry of the Environment that starting in the year 2000, its nitrogen oxide emissions would not exceed 38 kilotonnes. According to Ontario Hydro's nuclear recovery strategy, there is a very real possibility that in the year 2000 its nitrogen oxide emissions will exceed 38 kilotonnes. But instead of proposing additional measures to reduce their emissions -- they haven't come forward with that -- they have suggested that Ontario Hydro will purchase nitrogen oxide emission reduction offsets from other corporations.
Their promise to the Ministry of the Environment in 1991 said they would reduce Ontario Hydro's emissions. There was nothing in that agreement about purchasing offsets from other corporations to achieve compliance with the goal of the 38-kilotonne maximum emissions. So with respect to nitrogen oxides, the nuclear recovery strategy also is not consistent with existing promises or agreements with the Ministry of Environment.
Turning next to sulphur dioxide emissions, which are responsible for acid rain which is killing our lakes and forests, Ontario government regulation 355 says that the maximum possible sulphur dioxide emissions per year from Ontario Hydro are 175 kilotonnes. According to Ontario Hydro, with their nuclear recovery strategy there is a very real possibility that in the year 2000 Hydro's sulphur dioxide emissions will exceed 175 kilotonnes. Again, they have not come forward with additional measures to control their emissions, to bring them down to the limit, and again they are suggesting that they will deal with this problem by purchasing sulphur dioxide emission offsets from other corporations or get involved in sulphur dioxide banking instead of meeting their statutory obligation.
The nuclear recovery strategy is inconsistent with the Ministry of Environment regulations with respect to sulphur dioxide emissions. They say you must keep your emissions below 175 kilotonnes. They do not give the escape clause of buying offsets from other companies in the United States or Canada or engaging in banking.
Turning to greenhouse gas emissions, which are responsible for climate change, in 1995 Ontario Hydro promised the government of Canada that they would stabilize their greenhouse gas emissions at the 1990 level by the year 2000. They very clearly said, "We will not purchase greenhouse gas offsets to meet the stabilization commitment until there is an international treaty with respect to the purchase and sale of greenhouse gas offsets." There is still no international treaty with respect to the purchase and sale of greenhouse gas offsets, but Ontario Hydro is now proposing to use the purchase of greenhouse gas offsets to achieve their stabilization goal. That is contrary to their 1995 agreement. Their nuclear recovery strategy is not consistent with their greenhouse gas commitments either.
I would now like to turn to our second criterion: Will the nuclear recovery strategy exacerbate human health issues? I would like to inform you that there are five toxic emissions that are a byproduct of coal-fired electricity generation stations and which according to the US government are carcinogens. There are absolutely no caps on Ontario Hydro's emissions of these carcinogens. According to the nuclear recovery strategy, Ontario Hydro's carcinogenic emissions will increase by 50% or 60%. That will exacerbate human health problems.
Turning to particulate emissions, which are also a byproduct of coal-fired electricity generation, particulates aggravate respiratory and cardiovascular disease. They also lead to more frequent attacks of asthma in children. There are no caps on Ontario Hydro's total particulate emissions, and according to the nuclear recovery strategy, particulate emissions will increase by 65%.
The third criterion we've used to evaluate this nuclear recovery strategy is, is it a least-cost, low-risk strategy to keep the lights on and to protect human health and the environment?
Mr Andognini, who was here a few weeks ago, I believe, seems to believe it is. He told you that the cost of bringing Pickering A back to service will be 2.5 cents per kilowatt-hour and the cost of bringing Bruce A back to service will be 3.5 cents per kilowatt-hour. However, those estimates ignore at least three important categories of cost. First, they don't include the cost of decommissioning these nuclear reactors; second, they don't include the cost of storing the radioactive nuclear waste which will be created by the continued operation of these reactors; and third, they do not include the financial and human health and environmental costs of continuing to run the coal-fired stations at increased output until the year 2009, when the nuclear units will finally all be brought back into service, according to Hydro's strategy.
Furthermore, as has come up today in Mr Strong's presentation, Ontario Hydro has not given you any analysis of the costs and risks of alternative non-nuclear strategies to keep the lights on and to protect human health and the environment. This is a very serious omission, in my opinion, because there's very good reason to believe there are credible alternatives: energy efficiency to reduce the demand for electricity and natural-gas-fired cogeneration of electricity to give us the increased supply we need. These are very credible alternatives which can keep the lights on and protect public health and the environment. They also may actually have a lower total financial cost and provide lower bills for our customers.
That's our evaluation according to our three criteria.
We have two recommendations for you. First of all, we suggest that you ask Ontario Hydro to come back with an alternative nuclear recovery strategy which is consistent with the existing environmental regulations and commitments, is consistent with protecting human health, and is consistent with Canada's international environmental obligations. Let's have a nuclear recovery strategy that's consistent with all those goals. Let Ontario Hydro cost it out and give you an analysis of the risk of that strategy versus the risk of their proposed strategy. That's one alternative.
As I've mentioned before and as you know, there are many people who think there shouldn't be a nuclear recovery strategy, period. Other options may be more cost-effective, safer, and better for the environment. So we recommend that you should also ask Ontario Hydro to come back with an alternative non-nuclear strategy to keep the lights on which is also consistent with environmental regulations and commitments, is consistent with public health, and is consistent with Canada's international environmental obligations.
Mr O'Toole: Thank you very much, Mr Gibbons, for your presentation. I echo your concern. The concerns of this committee too are for public safety and human health.
I suspect production of energy with regard to whatever mode that's in has byproduct effects. Would you agree that there aren't too many energy sources that don't provide some kind of particulates or effluent? Can you name one that doesn't provide some sort of resultant byproduct that could be considered a problem?
Mr Gibbons: Energy efficiency is very clean. Building a more efficient electric air conditioner is a very clean option. That reduces all emissions, reduces demand. Renewable energy options, small-scale renewable options, are very clean. For example, Toronto Hydro is considering building a wind turbine at Ontario Place, and that will be a 100% pollution-free electricity option. Also, natural gas cogeneration, though it is a fossil fuel and it does produce greenhouse gases and nitrogen oxides, is much cleaner than coal.
Mr O'Toole: I guess that's the point. We've heard from a couple of presenters, Energy Probe and perhaps even Mr Strong, that we're all looking for a diversity of supply. What's your preferred supply side? Is it nuclear or is it a whole bunch of different options? I know you want to get the demand down; I understand that. I've heard it and I've written it down so I won't forget it. But we've still got to have supply. There is growth. The demand is a function somewhat of the economy, I suppose. What's the preferred supply?
Mr Gibbons: The Ontario Clean Air Alliance's goal, why we were formed, was to make sure that when we move into a competitive environment, we won't have a significant increase in pollution. It was our interpretation that in a competitive environment, the significant increase in pollution, if it occurs, will likely come from fossil generation, primarily coal, because coal-fired stations will be operated at a higher capacity in Canada and in the United States. That was our initial concern; that's what we're trying to deal with.
We haven't taken a position, at least as of yet, about what are the appropriate solutions. We haven't got into that kind of microdetail. What we are focusing on is the proper government policies, types of emissions caps for greenhouse gases, for toxics, that would control the emissions. We aren't proposing government-type policies which would micromanage and tell utilities or businesses how to operate, so we haven't addressed those issues specifically about what the appropriate supply options are. We haven't got into that.
Mr O'Toole: The option on the table today is the preservation of the nuclear option, really, wouldn't you say, although the process of getting there and some of the caps, emission regulations that are circumvented, is problematic for you? Do you think it's important to go to the nuclear option? I mean, there isn't a lot of smoke coming out of the stack.
I'm trying to find out, if I want a sustainable grid supply of some 10,000 kilowatts or whatever, or some stable base rate, what should that be? It can't be windmills. Those can do some of the load. Is it nuclear you want to use or is it some other --
Mr Gibbons: We don't have a position on that yet. What we do want is to impress on you the importance of getting the emissions down, of clean air.
Mr O'Toole: I fully understand.
Mr Gibbons: What we're trying to say in the submission that we've presented to you today, and there is more detail in the written submission, is that we don't think at the moment that you have enough information to make a rational decision about whether it should be nuclear, whether we should invest in rehabilitating the nuclear units, or whether Ontario should invest primarily in energy efficiency and natural gas cogeneration. I believe that is a credible option that could meet the needs and could keep the lights on if we wanted to go there. The problem is, Ontario Hydro hasn't provided you or us with enough facts, with enough analysis of the costs, the risks, the environmental and health impacts, to analyse those different options.
Mr O'Toole: My last question is on that side. Should the government, or any government, consider the cost? I'll give you an example. They are freezing the rates --
The Chair: Quickly, Mr O'Toole.
Mr O'Toole: One of our positions, of course, is freezing the rates, which could have precipitated some of our discussion today. If you're looking at wind power, the RFPs, what is the basic per-unit cost? Is it double? Is it triple? I hear it's 10 cents a kilowatt.
Mr Gibbons: Wind power is definitely more expensive than natural gas cogeneration or energy efficiency.
Mr O'Toole: But should the government ignore the cost?
Mr Gibbons: No. You have to look at the cost and try to get the least-cost solution, but you have to be concerned about public health and the environment too. Those are also costs, and all have to be in the balance.
Mr O'Toole: They all coexist somehow there.
Mr Gibbons: But if I could talk about the wind turbine example, that is a proposed initiative of Toronto Hydro where they will provide green power to customers who are willing to pay a premium for it. It will be totally financially self-sustaining. It will only be paid for by the customers who want to pay a premium for green power, because Toronto Hydro recognizes that green power is more expensive. We have done surveys of our customers which show that a very significant proportion of our customers are willing to pay a premium for cleaner power.
Mr Conway: Mr Gibbons, thank you for some very helpful testimony. I take it, in summary, what you're essentially saying to the committee is: "Listen, we've looked at this recovery plan. We think it raises as many questions as it answers, but to the best of our information at the present time, it certainly, by the year 2000 or 2001, is going to put Ontario, if implemented as understood, at some real risk with its domestic and international environmental agreements."
Mr Gibbons: Yes.
Mr Conway: The talk on the street seems to be that much of the replacement power in the short term is going to be the old two-cent Ohio Valley coal fire. Are you hearing some of that as well?
Mr Gibbons: Well, I've certainly heard it's going to be coal. I'm not sure that it's going to be Ohio Valley as opposed to coal that's generated and turned into electricity in Ontario, but you may be right. I don't claim to be up on that.
Mr Conway: Coal is a real concern for you?
Mr Gibbons: Yes.
Mr Conway: It's the least attractive of the options at the present time?
Mr Gibbons: It's a very unattractive option.
Mr Conway: On the gas options, which would seem to be more attractive, has your group done any work on the impact environmentally of a fairly significant shift across the eastern half of North America, say in the next 10 to 15 years, away from things like nuclear to gas-fired electric? It seems to me, if you listen carefully to what most utilities in eastern Canada and certainly in the eastern half of the United States are saying, they are all saying much the same thing: that a very substantial amount of their next generation will come from some kind of gas-fired electric.
One of the questions I've had for some time and that has obvious appeal for reasons that I think are pretty clear, is, what analysis has been done of the environmental impacts of a very substantial shift to that alternative continent-wide? Have you any observation on that possibility or that impact?
Mr Gibbons: I think most people who have done environmental analysis see the shift to natural gas displacing coal, which is a much dirtier fossil fuel in terms of any type of pollutant you can think of naming. Most people think it's very positive from an environmental perspective.
Mr Conway: In a province like Ontario, let's say, or some of the New England utilities which have been shifting not just away from coal but away from nuclear to gas-fired electric, has that analysis been done to any great extent as far as you know?
Mr Gibbons: All I'm aware of from an environmental perspective is that generally going to gas is much superior to coal or oil. I think, Mr Conway, you're concerned about putting too many of your eggs in one basket. Is that what you're getting at?
Mr Conway: No. I guess the point I want to get at, and you make the point very clearly, is that coal is going to be a real problem, has been a problem, and that this recovery plan that Ontario Hydro has offered certainly is going to bring more coal-fired electrical generation to Ontario than we've had, and that's not a good thing. Let's just leave it at that for the moment.
I guess the other thing I want to ask you about is that it seems pretty obvious from your testimony that the Ministry of the Environment does not appear to have had a lot to say about the crafting of and the contents of this so-called recovery plan that Hydro has developed.
Mr Gibbons: Well, I really am not privy to what discussions have gone on.
Mr Conway: But judging from the results, it doesn't appear that the Minister of Energy spent a lot of time talking to the Minister of the Environment at the time this plan was being developed and approved.
Mr Gibbons: Well, they are the same person, so --
Mr Laughren: He does talk to himself.
Mr Conway: The question is being put in a somewhat mischievous fashion, but when I read this -- it's been a bit of a difficulty because you were working from notes and we have text and they don't quite match up, but there's some pretty alarming stuff in here. It's news to me, and I'm no expert, but the section on carcinogens, for example, is quite serious. I think it would be of real interest for Ontarians to be told that a group as credible as yours is telling us that this recovery plan is going to substantially increase the amount of carcinogens in the environment in this province and there are no caps at all.
Mr Gibbons: Yes, it is a very serious problem.
Mr Conway: I've nothing further. Again, thank you.
Mr Laughren: Thank you, Mr Gibbons, for coming before the committee and giving us a perspective that I think we need to hear, because we get caught up in managing the energy system in the province and there needs to be an organization that says: "Wait a minute. Let's think about the air quality." I appreciate the role you play.
I suspect that what is bothering a lot of us is that the Hydro board looked at the nuclear recovery plan: full stop. That's it, period. The day before they looked at and approved that plan, the Minister of Environment and Energy, Mr Sterling, wrote to the board and asked them to consider other options. They didn't. We're not even sure that letter ever got to the board. We don't know that. So I think your concerns are well founded.
What I want to know is to what extent you have a sense of what choices Hydro has. I know you don't run Ontario Hydro, I appreciate that, and that your job is to monitor clean air. I understand that and I wouldn't try to give you a greater responsibility than that. But many of us, and I'm one of them, are concerned about what happens when you shut down those seven reactors, the three at Bruce and the four at Pickering. What happens in the interim? How quickly can you crank up alternative sources of energy if it's not coal? Do you have a sense of that?
Mr Gibbons: First of all, the major new source, if we were to pursue a new one, would be natural gas cogeneration. You could bring that on stream, I believe, in two years.
Mr Laughren: Using what?
Mr Gibbons: Natural gas, and cogenerate electricity. Toronto Hydro, of which I am a commissioner, would like to cogenerate electricity in the downtown core of Toronto, and I think we could do it in two years if we were given the go-ahead. I think there are lots of other people in this province who would be happy to bring in natural gas cogeneration. It could be done in two years. That would help us keep our emissions down in the year 2000 and it would also be a long-term clean source of energy for us. So that could be done.
What also could be done is the Ministry of Energy could establish stricter energy efficiency standards for new electrical appliances and motors, and they could start doing that right now.
Ontario Hydro could start encouraging fuel switching. A lot of their customers are using electricity for space heating and water heating, and quite frankly, that's not in the customer's interest. Natural gas is a much cheaper source, you get much lower bills, and it's much cleaner. People should be encouraged to switch off electricity for heating and water heating. That's another option that could help.
There are all kinds of things you can do in terms of energy efficiency. There are many energy efficiency investments that can be put in place now that are very cost-effective, will reduce customers' bills, and will reduce emissions. So there are things that can be done. We do have a choice. We don't just have to crank up the coal-fired stations. We can, within two years, get very significant reductions and start phasing out the coal-fired plants, whereas Ontario Hydro wants to run them at a much higher output level for at least five years. With progressive alternative actions we could limit the coal-fired generation, the big increase, to maybe just two years. There are alternatives.
Mr Laughren: Just to be anecdotal for a moment, I live close to Sudbury, where the superstack is and the Falconbridge stacks are, and so I know what sulphur dioxide looks like. There it is in the form of a plume which you can clearly identify.
About two weeks ago I was in a high- rise out northwest of the city, in Mississauga. The window was facing downtown Toronto, and I'm telling you, I have never seen the atmosphere as bad in Sudbury as it was over the city of Toronto that day. I've never seen it that bad, and as I say, I'm not using Sudbury to be the benchmark by any stretch of the imagination, but I can see why people like you are saying we've simply got to take a stand on air quality, because it was disgusting. I looked out over the city and I thanked God I didn't live here permanently. I'm glad for the work that you are doing.
Mr Gibbons: Thank you.
The Chair: We have one minute left.
Mrs Johns: I've listened very intently, and I'm sure that all of us are trying to balance being able to turn on our lights versus the environmental issue.
You say that cogeneration can't happen for two years. I actually concur with you on that. I think 18 to 24 months is the time frame that we have to deal with here.
You haven't really given us any alternatives in what to do for that 18 months. I can tell you that as an elected official, I feel very strongly that when a person goes and turns on the lights or a business goes to turn on the lights, there needs to be power there. We're reliant on it. We need to have that there.
Tell us what you would suggest we do for those two years when we seem to be without any alternative if we don't go through with this plan and they actually do close down the seven reactors.
Mr Gibbons: On the bottom of page 9 and the top of page 10 of our written submission we deal with the alternatives in broad categories. Again, it's mainly energy efficiency that is the most cost-effective, and new gas-fired cogeneration. Those are the most powerful tools you have.
What I'm saying to you is that I think the onus is really on Ontario Hydro, which has the obligation to serve everyone in this province, to provide electricity. I believe they have an obligation to come to you and give you more than just one option, give you different options, various options, the costs, the risks of the different options, and then let you make an informed decision. You are the people who must make the decisions. This is ultimately a political decision in the finest sense of the word, but you've got to have alternatives so you can make a real choice. That's our bottom-line submission. We're a clean air alliance. We're not people who are supposed to be expert in energy and in running a utility.
Mrs Johns: I do agree with you except for the fact that we're at the date where they want to close those down. Maybe it's a decision that should have been happening four or five or 10 or 15 years ago that we're hearing, but we're faced with this dilemma today and people want their power to be on, so there are some decisions that are very difficult to balance, and we'll have to consider what you said. Thank you very much.
The Chair: Thank you very much, Mr Gibbons, for your deputation and for attending the committee. We appreciate that very much indeed.
A reminder for the committee, then, that the committee will stand down until 1000 hours tomorrow morning. The subcommittee will meet at 0930 -- I'm using metric -- and we will meet at that hour. The subcommittee will please meet in this room, and we'll move from there. There are a number of items on the agenda for us tomorrow.
There being no other business before the committee, we are adjourned.
The committee adjourned at 2104.