Tuesday 21 October 1997
Power Workers' Union
Mr John Murphy
Mr Robert Franklin
Society of Ontario Hydro Professional and Administrative Employees
Mr John Wilson
Ms Leslie Forge
Mr James Bullock; Mr David Kerr
Provincial Council of Women of Ontario
Ms Gracia Janes
Consumers' Association of
Mr Peter Dyne
Mr Robert Warren
Dr Mohan Mathur
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)
Mrs Barbara Fisher (Bruce PC)
Mr Doug Galt (Northumberland 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)
Also taking part / Autres participants et participantes
Ms Marilyn Churley (Riverdale ND)
Ms Frances Lankin (Beaches-Woodbine ND)
Clerk / Greffière
Ms Donna Bryce
Staff / Personnel
Ms Anne Marzalik, research officer,
Legislative Research Service
Mr Richard Campbell, consultant
Mr Robert Power, legal counsel
The committee met at 1008 in room 228.
The Chair (Mr Derwyn Shea): The committee will be in session. To report to the members of the committee, the subcommittee has met this morning and has been going over our schedules. There are still a number of pieces of fine-tuning yet to be completed. Generally, please still consider the schedule before you for the next few weeks as the general envelope and be ready for some changes, both in terms of tour times, if necessary, and also dependent on what happens in terms of government policy and actions over the next 24 or 48 hours. The Chair will keep you advised as we move through the next number of hours.
POWER WORKERS' UNION
The Chair: Our first witness this morning is John Murphy of the Power Workers' Union. Welcome, Mr Murphy. When you begin, please be good enough to identify yourself for the purposes of Hansard, and your colleagues with you.
For members of the committee, we will continue in the same rotational process as yesterday. We will begin the round this morning with the opposition caucus beginning the questioning. Mr Murphy, we are in your hands.
Mr John Murphy: Good morning. My name is John Murphy. I want to thank the committee for the opportunity, on behalf of the Power Workers' Union and the men and women we represent in our union, to make this presentation today.
With me today are Bob Menard, one of our communications officers, and Richard Stephenson, one of our legal advisers.
A copy of our formal presentation has been distributed, and I hope you will find the time in your busy schedule to read it. What I will do now is spend a few minutes giving you an overview of its main points so you can maximize our discussion time. I'm sure you have many questions.
The very first point I want to make is that despite its current problems, the nuclear industry has been good for Ontario, economically and environmentally, for the past 25 years. We in the Power Workers' Union are proud of our contribution to the province, and we want to do our part, and then some, to restore our nuclear program to the prominence it has enjoyed in the past.
We believe the Hydro management plan to lay up seven reactors for three years is a major mistake that Ontario would come to regret. I'll go through all our reasons in a moment, but first I want to make an offer to this committee concerning the Bruce heavy water plant.
The heavy water plant had a profitable four-year contract to supply heavy water to AECL for its international operations, but the contract is being abandoned because the plant cannot be run economically without steam from one of the Bruce A reactors, which Hydro plans to shut down. Therefore, the fate of the heavy water plan is tied in with the fate of the Bruce A reactors.
The reason this should concern the committee is that Hydro has now left the heavy water plant and assumes it's junk. Without trace heating in the plant, irreparable damage will happen to the pipes and equipment with the first hard frost, which will certainly come before this committee makes its decision on what should happen to Bruce A. Nitrogen blanketing is also necessary to prevent corrosion.
The PWU is offering to provide voluntary labour to carry out the nitrogen blanketing in the heavy water plant as well as funds to help pay for the trace heating necessary to prevent damage to this plant. This offer should be acted on quickly, because if the plant is damaged, a decision of this committee to keep Bruce A in operation might come too late for our billion-dollar heavy water facility.
I also want to mention that the closing of Bruce A will have a negative impact on the Bruce energy park, which also relies on steam from Bruce A.
I now turn to the reasons Hydro's so-called nuclear optimization plan, which is not really an optimization plan at all, is a mistake. I'll explain why our plan, which is a nuclear optimization plan, is a much better option for Ontario.
We call Hydro's plan plan B, because it concentrates on the Pickering B and Bruce B reactors, as well as Darlington. Our plan is called plan A, because we believe that nearly all of the A reactors at Pickering and Bruce can be simultaneously rehabilitated along with the B reactors.
In a nutshell, Hydro's plan B shuts down a large part of our province's energy capacity, throws highly skilled people out of work, deprives Ontario of at least a billion dollars in power export earnings, devastates the Bruce region communities, imposes billions in added costs for replacement fuel on ratepayers, and adds to the problem of global warming and acid rain.
Those are just the obvious and immediately measurable impacts. Still to come are the long-term economic effects of this shutdown: a less competitive Ontario Hydro just as the North American marketplace is opening up, the desertion of industries that no longer have access to cheap power and thus are made less competitive themselves, and the reduced attractiveness of Ontario as an industrial location.
The chart that begins on page 7 of our submission summarizes the essential differences between plan A and plan B. You can see at a glance that our plan is more economically beneficial, not just for the Bruce region but for Ontario as a whole. It's also better for the environment and the longer-term competitiveness of Ontario Hydro and its major industrial consumers.
In our presentation on this chart, to avoid any argument around the data being used, we've used Hydro's information that they've supplied to you under case 2 of their proposal. We've compared case 2 with case B in terms of what we think are really the important issues: the cost factor overall, the reliability factor, the environmental factor and the overall impact on the future competition in electricity.
The only question that remains is, is the union proposal, plan A, achievable? Hydro management says no, but has made no real effort to verify this claim. We, on the other hand, went through an analysis of all the key aspects of achieving plan A. We acknowledge that there are some uncertainties about the exact number of qualified staff who would be available, but considering the big payoff for Ontario that plan A would bring, it's worth a serious effort to find out. In fact, there is no risk whatsoever in thoroughly studying whether plan A is achievable, but there is considerable risk by not even trying to find out whether it can be done and plunging blindly ahead with a limited plan B.
There are five aspects to this question of whether our proposal is achievable.
Number one is safety. Can we undertake a more complete rehabilitation of our nuclear facilities safely? The answer is yes. The plants are now safe, as you have heard from both the Carl Andognini team and the Atomic Energy Control Board. With higher staff levels, which is part of our plan, safety margins will further improve.
Number two concerns staff. Are there enough staff available to safely execute plan A? We think there are. At the very least, there is a commonsense case for studying whether we are right on this critical issue. Consider these four points:
Thousands of experienced, highly trained nuclear staff have left Hydro in the past four years, and many of them would be available if they had a chance to work once again in their chosen career. NAOP calls for two authorized operators per unit, but they have been running with only one authorized operator for 25 years.
There are many thousands of jobless and underemployed graduate engineers and technologists in Ontario who are capable of performing much of the configuration management and documentation work for the recovery program.
There is no shortage of skilled tradespersons because of the continuing slump in the construction industry.
Finally, there are skilled nuclear staff who can be recruited from other countries. Canada has often done offshore recruiting for economic development purposes, and this in fact may be such a situation. The differences between the Candu system and others present a temporary barrier at best. After all, the Andognini team had no experience on Candu before they came here to tell us how to run them.
Put all this together and you have a good case for investigating whether there actually are enough people out there, instead of just taking Hydro management's word that there aren't.
The third aspect concerns competition. Will plan A inhibit the development of a competitive electricity marketplace in Ontario? Not at all. In fact, it will help it along, for two reasons: Competition works best for consumers when there is an excess of supply over demand. Hydro's plan takes a large chunk of electricity supply out of the equation, giving consumers less marketplace power. Also, it makes no sense to open Ontario's electricity system to competition when Ontario Hydro cannot participate in the North American marketplace. Plan B cripples Hydro's competitiveness at it critical time in the transformation of the electricity industry. Plan A, on the other hand, makes Ontario a competitor.
Fourth, will plan A protect the province's consumers and assets? We've already explained why consumers are better off in a marketplace with no shortage of power, but Hydro as a public asset will be more valuable under plan A. North American electricity prices are predicted to begin to rise in four to five years, when the continent's generating surplus dips below 10%. Plan A will position Hydro to maximize its market reach when prices rise. Generating capacity surplus to the province's needs will put us in a strong position in the wider marketplace and keep prices low here in Ontario. Hydro management's plan turns us into a net importer of power for at least three years, probably more.
The final aspect of the achievability question is whether Hydro can do it. We suggest that if Hydro management feels they can't do it, you invite proposals for a private-public partnership to rehabilitate and operate Bruce A, because it is the station most in need of investment. I have no doubt that such a possibility would generate a great deal of interest among qualified nuclear operation consultants around the world, and there are several.
In summary, plan A is clearly the way to go if it is achievable. The economic, environmental and competitiveness benefits of this plan are so great that its achievability must be carefully explored before it is dismissed, something Hydro has not done.
It's also time to put an end to this crisis management mentality in Hydro and begin developing a long-term energy plan for Ontario in the 21st century. Nobody is doing this, and our children and grandchildren will pay for this neglect. We believe our proposal is part of such a long-term plan, and we urge you, as the ultimate stewards of the people's assets, to maximize their value. A complete nuclear recovery is the better option for Ontario.
I'll finish by referring to the chart on page 7 to summarize the differences. These are the two options that Hydro has previously submitted to this committee. I'll just point out a few of the benefits: The cost of replacement power under what we're proposing would cost ratepayers $1.18 billion, whereas Hydro is proposing that $2.6 billion in replacement energy costs be passed on to ratepayers.
The total cost of the proposal that we're suggesting is a better option for Ontario is $3.8 billion; Hydro's is $4.4 billion. Again, these are Hydro's figures, not our figures.
Positive impact on provincial employment: Despite the fact that it's a cheaper cost, plan A that we're proposing would generate a maximum of 4,200 additional jobs that this province badly needs and yet would come in cheaper than the option Hydro is proposing -- 4,200 badly needed jobs in this province.
Spending power from new jobs: The estimate is $280 million annually and as much as $1 billion over the period of the recovery plan.
The impact on the Bruce community: I think there should be a strong sense of responsibility, both from the government and Ontario Hydro, to the Bruce community, which opened up its community to welcome nuclear power development. Our plan would protect that community, in fact see greater job investment and prosperity within that community, as opposed to the devastating impacts the Hydro plan is going to have on that community.
Reliability, which is very important for many of the industrial and agricultural customers Hydro has, will be severely challenged under Hydro's plan. Under the plan we're proposing, reliability is not an issue, is not a problem. Our fossil plants will continue to provide the reliability factor we need, as opposed to try to make up the shortfall in base load by taking out seven reactors.
Export sales: As much as $1 billion being lost in export sales potential over the full recovery period under the Hydro plan.
The environmental impacts: I can't overstress the issue of the severe environmental impacts the Hydro plan is going to have. Acid gas emissions will increase by almost 80% in 1998 and carbon dioxide will increase by about 50%, and that will have severe environmental consequences for us in this province.
Finally, the issue of Hydro's competitiveness: Our proposal will not only continue to allow the objective of stabilizing rates to be achieved but will make sure that when we head into a competitive environment, the debt load we're carrying on our backs will be not greater than what it is going to be under the Hydro plan; in fact, we will have a lower debt. Hydro's plan will not only burden us with a higher debt but will give our competitors, as we head into this marketplace, an advantage over Ontario.
All respectfully submitted, and I'll be glad to answer any questions you may have.
The Chair: Mr Murphy, thank you very much for your presentation. May I assume that this proposal was placed before the Ontario Hydro board?
Mr Murphy: Maybe I should clarify. My understanding of being before the committee this morning is as president of the union as opposed to a member of the board of directors of Ontario Hydro.
The Chair: Again let me phrase the question: Was this proposal and this plan ever laid before the board, and has the board done a technical evaluation, for example?
Mr Murphy: As I said, I'm more than happy to discuss any of the board issues with the committee, but my legal advisers have told me that I needed to have it clarified when I came before the select committee whether in fact I was speaking as president of the union or as a member of the board of directors of Ontario Hydro. I'm not trying to avoid the question. I'll be glad to answer it, but I need to have that clarified as to whether or not --
The Chair: I appreciate what you're attempting to say. As president of the union, did your union lay this proposal before the board of Ontario Hydro for consideration?
Mr Murphy: No, we didn't. The reason we didn't was that prior to Hydro making its decision with respect to this option, this plan to shut down the seven reactors, as a union we had met several times with Carl Andognini and his team. Leading up to the decision that went forward to Hydro to make, there was a rumour started in the field that the proposal was going to involve the shutdown of the A reactors at both Bruce and Pickering.
Both I and the vice-president of the union who represents our nuclear workers had a meeting with Carl Andognini and his team, and we asked whether this was an option being explored, because it was raising a lot of anxiety out there. I can give you the exact date and time of the meeting, if it's helpful. Carl's response to us back then was very clear, that they were looking at every option, and that the option of shutting down the A reactors was one option they were looking at but was the least attractive and least likely option for them to be going forward with. That's the information they had given us at the time, that the shutdown of the A reactors was the least attractive and the least likely one to go forward at that time. That's prior to Hydro making its decision on the reactors.
We said that was helpful, and to alleviate concerns among the workforce out there, it might be good to communicate out to the workers that all options were being looked at and to really ignore the rumour mill out there.
The Chair: Thank you, Mr Murphy. We'll proceed now in rotation.
Mr Monte Kwinter (Wilson Heights): Mr Murphy, I was interested in your proposal as to how to save the heavy water plant. The thing that interested me about it was that the implication is that unless that happens, that plant is gone. Is that your position on that?
Mr Murphy: Yes. My understanding both from Hydro management and some of the engineering staff about work at the Bruce heavy water plant is that the first really major hard frost at the Bruce without the trace heating being on will do irreparable damage to the piping and equipment in that facility and that the longer-term, four- to six-week time frame of corrosion without the nitrogen blanketing will do irreparable damage as well.
That's why we've made the offer that if Hydro doesn't want to do it, if nothing else, out of respect for the work this committee is going to do, we'll be prepared to provide volunteer labour at no cost to Hydro to help box the unit up, put it together, put the nitrogen blankets on and even help offset some of the costs associated with the steam that would be required to keep the trace heating on.
Mr Kwinter: The reason I wanted to get that clarified is that I was at a dinner the other night at the Conference Board of Canada sitting with a bunch of people who were very knowledgeable in energy, and they said to me, "You should know that once these facilities shut down, they will never open again." Do you feel the same way about that?
Mr Murphy: It's certainly true for the heavy water plant. For the reactors, it makes it much tougher to look at restarting the reactors once they're shut down. If you lay the reactors up for the three-year period, as is being proposed in here, it's much tougher in terms of bringing them back.
Mr Kwinter: They were far more definitive than you are. They said, "If you shut them down, you will never be able to open them again." I'm just curious to know. You're saying it makes it much tougher. They said: "Forget it. You just won't see them up again."
Mr Murphy: From a technical perspective, I don't see any difficulty with them restarting the units. I think where the difficulty comes in is that the economic case around the restart of the reactors becomes weaker the longer they're shut down. That's where it becomes more difficult.
Mr Kwinter: One of the other issues that came out in Mr Andognini's report is that he felt that the labour contracts were an impediment to Hydro. Could I have your comments on that?
Mr Murphy: Yes. If there was one area of the Carl Andognini report that really disappointed us, I guess it was around the labour issues, and not because there might be a different perspective around the labour issues but really because one of the strengths of Carl Andognini and his team was the detailed analysis they do around all the problem areas. When they look at configuration management or at the state of a boiler, they look at all the details and all the inputs and then formulate their position. But on the labour issues, what really frustrated us was that there was zero consultation with the union around any of the labour issues.
If Carl Andognini and his team had sat down with the union and said, "We think these four or five issues are really critical issues and really inhibit us in terms of our nuclear recovery," and we had discussed them, I think it's fair game for him to have a different perspective that these are problems. But the fact that there was none of that discussion I think really gets to the credibility of identifying those labour issues.
Let me use one example. He cited the issue of the right to strike; the fact that the union had the right to strike was somehow a major impediment to the nuclear recovery or to the issue of the problems in the nuclear plants. But had he discussed it with us, he would have discovered that the union had voluntarily given up our right to strike for four years. We'd agreed to a process of binding mediation-arbitration. If we had done that voluntarily, is the issue of the right to strike really a problem? That's an example of the lack of consultation and then just forming these snap decisions around the labour issues.
Mr Kwinter: So as far as you're concerned, you as a union are amenable to discussing what these problems are and seeing if you can make some kind of accommodation.
Mr Murphy: Absolutely. Since the report came out, we have said that we are prepared to sit down and talk about any of these issues. We're awaiting the response back from Carl Andognini and his team to say, "Okay, we're ready to sit down and talk about these issues." But to date, they have not got back to us on those issues. We're waiting.
Mr Kwinter: The other major thrust of his report is the lack of maintenance. He talks about the lack of training and the inability of the employees to carry out these jobs. How does that impact on you as the head of the union, and what is your response to that?
Mr Murphy: In that respect there are probably a number of areas of the report where I think they are right on the mark, where they make sense. Certainly on the issue of the lack of maintenance, if we look at what's been happening with these plants, Hydro has known for quite some time that the staffing levels within the nuclear plants are far less than what they should be. They are certainly far less than they are in nuclear plants in the United States.
The solution to that is quite simple. You just have to staff up. You need more staff to keep ahead of the backlog of work, and you certainly need more staff as the plants get older and you have more breakdowns and more maintenance required. That's no surprise from the report, the fact that the maintenance isn't being addressed. The backlog on the training is an issue that the union had been identifying for quite some time.
Probably what happened within Hydro is that Hydro got caught up in the issue of the rate freezes, trying to achieve the rate freezes and trying to achieve them in ways of squeezing the O, M and A budgets for the nuclear businesses. Any of the nuclear managers who were there in the past -- and some of them have received, in my view, pretty unfair criticism -- would have not been saying anything different than what Carl Andognini had been saying for quite some time, that is: "Look, we simply don't have enough money to fix these plants. We don't have enough resources to fix these plants. Give us the resources and the money and we can turn these plants around."
Mr Sean G. Conway (Renfrew North): Mr Murphy, I want to come back to a point you raised earlier. Do you want to locate in specific time when it was that Mr Andognini told you that the laying up of the seven reactors that ultimately formed the centrepiece of the so-called recovery plan was the least likely or the least attractive of the options, as he saw them at that time? When specifically did he tell you that?
Mr Murphy: On May 6 at 2:30, both I and Terry Pigeau, who is the vice-president for the nuclear and fossil side of the union, met in Carl's office. It was at that meeting that we raised that concern around the rumour in the field and that's when he gave us the response.
Mr Conway: When did you, either as a board member or as president of the Power Workers' Union, specifically hear or learn that the recovery plan was going to recommend the laying up of the seven reactors?
Mr Murphy: The first time I heard of it was the rumour that was in the field when we had the meeting with Carl Andognini and he dispelled it and said it was the least attractive option they would be pursuing. That was the first time. Officially, we didn't hear about it as a union until Hydro had made its decision at the board meeting.
Mr Conway: As a board member, can you tell us, as specifically as you possibly can, the circumstances of how and when you as a board member received the final specifics of the so-called IIPA, which was the assessment of the problem, and the so-called recovery plan? Can you give us, from your perspective as a board member, precisely when and how you received the final reports on the assessment of the problem and the so-called recovery plan?
Mr Murphy: When I received the package as a board member, which was on the Friday before the board meeting.
Mr Conway: That was approximately three days? The board meeting was a Tuesday?
Mr Murphy: Yes. I received the package on the Friday and the board meeting was on the Tuesday.
Mr Conway: Did you or your union have any opportunity to do any kind of economic analysis of the so-called recovery plan before that board meeting on August 12?
Mr Murphy: No, we had none. Part of the problem, being both president of the union and a member of the board, is that you have to separate those responsibilities. The information I got on the Friday I used as a board member to try to evaluate and prepare my arguments to go to the board meeting on Tuesday. But from the union's perspective, there was no opportunity whatsoever from the company to say: "Here's what we're proposing. Give us your input." So we didn't have any opportunity to evaluate it until after that.
Mr Conway: As a board member, can you help this committee understand -- it seems incredible to me that the board would have received a final assessment report and a multibillion-dollar recovery plan with two or three days' notice and that a decision to proceed with the recovery plan was made at that meeting with no independent evaluation of the costs and consequences of the proposal, and certainly no discussion with the shareholder, apparently, as to the efficacy of that plan. What do you say to people in Bruce and elsewhere across Ontario as a board member? How do you explain such a major decision with so little time and no second opinion, as far as we can tell?
Mr Murphy: Fortunately, I'm in the position that I don't have to explain the board's position on that, other than to say, Sean, that I share your concern. It's one of the reasons we are actively suggesting that this whole issue is of such magnitude, from both an economic and environmental perspective, that it warrants a much more detailed analysis than it has been given up to now.
Mr Conway: What can you tell us about that board meeting on the 12th? The minutes certainly indicate that some board members, at least one of whom we'll be talking to later today or tomorrow, voiced a concern. We know from the minutes that Ms Clitheroe had some concerns, again about some of the numbers. What can you tell us about the atmostpherics of that board meeting on August 12, which made such a momentous decision, apparently in such short order and under such remarkable circumstances?
Mr Murphy: I'm not trying to avoid the questions. What I am trying to do is make sure I walk the line between whether I'm here as a board member or as president of the Power Workers' Union. Let me say this: I don't believe that a decision of such magnitude can be made in a responsible way in one board meeting session, without an opportunity to thoroughly evaluate and get the inputs you need to make that sort of judgement call. That's speaking personally, as one person on the board, rather than commenting on the other members' conduct at the board. I'd be happy, as I said, if you think it's helpful, to answer those other questions, if it's clarified that I'm here as a board member.
Mr Floyd Laughren (Nickel Belt): John, welcome to the committee. I regard you as being here as a member of the board, if that helps at all. Am I correct in assuming that you're a member of the board -- putting aside your sterling personality for a moment -- because you are president of the union?
Mr Murphy: No. In fact when the appointments were made to the board, the government at the time requested that there be a number of names submitted. There was an all-party-committee process that we went through. The government at the time was quite clear that the appointment was not by virtue of the fact of being president of the Power Workers.
Mr Laughren: Okay. It's important to make that distinction, I think. It clarifies to me why you're saying what you're saying this morning. I was somewhat taken aback by your position about not answering questions as a member of the board. I still find it a bit strange, but nevertheless I see where you're coming from.
What I'm wondering about is, as a president of the union then, if we can go back to that, you were made aware of the letter the minister sent to Mr Farlinger the day before the board meeting. Did you, as president of the union, get a copy of that letter, or when did you see it?
Mr Murphy: After the fact; not before. Floyd, could I clarify something for the committee, because it may be helpful. I want to be here, I want to be helpful. I don't feel comfortable really being restricted in what I can and can't say. Just to be clear, I think it's really important and the people I represent think it's really important to try to have an opportunity to have a say, to try and influence the decision-makers and the board of directors of Ontario Hydro. We think there's value in doing that. We think there's value in having that happen. It doesn't happen broadly across our structures, but we think that there's an asset to having the workers at least have one opportunity, one voice, to try to influence other board members. Sometimes we're successful in our influence and other times we're less successful. We think that's really, really important.
At the same time, because this arrangement is fairly unique, we're very much under a microscope. We're very much under the microscope of some people wanting to have an opportunity to say, "Well, that's a reason why you shouldn't have a union member sitting on the board." So when I clarify those roles and responsibilities, I'm just doing it based on the legal advice I'm getting back that if this committee summons me as a director -- and that was one of the issues that was looked at, am I here as a director or as president of the union? -- I'm completely free to talk about any of the board issues if I'm summoned here as a director, but what I've been legally advised is that I can't if I'm here as president of the Power Workers' Union, that I'm limited to my role in that capacity.
That's the advice I got. If there's a different perspective, I'd be glad to --
Mr Laughren: Okay.
Mr Conway: You've got a good lawyer.
Mr Laughren: I think you've been getting advice from Charles Harnick. I want to go back to that letter because I think it's a very important letter that Mr Sterling wrote. When did you, whatever hat you want to wear, first see that letter? Do you remember?
Mr Murphy: I'd have to go back and check, Floyd. I think it was at the board meeting, after the board meeting that made the decision to shut down the seven reactors. I think it was at the second board meeting that it was distributed, but I'm not quite sure. I'd have to check on that.
Mr Laughren: The reason I ask that question and am pursuing it is that Mr Sterling, I think to his credit, quite frankly, said to the board: "Don't do anything hasty. Examine all the options and do it carefully and do it thoroughly." I'm having trouble accepting in my head that the board would simply ignore that letter. I don't know if there's any other way you can characterize it. They simply ignored that letter and accepted the recovery plan that we now know is what Hydro wants to do and which you, yourself, are questioning now as being too simplistic -- those are my words -- a solution for recovery.
I wanted to ask you a question --
Mr Laughren: It's true. I want to thank my friend Sean.
In his letter back to Mr Sterling, Mr Farlinger said: "Dear Minister: Thank you for your August 11 letter regarding the independent integrated performance assessment. I distributed the letter to our board of directors at its August 12 meeting," and yet I hear you saying that you think you saw the letter after the board meeting. I think that's what I heard you say.
Mr Murphy: I can't recall, Floyd. I'd have to go back and check. It could have been at that meeting or it could have been the one after.
Mr Laughren: Okay. As time has gone on at the nuclear facilities -- and I know your responsibility goes beyond just workers at the nuclear facility -- were you aware of conditions deteriorating, particularly at the A plant? Was it a surprise to you when the Andognini report came in with its recommendations?
Mr Murphy: No. I think, as in a point that Monte raised earlier, the fact of an increasing backlog of deficiency reports, an increasing backlog of jumpers, all of those things, you could see them increasing each quarter when they were reported. So there wasn't too much of a surprise in any of that. Certainly we had been, as I said, identifying for quite some time the fact that the staffing levels were inappropriate in there. To us there wasn't any real surprise in any of that. What was really needed was a political will to get on and say, "You fix these problems by putting resources toward fixing them."
Mr Laughren: The impression I got, hearing from the Hydro officials, was that the reason they had to lay up the A plants, Bruce and Pickering, was that they couldn't deal with getting the B plants up to speed at the same time unless they diverted major personnel resources into those positions. To me it seemed quite clear that that was their position, why they wanted to do that. It wasn't because they wanted to devastate the Bruce Peninsula; it was because they thought they had no choice. I'm wondering how secure you feel that you could actually continue to operate all these units at the same time. You can't just suddenly hire experts to come in and start the job. Why do you feel secure that this can actually be accomplished at Hydro?
Mr Murphy: Carl Andognini said in his presentation to this committee that 75% to 80% of the problem was associated with trying to find the staff that would be required to do the recovery of the A units at the same time, that that would involve 4,200 additional people, and that he somehow instinctively knew that those 4,200 people were not available. The reason we say we believe they are available is that Hydro hasn't come forward with any evidence that I can see that could satisfy us or this committee that they've made an attempt to find out if those people are available.
What are those people? We start with operators, because they're usually the critical resource in there. They're operators. Hydro's staffing practices in the past have been that they hire operators, who are people with a grade 13 education. They're brought in, put through a training program and hired. Hydro hasn't run any vacancies that I can see, saying: "Are there grade 13 graduates out there that want a job as an operator? Come in and we'll put you through a training program." It's not like we haven't done this before. When we went from four units at Pickering to eight units at Pickering, there had to be a massive hiring program at the same time.
The same thing is true of control technicians, which is the next level that you need to get the deficiencies down and the backlog of jumpers done. Control technicians are typically electricians. They are readily available to be hired, with the massive unemployment that we have in the construction industry. The same with mechanical maintainers; highly available in the construction trades out there and could be hired back in.
The same is true for our clerical or our civil maintainer classifications. The technicians that we represent; lots of people coming out of community college or coming out with graduate degrees who would love an opportunity to go in there and could be put to use. On the engineering side, as we point out in our submission, lots of engineers are coming out that we think would be readily available; people who left Hydro. As a short-term fix, it would be cheaper to bring some of those back -- a hell of a lot cheaper -- to see if it could be done.
The bottom line, Floyd, is that there hasn't been any effort made to try to see if those 4,200 people, which was the premise for shutting these down, are available or not. Maybe 4,200 are not available, maybe you can't get enough staff to prevent the shutdown of seven reactors, but if you could prevent the shutdown of three reactors as opposed to seven, you would be cutting the amount of acid gas and carbon dioxide that we're going to be pumping out into the environment and reducing the amount of replacement energy power that we're going to be buying from the United States, and overall minimizing the amount of additional debt that we are going to be adding to Hydro.
That's the test really that we're putting forward, to challenge Hydro to show what efforts they have made to be satisfied that these resources are not available, not just a decision that says, "We instinctively know they're not."
Mr Laughren: My sense is that the committee has been somewhat taken aback by the recovery plan. They might not have the same views that you do in terms of the nuclear option being the recovery option, but I think there is a sense that the recovery plan was laid before the board in haste and decided upon with great haste and that therefore some of us are very sceptical about the plan that's there now.
I am open-minded certainly, and I suspect my colleagues are, on where we should go from here, whether it's your plan or whether it's somebody else's plan, but at the present time some of us are very sceptical about the existing recovery plan.
Mrs Barbara Fisher (Bruce): Good morning, John. It's good to see you again. I will spend about half my time on the general form. I'm accused sometimes of paying particular attention to the Bruce, but I will never apologize for the fact that's the riding I represent and is most highly impacted, so it makes sense. When you look at the total impact of the whole picture, whether we're talking Bruce, Darlington or Pickering, half the impact is at the Bruce, so I think it has to be talked about.
Let's talk about the generalities to start with. My understanding from anything that I have read so far and in discussions with some of the chief stewards at the Bruce site, and I even had the opportunity to do so with Pickering as well, is that you are generally supportive of the review, that there needed to be something done. You are generally supportive and you took exception to the comments with regard to labour.
Mr Murphy: If I could clarify that, certainly we knew that we had declining performance within nuclear. It made sense to try and find out the extent of the problem. Where our criticism kicks in is jumping from, "Here's the problem, and here's the one and only solution to be acted upon in a very, very rapid way." Our criticism is more around that -- "Is this the only solution? Is this the best solution?" -- as opposed to the extent of the problem.
Mrs Fisher: So it's the issue of not having enough options to consider to make sure that we have the right one once and for all, as opposed to the other ones that -- we had Mr Strong in here last night and one of the questions I didn't get to talk about was the number of attempts that had been made in the last five to 10 years -- Dr Bishop referred to it, and the safety aspect as well -- and it was repeated attempts of failure and didn't really result in anything that helped any of us sitting here today. The common good is for the good of Ontarians and access to affordable electricity. I don't think the past is a good example of what we should follow.
Also in the general picture, the issue of staffing tends to irritate me a tad, if you have been following the hearings throughout the process to date. I wasn't a strong supporter when this golden handshake happened, not because of the money side of it. It's almost an I-told-you-so story, but I don't want to be that way. Everybody was saying, it wasn't just me, that in fact we would be draining the brain power and the resource that we needed. I don't think you disagree with that. Right?
Mr Murphy: Certainly the loss of expertise from Hydro was not managed well. It was driven very much I guess by number crunching, trying to achieve targets of reduction of bodies without any consideration given to what it was doing to the overall demographics of the organization and what it was doing to the expertise and skills within the organization.
Mrs Fisher: I asked Mr Strong last night if there had been a strategy, and he didn't really say yes or no, but I also know that there wasn't. It seemed to be those who came forward got bought out and now it's causing us major problems. It wouldn't take a genius to figure that would have happened. If I was to look somewhere, that's where I would be looking, that period of time where that bad decision was made that right now is effectively hurting all of us.
Let's talk now a little bit about the restaffing issue. Mr Conway, throughout the course of the hearings to date, Mr Laughren as well, and we have been addressing the issue. I come back to the issue that if we have put hundreds of millions of dollars of training into these laid-off workers, some who are very, very valuable to us now, even including up to first operators who took the buyout thinking that on a pension basis it wasn't so bad, if Hydro was to change its policy with regard to rehiring these people, which it seems to be doing anyway, against policy, I understand -- but if they were to change their minds about that -- I asked the question of Mr Farlinger and of Mr Kupcis, who isn't there but I wanted to hear his opinion, and Mr Strong last night, why wouldn't we shop locally and buy back our talent and address the issue of the human resource proposals which the IIPA identified as being the major problem? Would you agree with that?
Mr Murphy: I agree. Again, I think the proper measurement tool for looking at this issue really should be, what's the best in terms of economics for the people as a whole in the province and what's the best from an environmental perspective. If that means that we can have a cheaper option, less environmentally damaging, by going back out and hiring people who have gone out on a golden handshake, let's do it. If that's cheaper and better for the environment, let's do it. I don't have a problem with any of that.
Mrs Fisher: That's kind of admitting, quite frankly, a very significant, multimillion-dollar mistake, but I think that is something that should be considered.
During Mr Andognini's time with us here, he suggested that there were substantial difficulties between management and union, and everybody has acknowledged that there is a cultural problem here. I'm not so sure we would go as far as the word that has been used otherwise, but nobody seems to disagree that in fact a cultural problem exists. I am concerned about one thing here. I keep hearing that if there aren't enough people and there has to be this new culture, neither of the plans, yours nor the one that is before us, addresses that. If that's a significant stigma or attack point, if you will, to making this thing work again for all Ontario, why does your plan not address that?
Mr Murphy: The problem is that the reality in any workplace is that you end up getting the union you deserve. There's an old adage that you get the union you deserve. The approach that our union has taken consistently is that we are much more effective when we are being cooperative in the workplace as opposed to be confrontational in the workplace. We're much better at representing our members, getting our members' issues dealt with, if we can make the business that we are in successful. That's the approach we take.
Unfortunately, we're not really in the driver's seat. The employer is the one in the driver's seat, and Hydro has been plagued, probably not a whole lot different from a lot of other employers, both private and public, with a history where what goes on in the workplace has less to do with what makes sense and more to do with the sort of human power struggle where management sometimes gets overwhelmed, where they want to feel important in the workplace, be the boss and feel really important, and that takes priority over trying to nurture good relationships with the union.
As I said, we're on record, and I'll state it here again before this committee, that given the opportunity, we're prepared at any time to try to work cooperatively with the company to turn these problems around, to make the company more successful, because we think that's in the best interests of our members.
Mrs Fisher: I will say that I am personally disappointed that neither plan addresses it, and I hope before we finish and come up with a plan that it's not only just words, that there is an action plan that somebody can say in the end when it doesn't work who, this time, is responsible and then accountability is going to be an issue. I personally find it a huge failing point in all the reports so far.
I've got about four more minutes I see. I want to talk a little bit more now about the issue with specifics, because almost half the impact does come from one very small community, which happens to be rural and doesn't have the opportunity for diversification that others do.
I'll dwell a little bit first on the point that you have raised, and I know that the information is available through the Bruce Community Development Corp as it relates to the community impact. In the past, Ontario Hydro went forward and it asked the community for input before it made these types of decisions, because it has a moral and social obligation to the community to offset some of this factoring. As a board member, I want to ask you clearly, when you were there and these presentations were made, at any time was there any discussion with regard to the community impact before the decision was made at the board?
Mr Murphy: I can certainly recall discussing it at the decision-making board, but I can't recall if it was discussed prior to that, at boards leading up to that.
Mrs Fisher: I know Ontario Hydro didn't have available to it until last week the same types of information as prior to the decisions in the past.
Mr Murphy: Sorry, what I meant was in a general context. Raising the impact on the community, there were no specifics at any time in terms of numbers, finances, jobs or total community. None of that was ever discussed at the board that I'm aware of.
Let me go back on one point because I think it is really important, the issue you raised around addressing the cultural issues in the workplace. I think it is addressed in our report. Let me illustrate again why I think it's addressed in our report.
I don't know too many unions that are out there that would be going to an employer, saying, as we've said in our report and as we wrote to the company last week, we'll provide free labour to help fix some of your problems in the heavy water plant -- free, no cost, volunteer labour to do it -- and not only that, we'll help provide costs, some money, hard cash to help offset some of the financial issues associated with keeping them on. I think that's a significant gesture from the union in terms of what kind of relationship we want in the workplace.
Mrs Fisher: I acknowledge that and I think it is a changing pattern.
I would ask this one other question then. My concern is on a technical issue now, whether it's at Pickering or whether it's at Bruce or whether it's at Darlington in the future. Mr Andognini is proposing a dry lay-up for the Bruce A site. I happen to have done enough homework to understand that's never been tested with the Candu system in the past and I also am very familiar with the fact that Ontario Hydro never does anything within the financial boundaries it sets for itself; it's always more than. I would be delighted to see it less than on a regular basis.
Having said that, my concern, and it was sort of implied earlier in the questioning here, is a question relating to if they shut, they shut forever. That's obviously a concern for us at Bruce and it will ultimately be for Pickering as well, because if you start the run, you don't end the run.
What should we be looking for in our questioning before a decision is made, if there is any other decision made than what's before us now? Could you recommend to me an external, unbiased consultant whom we might talk to who would tell us about the value or non-value of a wet versus dry lay-up? I'm talking any Candu system now. Bruce is number one because it's on there right now, but we'll be facing the same thing at Pickering and we'll be facing the same thing at Darlington. What outside specialist might we find who knows the Candu system, the difference between the wet and dry lay-up and technically whether it's going to cost us more because of it?
Mr Murphy: Off the top of my head, Barb, I would have to get back to the committee on that, and I certainly will get back to the committee on that. I'll pass that information back to you.
Mrs Fisher: Do you share the same concern?
Mr Murphy: Yes, I think it is a concern. The first group that does spring to mind, though, is Atomic Energy of Canada. They have a lot of expertise in that area and they may be able to say whether there are technical differences between the wet and dry lay-up. But I'll certainly look and find out if there are any others with expertise who have experience with Candu that might be helpful.
The Chair: Mr Murphy, that concludes the time at this moment before the committee. I have a couple of questions to ask before you go and I must confess that I'm a little perplexed. I'm a little disturbed that it's been difficult for you to speak as a member of the board. You are a member of the board. You occupy a position within the union, but this committee I think has a right and a responsibility to explore your experience and your representation as member of the board of Ontario Hydro.
Let me begin by asking a question. Are you prepared to accept an invitation to attend upon this committee in the capacity as a member of the board?
Mr Murphy: I'd be delighted to.
The Chair: I want to go back to a question that was raised by several of the members and I really would like you just to clarify for me. It goes back to an issue involving the board meeting on August 12. On August 11, Mr Sterling sent a letter to Ontario Hydro. You have seen a copy of that letter and you realize in that letter he was asking for all alternatives to be considered. I find no notation of any discussion of that letter in the minutes. Can you explain?
Mr Murphy: I'll have to check my notes again on that but I think the reason might be because it may have been distributed in the in camera session.
The Chair: I see. Would that in camera meeting have been held before or after the meeting where the substance of the recovery plan was approved?
Mr Murphy: They're normally done before, although they also have varied. They've had in camera sessions at the end of the board session as well.
Mr Doug Galt (Northumberland): On a point of privilege, Mr Chair: Isn't the whole meeting in camera? It's not a public meeting.
Mr Murphy: No, there is an in camera session, "in camera" meaning that it's just the board members, without the staff that participate in the board meetings.
Mr Galt: That's what you're referring to as in camera, without staff, rather than without the public?
Mr Murphy: Yes.
The Chair: Will you take it upon yourself to advise this committee at your earliest convenience when you were informed of that information?
Mr Murphy: Yes, I will.
Mr Conway: I just want to be clear again on the Chairman's point, because this is an absolutely central question. To the best of your knowledge, Mr Murphy, as a board member, you do not believe that you saw Minister Sterling's letter asking the board to consider all options, to the best of your knowledge you don't remember seeing that letter until after the board approved the substance of the so-called recovery plan?
Mr Murphy: No, Sean, I'm not saying that. I said it wasn't exactly clear to me whether or not it happened the day of the board meeting or whether it happened after the decision was made, the minister's letter. I'm just not 100% certain on that.
Mr Conway: John, it's only two and a half months ago and this is not an everyday letter. This is a letter from the shareholder, this is from the Minister of Energy. It couldn't be clearer. You apparently voted against the recovery plan and what I think this committee has to know and what the public has a right to know is, in due diligence, did these board members see the shareholder's letter before they made the decision?
Mr Murphy: I think it's a fair question, Sean. I can clarify that. I'm not 100% certain whether that letter was distributed before the board made its decision, but I will get back on that.
The Chair: We will come back to that, Mr Murphy, and you have agreed that you will attend upon the committee. I want to be very clear with you that while I appreciate the presentation you've made on behalf of the union, I have in fact directed a letter to the chairman of Ontario Hydro that is going out immediately asking for the comments of Hydro upon the proposal as put forward.
Mr Murphy: Okay, great.
The Chair: That's in fairness to see that, but I want to ask you in that regard, when was your proposal developed? Was it before or after August 12?
Mr Murphy: After August 12.
The Chair: So it's been formed in the last few weeks?
Mr Murphy: Yes, we've been working on this since August.
The Chair: Thank you, Mr Murphy. I appreciate your attending the committee and I appreciate your agreement to respond voluntarily to the committee. You might check your calendar for me and advise if you would be available at about 10 am on Thursday the 23rd, if you would be good enough to check.
Mr Murphy: I'll make myself available.
The Chair: Thank you very kindly. Then we'll put you on the witness stand at that time. I appreciate your time.
The Chair: The next witness to come before the committee is Bob Franklin, a former chairman of Ontario Hydro. Welcome, Mr Franklin. For the purpose of Hansard, if you'd be good enough to identify yourself, then we're in your hands.
Mr Robert Franklin: Thank you, Mr Chairman, ladies and gentlemen. My name is Robert C. Franklin. I'm a former chairman of Ontario Hydro. I'm here to help you in any way I can in the rather onerous task that you have. It's a difficult task.
I can think of two areas that I might be able to help you in. One is of course the years 1986 to 1990, inclusive, when I was at Ontario Hydro as either president or chairman or both. There's another area which I might be able to help you with that has to do with safety culture and the impact of major losses of staff on safety culture. Since I've left Ontario Hydro I've had an opportunity to become informed on this particular subject. I don't profess to be an expert, but I have had three or four years of exposure to it. If I can be of any help in that area, I'd be pleased to do so. I have no other opening statement.
The Chair: Thank you very much, Mr Franklin. I've noted your particular interest in the area of safety. Let me begin the questioning with the third party caucus.
Mr Laughren: Mr Franklin, welcome to the committee. I guess when I talk to you I have to get my mind going back a few years.
Mr Franklin: About 12 years.
Mr Laughren: You were chair of Hydro when Darlington was being built, as I recall, right?
Mr Franklin: I joined Ontario Hydro in February 1986 as president. I was not the senior executive because in those days the chairman was the senior executive. Mr Tom Campbell was the chairman of the day. He left around January or February of 1988. The government of the day asked me to take on that additional chore for a short period of time. I continued to do that until I left Ontario Hydro in the spring of 1991. During the period I was there we were in the last four or five years of the construction, which you know took a very long time.
Mr Laughren: While you were there, were you aware of this -- I don't even know how to describe it; others have used words like "cult" and "culture" and so forth. Were you aware of the kind of environment that was developing in the nuclear facilities?
Mr Franklin: I don't subscribe to this definition of this atmosphere, or whatever you want to call it, as a cult. I think that's a misnomer, frankly. I don't even agree with Dr Kupcis's description of it as being a priesthood, I think it was.
Mr Laughren: Yes.
Mr Franklin: I think these people working in those particular plants realized they were dealing with the most sophisticated technology Ontario Hydro had to cope with. They were the most skilled and the most trained, and I think they felt themselves kind of an élite, but I do not subscribe to the priesthood or cult description of them.
Mr Laughren: This is a bit off topic, but I hope you'll forgive me. Part of the problem -- it all gets meshed together with the increased rates and the problems with Hydro in restructuring, cutting back on the workforce and so forth -- it seems to me is irretrievably linked to the escalation of costs at Darlington. I remember that when it was started, when projections were being made at the beginning, it was going to be $4 billion or $4.5 billion, and the final costs were about $14 billion. Did you have any sense of that happening as time was going on?
Mr Franklin: I don't think it had an impact on the operating plants. There's no question that the board and the management were wrestling with trying to bring that project to completion and were worried about the cost of it. Those costs were capitalized costs at the time. Really the design and construction division of the company was isolated from the operating; it was not part of the operating branch at all. So I don't think there was a direct connection at all between the two.
Mr Laughren: You don't think that because of the -- I mean, when the costs became part of the rates --
Mr Franklin: Oh, well, that's different. I would agree with you that when it was finished, which I think was in 1990, when it was first turned on just a few months before I left, there is no question that at that time, when it came into the rate base, the pressure came either to reduce costs or to increase rates, because that cost had to be covered. You're quite right there. I thought you were talking about during the construction.
Mr Laughren: Also we've been told that one of the main reasons the nuclear division finds itself in the pickle it now is in is because preventive maintenance did not occur, right from the beginning basically. I'm wondering to what extent the senior management at Hydro were aware that this was not happening but felt unable to do anything about it because of the impending escalation in rates when Darlington came on stream.
Mr Franklin: You're not talking about Darlington only; you're talking about all the plants in general, I assume, Mr Laughren?
Mr Laughren: Yes.
Mr Franklin: The time it came most noticeably to our attention was when we got a one-year licence renewal instead of the normal two. I think that was in 1988. There was a recovery plan established then, as you know, and it didn't work well. That came to our real attention when we got a second one-year licence in 1989. I should tell you, though, that from 1986 to 1990, if you examine the financial statements, you will see that the funds provided for operating budgets to the nuclear division more than doubled. It went up more than 25% a year. That's as fast as you can feed resources into any kind of division and expect to have them integrated. It's like taking a drink out of a fire hose. If you take it any faster, you can't swallow it. So there was a rather remarkable increase in operating and maintenance budgets for the nuclear division during that period of time.
In 1989, when we got the second one-year licence, in addition to what I've been talking about as doubling, an additional 1,100 people were approved by the board for the nuclear division. They started coming on stream in late 1989 and 1990, I guess.
In 1990 we got a two-year licence. I took some comfort in the AECB in effect saying to us: "You are returning to normal. You're now getting a second-year licence." I left shortly after that, so I'm going by what I read in the transcripts here. I think Dr Kupcis said that, with modest adjustments, 1992 was a rather peak year. I thought, until I started reading the testimony beyond 1992, that we had turned the corner on that difficult period in 1988-89.
Mr Laughren: You mentioned in your very brief introductory remarks about being able to give us some advice on safety, words to that effect. What advice would you have for Ontario Hydro's nuclear division now, as they head into this restructuring period?
Mr Franklin: My comments were directed more towards safety culture than the technical side of it, because I'm just not qualified to do that. Safety culture is rather a new concept. It was really started in 1991 by the IAEA when they first defined "safety culture." There were elements of safety culture before, professionalism of the nuclear operator and things like that, but the entire concept was really developed by the IAEA in 1991. I jotted down their definition. It's a paraphrase, because it's about four paragraphs long.
It says it is that assembly of characteristics and attitudes in organizations and individuals which establishes that nuclear plant safety issues receive overriding priority. You can't have two first objectives; you must have only one first objective, and it is safety if you want to have a good nuclear safety culture.
It goes on to say there are two components. The first component is that senior management must make nuclear safety its first and primary goal, and must reinforce it with their actions, with their everyday behaviour. The behaviour of the plant staff in a safety culture world is by and large intangible; it's like trying to define any other kind of culture, it's difficult. It's usually a code of behaviour by which people are operating or living, depending on the situation. It is handed down from one generation to another by the older generation's behaviour and by the older generation's refusal to allow younger members of the community they're dealing with to transgress it.
Just because it is invisible and unwritten doesn't mean you don't know it when you transgress it. When you have a very good nuclear culture and the senior person is always going through the radioactive monitor and he sees someone who doesn't, it's not the supervisor and it's not the manager who climbs all over that guy, it's his colleague because he has transgressed one of the rules.
That is kind of a definition and concept of nuclear safety, and I could go on if you wanted in this regard. What I tried to do was to apply what I know about safety culture to the main programs that I think Mr Andognini was talking about in 1993 -- the downsizing and the decentralization -- to see whether or not the impacts of those things would in effect have any serious affect on the safety culture.
Mrs Helen Johns (Huron): Welcome, Mr Franklin, and thank you for being here. I'll start off by saying that I've been reading a little bit in clippings and things while you were in the position from 1988 until 1991. You certainly reigned at Hydro in a very tumultuous time, I think. Let me ask you, first off, did you have regular meetings with the Premier of the day and the Minister of Health and the ministry people so that there was a flow of information from Ontario Hydro to the government?
Mr Franklin: Communications between Ontario Hydro and the government took a lot of channels. Almost every division in Ontario Hydro had its own link to a comparable one in one of the ministries -- whether it be in the Ministry of the Environment, whether it be the Ministry of Natural Resources or financial people with the Treasury -- and these were every day kind of contacts. The communication was quite strong. In addition to that I would meet with the Premier, not on a regular basis or a stipulated basis, but when there was an issue he wanted my advice on, or I needed his. I met regularly with Mrs McLeod who was the energy minister. These were not regularly scheduled ahead of time, but we tried to get together at least once a month on a formal basis so I could apprise her of things like what's going to the board, things like that. Then we would meet more often than that on just a sporadic basis.
Mrs Johns: I just wanted to ensure there was a flow of information between Ontario Hydro and the government of the day. During your time frame, there already started to be reports from the Atomic Energy Control Board that Ontario Hydro had some deficiencies, and these deficiencies obviously have come forward to this day as a result of the IIPA. No doubt the board was aware of those because you had to deal with the atomic energy board. Can you tell me why the public doesn't appear to have been informed, or what actions you took at that time to ensure that the shareholders, the taxpayers of Ontario, were cognizant of the problems that were happening, specifically in the nuclear division.
Mr Franklin: Whenever there was a shutdown of a plant, planned or unplanned, there was a media release. The government's different departments that were involved would be informed ahead of time, so there were always things of the type you're talking about. Where there was a problem in a nuclear facility, it was always public information.
If there was a planned outage and it was going to be extended, then there had to be another press release to say that as well. If there was a licence that was not being renewed for a normal two-year period, or one-year period, not only did we make a press release and inform the government ahead of time, but so did the IAEA.
It may look in hindsight that there wasn't public awareness of it, but there really was. If there was a spill or an incident of some kind, the first person that got notified was the regulatory agencies of the Ministry of the Environment and the IAEA. The press release would go out and the media got it. If it happened on a Friday, and they couldn't reach me, I sometimes heard it on the radio before I was told about it. I think there was regular communication on the major aspects of the nuclear plant.
Mrs Johns: But the atomic energy board was already starting to complain that they notice problems and they can't get fixed.
Mr Franklin: Right.
Mrs Johns: What exactly did you try and do to correct these situations?
Mr Franklin: I'll give you a list of things which came to my memory, because I thought you might ask me that question, and I am going by memory for the last eight or 10 or 12 years or whatever it is. I've already spoken about the large increases we had in the operating and maintenance budgets of the nuclear division. They ramped up quite severely in the last three years because of the problems you're talking about.
We also had hundreds of millions of dollars in capital modifications going on at the same time. I was confident that the management of the day in the nuclear division could handle that because we had on our staff at the senior levels some of the most experienced, well-known world reputation people in the nuclear field. They would only be names to you but when you talk about Elgin Horton and Sam Horton and Bill Morison and Lorne McConnell, you're talking about people who would be recognized around the world even today.
Besides the large ramping up of operating and capital expenditures to try to turn this thing around, and 1,100 new jobs in 1989, there were a few other things we did. We established for the first time in Canada a domestic peer review. When I finally got a couple of years under my belt in this job and I had travelled around and saw some of the other nuclear utilities, I could see where there were gaps in Ontario Hydro. These gaps weren't filled necessarily because of the difficulties -- some of them happened before they came to our attention and some happened during the period -- but let me just give you a few examples.
We created the first domestic peer review program in Canada and it was modelled on a lot of other international ones. We invited the IAEA to do an OSART, or operational safety review team mission, the only one that's ever been done, I think, in Ontario Hydro. It's like a peer review but it's done by the International Atomic Energy Agency. I wanted to strengthen the governance part of the corporation, so I asked the government of the day, if you have vacancies on the board that you don't intend to fill by extending the terms of the people there, we could use some more people who understand the technical and nuclear aspects of the business.
Mrs Johns: Let me ask you this question: We've heard over the last few days that in the late 1980s and the early 1990s the maintenance budgets were cut in all of these areas to be able to put as many funds as possible into the building of new plants. I also see when I read the clippings that you were in the midst of trying to stop a union dispute, where in effect at the end you gave them a 6.9% increase, so that would allocate some of your maintenance and administrative budget increases, even though people before us have told us that the actual maintenance dollars were being pushed down to allow you to put every resource into building because of the Darlington plant.
I have a comment that says here that you basically had no choice. I have a document from the Toronto Star that says you really had no choice in settling this strike because the last strike in 1985 cost you $40 million in power purchases. The union was just in here, a few minutes ago, and tried to talk about the partnerships that evolved, that they wanted to be in with Ontario Hydro. Did you experience that kind of partnership when you were dealing with this pending strike?
Mr Franklin: The pending strike was in what year?
Mrs Johns: In 1990.
Mr Franklin: Right. First of all, I do not share your view that the maintenance budgets were being reduced. They were not being reduced. A simple look at the financial statements will show that in the years 1986 to 1990, they more than doubled in the nuclear division; I'm talking only about the nuclear division.
Mrs Johns: Are there salaries in that budget? Because you gave them a 7% raise.
Mr Franklin: Yes, we did in one year. There's no doubt about it. But that would still have a very healthy increase in the operating budgets of the nuclear division. We didn't give them 7% every year, either. I'm talking about an average of 25% a year over that period of time. Whoever's telling you that the funds available for nuclear operations and maintenance went down -- it's just not a fact.
With regard to the 1990 strike, back before I joined Ontario Hydro they had had a confrontation with the union. In those days they decided they would try to run the nuclear plants in the absence of the union members, and they did but it was very difficult and I don't think very successful. In 1990 things had changed. We had no possibility of running the nuclear plants. We told the union that we could not run the nuclear plants if there was a strike, that we wouldn't try.
We went right to midnight of the day of the strike call and we were still apart. The union said, "We are going to start shutting the nuclear plants down," because you have to have 24 hours' notice to shut them down in an orderly way, and the first units started going down. We settled, probably that amount you're talking about. I'm not sure what was the amount now, it's too long ago, but we did settle on the doorstep of a strike. I say it was a strike because in fact the plants were being shut down.
There was no way in my mind that Ontario Hydro could allow a strike to take place. You're talking about an essential service. You're talking about a life-threatening situation for a lot of people if there is no electricity, people on life support systems and everything else. You can imagine the chaos. There was just no way we could have kept the lights on without those nuclear plants.
Mrs Johns: Isn't it a problem then with the way Ontario Hydro is set up, that unions have the ability to close these down? It is an essential service.
Mr Franklin: It's whether or not you believe it is an essential service and should be declared so.
Mrs Johns: If the lights don't come on, we don't have jobs in Ontario.
Mr Conway: I want to explore two or three areas, but I just want to pick up this point, Mr Franklin. In the mid-1990s Ontario Hydro is producing about 63%, 64% of its total output via nuclear generation. Is it not true to say that any utility delivering a commodity as basic as electricity that is two thirds dependent on nuclear power can't take a strike?
Mr Franklin: I don't think it can take a strike, no. That is why we made the decision in 1990 to tell the union, "We will not run these plants." It didn't take a genius to then figure out that it would be very difficult for us to take a strike.
Mr Conway: Just to be clear, because the labour-management issues are some of the most difficult and political and troubling that I'm sure the Hydro board or this committee or any other committee is going to face, I'd like you to comment on what seems to me an obvious point: A monopoly that is delivering electricity and is substantially dependent on atomic power can't take a strike, obviously, and that condition is going to create a very special kind of collective bargaining, isn't it?
Mr Franklin: I always felt I was at a disadvantage in negotiating with the union, because they are intelligent people and they realized the situation: that management could not afford to have a strike. We never told them we wouldn't have a strike, but we did tell them we wouldn't try to manage the plants.
Mr Conway: My memory is that in the mid-1980s and in 1990, the labour difficulties came to a critical point about the time a provincial election was expected, if I'm not mistaken, in 1985 and again in 1990.
Mr Franklin: I wasn't even living in Ontario in 1985.
Mr Conway: What were you doing before you became president of Ontario Hydro?
Mr Franklin: I was enjoying a 30-year career with Canadian National Railways. I was executive vice-president and president of Canadian National Enterprises.
Mr Conway: That's my memory. Against that backdrop, I want to ask you to comment as best you can about a board culture that has really started to occupy this committee; that is, the Hydro board culture. I want you to think about not only your time at Ontario Hydro but your time at the CNR.
We have been told that in the winter and spring of 1997, against the backdrop of an increasingly upset federal regulator -- you may know this, but if you don't, let me tell you that the chair of the AECB was in here basically saying they were very close to just shutting down Pickering because of poor performance. Andognini is brought in by Al Kupcis to do a brutally honest assessment. It is a brutally honest assessment, apparently.
The board of directors at Ontario Hydro basically gets two documents, John Murphy tells us, a couple of days before a board meeting on August 12. One of them is the assessment of the problem, which apparently is quite colourful and brutally honest, and there is a recovery plan that among other things entails proposed expenditures of somewhere between $5.5 billion and $9 billion. The board gets those documents on or about the Friday before the Tuesday meeting, so that would mean August 8 or 9.
The board meets on August 12. They get a minister's letter. We now know that the minister wrote a letter the day before the board was to meet, August 11, saying, "Before you make any decisions, I want you to look at all the options." The board meets on August 12 and approves, that day, the substance of this multibillion-dollar recovery plan, without any more time than that, without a second opinion, without hardheaded assessments of the financial implications of this. Would you comment on that kind of board culture, which some of us find really remarkable? Is it remarkable, do you think, that they did that?
Mr Franklin: I've never been in that situation of getting a proposal to consider that is $8 billion or $9 billion. I wasn't there so I don't know all the information they had, but I understood that the decision they made was not irrevocable, that it was a decision pending the receipt of other information. I just assumed they were going to get this other information, and if it dictated a change in course, they would change the course.
Mr Conway: But it would be unusual in your experience, not just at Ontario Hydro but at the CNR and elsewhere, for a board to make those decisions in that fashion.
Mr Franklin: It's a rather quick decision. I've never experienced a situation where they've moved that quickly on such large projects as that, but I reiterate, if it's an interim decision and can be altered, then it's not a final decision.
Mr Conway: I want to come back to a point Ms Johns was making. I have before me the AECB documents that were tabled with this committee two weeks ago: a November 14, 1989, letter to you from Mr Lévesque, who was then the president of AECB, who raises very real concerns about the decline in operating standards at Bruce, and a response from you to Lévesque on December 15, 1989, which indicates some very serious and pointed concerns from the AECB. In your response, you indicate that you're going to be spending the resources, that you're taking a number of measures, and you point out that one shouldn't expect these changes are going to take effect or produce results overnight.
Then I move forward to just about the time you leave. You leave Hydro when?
Mr Franklin: March 1991, I think it was.
Mr Conway: In November 1991 we have this remarkable document, a memo that reports on an AECB-Ontario Hydro summit on November 4, 1991, at which meeting the sainted Elgin Horton, whom we referred to a moment ago, says in the presence of the then chairman, your successor, Mr Elieson, and senior people at the AECB that he's not only frustrated but he's humiliated that the situation isn't getting any better.
Bob, my question is, why didn't these measures, on your watch and subsequently, take effect? Just about the time you are leaving some of your principal lieutenants are confessing to the federal regulator, "We agree, it's bad and it's getting worse, and we're humiliated about it." What was it in the air and the water at Ontario Hydro at all levels that prevented this change, this improvement that apparently everybody wanted from taking effect?
Mr Franklin: I think there were some situations that had never been encountered before. First of all, I don't believe the failure to turn around was a lack of resources because the resources were certainly turned to it. As I've explained already to some extent, there were a lot of resources put in there.
What I think might have been different in that situation than what these rather remarkable men I talked about earlier had ever encountered before was the phenomenon of aging -- and I mean plant aging, not men aging. In 1988-89, only 5% of the plants in the world had reached the midpoint of their lifespan, so aging had never been a problem before, had never been encountered before. These plants were the first generation of Candu plants, Pickering A and Bruce A particularly. They had design and engineering defects that were corrected in the later ones, pressure tubes and metallurgy and other things like that. I think the combination of the older plants and the fact that they were aging created a maintenance and operating difficulty that these men had never encountered before.
Right now, 25% of the plants in the world have reached the midpoint of their lifespan, so the phenomenon of aging is much more at the forefront than ever before. It has been established now that the peculiarities of aging are quite different from the operating and maintenance procedures in a young plant. I think they probably failed to recognize that the plants were aging and that they required a different kind of operating and maintenance program. That's the only thing I can think of, because they had the resources.
I believe they had the best personnel to handle it, and still they could not do it. It would frustrate an Elgin Horton, who was a very professional man who wanted to do the best job he could, who probably was beside himself saying, "What is it that I'm not doing that I should be doing?" I don't think he had encountered this situation before.
Mr Kwinter: I just really want to pick up on this aging problem, because one of the things that struck me quite dramatically is that the AECB commented that literally within months of the opening of Darlington, the maintenance there was as poor as it was at Bruce and at Pickering -- literally within months. That was what was so frustrating.
There was this -- call it a culture. I think it was really a matter of there was a certain oblivion that this was an issue. You talk about this safety concern, that it should be number one. I don't think, certainly at the board level or at the management level, that it was number one. We heard from Mr Kupcis that 40% of the directives from AECB had been corrected. Some of them were outstanding as long as seven years. We hear a report from AECB saying that virtually immediately after Darlington opens, the same problems of maintenance are there as were at the others. Either there is something wrong with the ability to communicate the importance of safety -- and I agree it should be number one, it should be the thing. How do you explain that?
Mr Franklin: I don't know the start date of the seven-year lag time. I assume it's 1997, so we're talking about a period -- I think Darlington came in in 1990 or 1991. In came in in dribs and drabs, as I recall.
I don't know how to explain to you that safety was number one in Ontario Hydro, because it was. If you know something about safety culture, you know that you must be persistent and consistent in your messages and the senior officers must exhibit a behaviour which reinforces that whole thing. Let me tell you about some of the day-to-day things that a senior officer would do to do that.
The Chair: Do that very quickly, please, Mr Franklin.
Mr Franklin: Whenever I was out with my family and I ran across some team doing some work on a pole somewhere or other, I always stopped and went over to see the foreman. The first question I would ask him is, "Did you do a tailgate this morning on which you planned all this activity?" Often he would say, "Yes, we did." Sometimes he would say, "No, this is a routine thing that we do all the time; it's not necessary." I would always say, "From now on, I want to see you do a tailgate view." That is behaviour by a senior officer to make sure that safety is a responsible thing.
There is a whole list of things like that that I could tell you. I was once asked, "What kind of goal should we have for serious accidents and fatalities at Ontario Hydro?" In the 1970s and early 1980s, we were having four a year, and around 1987-88, we got it down to one for about two years in a row. Somebody said to me, "That should be our target from now on, to have only one." I said: "If you think I'm going to condone a target where we are willing to accept a fatality a year, you're nuts. We will have zero tolerance."
That's the kind of thing you must do every day. You must be persistent, you must be consistent, and I can tell you that's exactly the kind of attitude that permeated the senior ranks of Ontario Hydro in those days.
The Chair: We have time to do another very quick round of about three minutes of questioning. Just before we start, Mr Franklin, I am puzzled by one bit of information we've received over the last 24 hours. As I take a look at the evidence so far that's been entered before the committee, in the backdrop are Mr Maurice Strong's comments yesterday, the impression that at one period of time in Hydro, and certainly under your chairmanship, the budget and the resources expanded significantly. Under the chairmanship and stewardship of Mr Strong, the resources were reduced. So on one hand I have a fattening of Ontario Hydro and on another hand I have the leaning of Ontario Hydro, and in both cases I seem to have Ontario Hydro still in trouble; it's not improving. Can you give some indication of what's going on here?
Mr Franklin: I don't have access to the statistics, Mr Shea. As I said earlier in my remarks, once we reached 1990 and we got a two-year licence back from the AECB, I took that as a sign that we had turned things around. The capacity factors climbed back up to, I think it was, 75%, when the average in the world was about 80%. So we were coming back to the world average. I assumed that the plans, when I left Ontario Hydro, had worked. I really can't tell you what transpired after that because I wasn't there.
The Chair: Yesterday Mr Strong, in testimony before this committee, gave the impression, and I phrase this in a very delicate fashion, that boards previous to his and chairmen previous to him had less control over Ontario Hydro than he or his board; that it was with his tenure that the wild beast was settled. That was the impression he gave. I confess I think that may give you cause to respond.
Mr Franklin: I guess he's looking at it from his own perspective and he's entitled to do that. He wasn't at Ontario Hydro in the times he was making his criticisms so I'm not quite sure how he could determine that.
I can tell you what we did as a governance situation, though, after I got there. We did it not, as I say, because we suddenly saw this pending problem but because, as I became familiar with the utility industry, I went around and saw other nuclear utilities and I saw where there were gaps.
I saw the board of directors, which was 11-strong including myself at the time, wrestling with the technical issues that came before it. We weren't properly comprised. The government of the day responded by putting people of the quality of Dr Kenney-Wallace, who is one of the leading research scientists in Canada in the nuclear physics field, on the board. We already had Dr Runnalls from the University of Toronto, who ran the physics department there. They put on Dr Mathur from the University of Western Ontario. So 30% of the board, not counting me, for the first time had credentials to deal with these things.
It's very difficult to deal with very technical and complex issues in a board, so I set up the technical advisory committee, where every technical program and project went for special scrutiny before it went on to the board of directors. I set up the technical advisory panel on nuclear -- I forget the whole thing, but it was Dr Ken Hare, who I understand you're going to see. We established that panel of outside experts to oversee and have freedom to report on anything in the nuclear plant that they wanted to report on, an outside perspective so the board would not be reliant solely on the management that came in.
There was no environmental division in Ontario Hydro at this stage. I set up a division of environmental affairs under a director in the corporate office who was to give oversight to all aspects of our environmental impact, including nuclear, and to issue a public report once a year on the impact of Ontario Hydro's activities on the environment. I spoke already about the peer review program that we set up to make sure we had an outside opinion on that.
There was established, as a result of Chernobyl, a World Association of Nuclear Operators. I took a personal interest. I didn't need another job; I already had two, as chairman and president, but I became the first chairman of the World Association of Nuclear Operators out of the Atlanta centre, to demonstrate to our people that I wanted them to get an international perspective, to be receptive to new ideas. I could go on and on, but to say that there wasn't governance and there wasn't attention is just not true.
Mr John O'Toole (Durham East): Thank you very much, Mr Franklin. Very quickly, I just want to dwell on a couple of things. We heard Mr Strong characterize the nuclear division as kind of a nuclear culture, kind of a priesthood attitude. Mr Farlinger moved from a cultural kind of definition to perhaps a little stronger word, "cult." I'm asking for your characterization. What would you call that? Do you refer to the safety culture, or how would you characterize it? I'm not looking for a negative characterization.
Mr Franklin: I understand. You can have a safety culture superimposed on almost any other kind of domestic culture you might have in the organization. They're not incompatible. I think I said earlier that I didn't like those terms "cult" and "priesthood." What I did acknowledge was that these people were the highest-skilled, the most-trained, dealing with the most sophisticated technology that Ontario Hydro had to cope with, and they considered themselves to be an élite.
Mr O'Toole: I picked that word up from what you had said in your opening remarks, "élite." If I look just prior to and while you were at the helm, there was an AECB report in 1985 at Bruce, I believe, that was quite scathing and that looked at a recovery plan. At that time, the response from the board was that it would take a decade, 1985 to 1995, to actually commit to a turnaround, kind of moving the culture.
During your period, you've told us, the staff there were unable to drink from the fire hose quickly enough. That's the way you sort of said -- you just poured the money into it. The Darlington overruns were during your period. That's in my riding. I wouldn't blame you singly for that, but was it part of this inability to turn that élitist attitude around from one of R&D to one of operation and maintenance? I mean that in a positive -- you've mentioned that subtly in your comments, the inability to move from highly technical design and research mode and build mode to getting the plants to operate. That decline started in that period. The inability to turn the management team around from however you want to characterize it, from élite to cultist -- what was wrong? Was it the changing roles of the board chairs or CEOs? What was wrong?
It seems to me the leadership is the person who walks through the organization --
The Chair: Thank you, Mr O'Toole. We'll have to move on. I'll give you a chance for a very brief response, but the question was lengthy.
Mr Franklin: I don't know that I have a lot to add to what I've already done in trying to respond to that question. I'm not quite sure I understand the question.
Mr O'Toole: How come we couldn't turn it around from being the design-research group to an operate-and-maintain group?
Mr Franklin: I don't share that view, because the design and engineering group was entirely separate from the operating group. It didn't report to the same people; it came up through a different chain. They were indeed different cultures, and you certainly wouldn't want to mix the two together. That's why they were kept separate. Maybe they were combined under the decentralization program in 1993; I'm not sure. I don't think that was a factor, that there was full attention on design and engineering and not on the other, because they were quite separate.
Mr Conway: Mr Franklin, I want to turn to the future. You've been away from Ontario Hydro now for the better part of six years.
Mr Franklin: Almost seven.
Mr Conway: You had senior responsibilities there and at another crown corporation. Thinking about policy issues, given your experience and your perspective, what advice would you have to this committee? Given all that you've heard about the troubles at Ontario Hydro, all you know about impending changes to the electricity sector and the importance of this commodity and all those issues, what kinds of policy suggestions might you have for the committee as we look to make recommendations to the government and to the public of this province about the future role for Ontario Hydro?
Mr Franklin: There are two things I would address on that. The first is with regard to monopoly versus competition, state ownership or private ownership. I think they're two separate issues, whether you have competition and then who owns the company.
I'm a firm believer in competition. I think it's essential, because it has a lot of advantages to it. I worked for 30 years at Canadian National. Every service we provided was in competition with somebody across the street, but it was state-owned. It was state-owned because they thought there was a public policy issue reason for it. So to me, competition is absolutely the way to go.
The second issue is whether or not you are state-owned. You have to decide an answer to a very simple question, but it's not a very simple answer to get there. That is, do we need this organization for public policy reasons? If you need it for public policy reasons, then you should have state ownership. If you don't need it for public policy reasons, then you should get out of the business. I think that's where you should be focusing your attention.
Mr Conway: What advice would you have for the public of Ontario, given your past experience, on that second question?
Mr Franklin: I'll be honest with you, I haven't given it a lot of thought in the last seven years, having been away from Ontario Hydro. I really don't know whether it's still used as an instrument of public policy or not. I do know it was in Elliot Lake; I think it was in Kapuskasing. There are probably other examples of where it was used as an instrument of public policy. Quite frankly, there will be lots of cases where it could be used if you wanted to use it, but it's not absolutely essential that it be that.
Mr Conway: Back to competition. Ontario Hydro does business in three areas: generation, transmission and retail. The assumption is, of course, that we can and should have competition on generation. There is a measure of competition, sort of, on the distribution side. What about the competitive framework for the electricity sector, as you see it, into the next generation?
Mr Franklin: I think you start with generation, open that up to competition. It may end there, quite frankly. As long as the transmission line and corridor is open for other users, that is all that's really necessary in the transmission, and a single distributor is probably better than trying to have two lines down the back of your home. So I would definitely go into generation, and make sure the transmission grid was open for any user who wanted it.
The Chair: Mr Laughren. I apologize, I should have started with you. We'll wind up now with you having the last word.
Mr Laughren: That's all right. If that's the worst you do to me, I'll be fine.
Mr Franklin, I made the mistake when these hearings started of reading a book on the history of Hydro, and I've become increasingly frustrated as these hearings have begun and are going on. Hydro is forever in the eye of a storm in this province. We get people like you coming before the committee telling us, "There are very unique problems. The union contract made it very difficult to run Hydro," or "There wasn't enough preventive maintenance going on. That's what led to all the problems." And now your remarkable explanation of the aging of the facilities.
I'm reaching a point where I'm having difficulty putting this all together, and I think there is a cult at Hydro. Do you know where it is? It's in the chairman's office and at the board level; it's not down in the workplace. I don't know what other conclusion I can come to when I look at the series of events that have occurred with Hydro. You don't even have to go back to the Quebec contracts in the 1930s. Just in the last 10 or 15 years, the problem is there.
I'm asking you out of a sense of frustration, what the hell is going on? We appoint people to these senior positions at Hydro -- the chair, the president, the board members -- yet we're forever in trouble. Why?
Mr Franklin: If I had that, I guess I would write a book.
Mr Laughren: Yes, because I'm telling you, I'm getting tired of these excuses.
Mr Franklin: Mr Laughren, I do want to say this: I'm not trying to deflect your attention from my tenure at Ontario Hydro a whit. I'm quite prepared to spend all afternoon trying to explain my role there. But you had before you a nuclear expert -- I am not one -- in Mr Andognini. You have his report, where he describes what the problems are there. In his testimony he told you repeatedly what caused the problems that we're now facing. It was a massive downsizing in 1993 and it was a decentralization program in 1993.
I'm not saying there weren't problems in the prior decade; there were problems in the prior decade. But you either believe your nuclear expert or you don't.
Mr Laughren: It's not just the nuclear expert, it's people like you as well, who come before us with reasons why we got into trouble. Don't just point to Mr Andognini. He's not the only one who has tried to explain why problems developed at Hydro.
Mr Franklin: But if you take the effects of those two programs and work them through, you can see that you are going to result in exactly the situation --
Mr Laughren: There were problems before that, Mr Franklin.
Mr Franklin: Of course there were. I'm not suggesting there weren't at all. But we're dealing now in the present and I'm just trying to be helpful, that's all. I'm not trying to deflect your attention from the 1980s at all.
The Chair: Mr Franklin, may I thank you very much for attending upon this committee. I hope you'd be prepared to respond to another invitation, if it's necessary. I appreciate your time.
With that, the committee will stand adjourned now until 1300.
The committee recessed from 1202 to 1306.
SOCIETY OF ONTARIO HYDRO PROFESSIONAL AND ADMINISTRATIVE EMPLOYEES
The Chair: We will resume the business of this committee. The first witnesses at this hour are the Society of Ontario Hydro Professional and Administrative Employees, with John Wilson, president, and Leslie Forge, vice-president. I welcome you to the committee.
Mr John Wilson: We'd like to thank the select committee for inviting us. I'm John Wilson, the president of the society, and this is Leslie Forge, the vice-president.
The society represents 5,500 engineers, scientists and professionals at Ontario Hydro. We're here to speak about nuclear recovery in the context of Ontario's long-term economic and environmental future. This will entail understanding the market, the competitors and the timing of the transition to competition. In addition to the society's view, we'll be presenting recent poll results that provide the opinion of the people of Ontario on these issues.
We understand that Ontario Hydro has serious problems and requires action to restore all of its nuclear plants to world-class excellence. We've gone on record about performance deficiencies which in hindsight have turned out to be correct but which were not accepted by senior management. We must accept and share some of the responsibility. We pushed hard, but our voice wasn't heard.
This will not happen from now on. We'll do what it takes to make sure that serious issues are dealt with. We've arranged frequent meetings with Bill Farlinger, the Ontario Hydro chair, so that the Hydro board will be aware of our issues and our concerns.
Our relationship with Ontario Hydro is a non-traditional one. We have a 50-year history of cooperation, problem-solving, mediation-arbitration. Our constructive approach to labour relations contributed significantly to Ontario Hydro's success in the past. Failure of the society and Ontario Hydro to work closely and constructively now risks more than not being able to meet the challenge of nuclear recovery. It will cripple our ability to compete in the global marketplace and endanger Ontario's long-term economic and environmental success. We are part of the solution.
Ontario's nuclear recovery must be placed in the context of the province's long-term economic and environmental interests. This reminds me of when I was a boy learning to play chess. The pieces were made of wood. We called the people who made moves that only looked ahead a move or two and not at the final outcome of the game wood pushers. The people of Ontario cannot be wood pushers. Nuclear recovery must take place within the context of competition in the North American electrical industry and within the pressures to reduce greenhouse gas emissions.
Competition is inevitable. The question is not whether to introduce it, but how to introduce it and when. We must make the transition to best position Ontario to compete. Nuclear costs are significant, but the long-term economic and environmental benefits far outweigh the investment.
Why is nuclear recovery a necessary step for Ontario's economy and environment? I'd like to make three points: low cost, greenhouse gas and competitive advantage.
First the cost: Only nuclear recovery can deliver power at such a low cost. Only nuclear recovery can avoid billions in debt and premature decommissioning costs. With nuclear recovery, Ontario Hydro will begin reducing debt significantly within a few years.
The second point, the environmental one: The only way to limit greenhouse gas economically is through nuclear recovery. Using gas to generate electricity will increase our greenhouse gas problems. In addition, nuclear recovery provides Hydro with a competitive edge. With nuclear as part of the generation mix, Hydro can be the lowest-cost generator at the margin, as shown by a Resource Data International study of 32 utilities across the northeastern part of North America. Without nuclear generation, Hydro cannot be competitive.
The primary component of Hydro's cost is debt. The primary component of the competition's cost is fuel. As Hydro's debt drops, its competitive edge increases. Nuclear energy, as I said before, is required for Ontario's long-term economic and environmental benefit. We can't be wood pushers. We must integrate the long-term with the short-term solutions, and this entails understanding the larger context: the nature of competition, the market, the competitors, the timing of the transition to competition.
First, the market: The North American market will decide who supplies our energy. With the arrival of competition, Ontario will no longer control who supplies its needs. When competition is introduced, some of Ontario's market will be lost to foreign and out-of-province suppliers. If Ontario can't compete successfully in the export market and becomes a net importer of electricity, it faces dire economic consequences.
A study by the University of Toronto Institute for Policy Analysis demonstrates what happens if Ontario imports 20% of its electricity. The province will experience significant employment loss, declines in overall economic output, severe worsening of government deficits and dependence on foreign and out-of-province energy supply. In addition in the Ontario market, to ensure customers the lowest-cost electricity with the introduction of competition, all customers should have access to all suppliers, and that includes Ontario Hydro.
Let's look at the competition. What do they look like? Three words: They're big. They're integrated. They're diversified.
First, big: In North America there has been a veritable tidal wave of mergers and takeovers. Our competitors are getting much bigger much faster. Nuclear supplies 60% of Hydro's energy. It plays the primary role when we're competing with people like Enron, Duke Energy, Southern Co and Hydro-Québec. Without nuclear recovery, Hydro doesn't stand a chance.
In addition to being big, our competitors are integrated. They're active in all the functions, from the generation to the light switch, through transmission, through distribution to retail purchase, through consumption. These utilities continue to own and operate all the functions, but they have organizationally separated transmission from other functions. This prevents the independently regulated functions from subsidizing the competitive functions. It also protects all the suppliers from discriminatory treatment.
Hydro-Québec and TransAlta are integrated and also have received wholesale power licences from the Federal Energy Regulatory Commission. They are able to compete in the North American market.
Ontario Hydro is moving to organizationally separate its transmission system.
In addition to the big and integrated attributes of the competitors, we also have diversified. These people increased their competitive edge by moving into other industries, like gas and telecommunications. Hydro-Québec is a good example of diversification. Lucien Bouchard said when Hydro-Québec purchased a controlling stake in Gaz Métropolitain, "Concentration of supply, distribution and transportation of energy into the hands of large consortiums is a worldwide trend, and Hydro-Québec has to keep up with the competition." So should Ontario keep up with the competition.
A strong, integrated Ontario Hydro is our best chance of keeping up with the competition. Breaking up Ontario Hydro will turn us into a third-world province. Being big, being integrated is important. Without Ontario Hydro's nuclear facilities, our competition will dwarf us. Without the mix of hydro-electric, fossil and nuclear we don't have, won't have the efficiency, the reliability or the low rates we must have.
It's not just the society that wants to keep Ontario Hydro intact. A recent Environics poll commissioned by the society and conducted after Ontario Hydro's announcement of nuclear recovery shows that two out of three Ontarians support keeping Ontario Hydro intact to compete effectively with out-of-province suppliers.
Let's talk about timing. To understand the longer term we've looked at the market and we've looked at the competitors. Timing is extremely important. Other jurisdictions have moved to suit their own interests. Ontario should do the same. Timing is of particular importance for managing the debt and positioning Ontario for competitive success.
Ontario Hydro's rate freeze, our big rate advantage relative to US states, the adjacent ones, interconnection constraints, all of those allow us time to be able to time the transition to competition to best suit Ontario. We have the time to rehabilitate and restore Hydro's nuclear stations and the time to reduce debt to a manageable level.
In a recent Environics poll, eight of 10 Ontarians agreed the government should wait until Ontario Hydro has had a chance to rehabilitate and restart its generating stations before large foreign and out-of-province suppliers operate in Ontario. Proper timing means that a stranded asset surcharge that raises electricity rates will not be required. Proper timing means the debt will be paid by normal revenue. Proper timing means we will enhance our competitive edge in the export market.
In addition, simultaneously opening up both the wholesale and retail markets in Ontario will mean that the little guys, the residential users, the remote users, will not be disadvantaged by the major industrial players, the big guys who would otherwise grab the best deals first.
Having looked at nuclear recovery within the context of Ontario's long-term economic and environmental needs, having examined the market, the competitors, the timing to better understand what is required, we now know what we should do. The most important decision that will affect how well the introduction of competition will serve the interests of Ontarians tomorrow is how we deal with Ontario Hydro's nuclear recovery today. Special interest stakeholders hostile to Ontario Hydro see in the nuclear situation a golden opportunity to discredit nuclear power and to dismember the utility. Dismantling Ontario Hydro is not the answer. Fixing the problem is. Returning all Hydro's nuclear stations to performance excellence is a necessary first step in ensuring long-term economic and environmental benefit to the people of Ontario.
We ask the select committee to move forcefully to safeguard Ontario's economic and environmental future by (1) supporting a return to excellence of all Hydro's nuclear stations as an integral part of the transition to competition; (2) recommending that all of Ontario Hydro's reactors be rehabilitated and restarted before large foreign and out-of-province suppliers provide electricity in Ontario -- as supported by eight out of 10 people in Ontario; and (3) ensuring that Ontario Hydro remains a single integrated utility during nuclear recovery and, as agreed to by two of three Ontarians, that it remains intact to compete successfully against large integrated and diversified foreign and out-of-province utilities in the North American market.
The society thanks the select committee for the opportunity of making this submission and welcomes your questions.
Mr Kwinter: Yesterday when Maurice Strong was here, one of his statements I found really interesting was that Ontario Hydro actually believes that nuclear energy is low-cost. When I questioned him on it, he said they have no idea whatsoever what it costs to produce this nuclear power, and in his opinion it isn't really low-cost energy. In your statement, you say that only nuclear generation can deliver the required amount of power for as low a cost. Do you have any comments on his statement to us yesterday?
Mr Wilson: What I said in my statement is that only nuclear recovery can deliver the energy at such a low cost, and that is a true statement. What we're talking about here is a small investment to recoup a large amount of power that otherwise would be lost to the people of Ontario.
The other point I made was that if we don't make this small investment for a big return later -- granted, it's significant, but let's look down the road -- we're not going to be in the business as a big player. It's not just a question of looking at nuclear power in isolation; it's a question of looking at Ontario in total.
There isn't to my knowledge anyplace else that you can make an investment of the size we're talking about and get a return like we're talking about in terms of both the environmentally friendly power we get back, in terms of no increased greenhouse gas emission, and also the fact that the province doesn't just stay in the business of producing electricity but has an economy that doesn't remove from it billions of dollars that walk out into Quebec and into the States.
That's the message we have today. We have two messages for the select committee. One is that when you make a decision on nuclear recovery, look down the road and say, "Okay, how does this fit in with the game plan?" -- you're looking at a move in front of you -- "How does this fit in with the big picture?" The second key message: We have recently polled the people of Ontario and we'll get those results to you. We actually don't have the poll. We have two numbers right now, and when Environics puts them together we'll walk it up here. It says the people of Ontario want the space to recover eight of 10 of Ontario Hydro's nuclear reactors before competition begins. So I think it's a step back kind of thing. It's not, is nuclear recovery or nuclear power a good thing or a bad thing? It's, is it a good or bad thing for Ontario?
Mr Kwinter: When Mr Andognini was here we asked him what this is going to cost, and the range is anywhere from $5 billion to $9 billion, but it doesn't include certain costs he hasn't quite determined yet. He said he is still trying to get a handle on the total problem. When you talk about this relatively low cost, this $5 billion to $9 billion or $12 billion -- there are all kinds of figures out -- is that what you consider to be a low cost?
Mr Wilson: The words I think I said are that the cost is significant. It's not small change. It is significant, but you can't assess the cost unless you look at the benefit, the other side of the equation, so it's a question of what you get.
Most of the money that Mr Andognini was talking about goes for replacement power. Those costs will be there no matter what decision is made, to restore the plants or not restore the plants. The actual money that Mr Andognini is looking at is somewhere between $1 billion and $2 billion. That's his program as costed by Ontario Hydro. That's the order of magnitude we're looking at here. You can't get around the replacement power cost. That's there. That's a cost that has to be spent for Ontario. Again I say step back and don't focus on: "Is nuclear power good? Is it bad?" I say the answer to that question is decided by what it does for Ontario.
Mr Kwinter: What I'm having some problem with is when you try to differentiate between what it does for Ontario and what it does for the power user. Throughout your presentation I get the impression that if it was left to the competitive free market, Ontario Hydro would be swallowed up by these mega-companies in the United States that would come in and Ontario Hydro could not compete. That, to me, is a strange concept, because it would seem to me that the major thrust of what we should be doing is to make sure we have security of supply and that we have as economic an energy source as we possibly can.
Quite frankly, what we have been hearing over the last few weeks is that Ontario Hydro is having problems delivering to those two criteria, and you're suggesting that notwithstanding that and notwithstanding any of the competitive forces out there, it's absolutely critical to the wellbeing of Ontario that we own this facility and that others be kept out, other than in certain areas where you say you don't mind some competition.
Mr Wilson: Let me try my message again. Maybe I wasn't very clear there. I'd like to make two points. Number one, I referred to a Resource Data International study of all 32 utilities on this part of the continent, the northeast part of North America. In that study Ontario Hydro was the lowest ranked, at the margin, for cost of electricity. Can Ontario Hydro compete? Yes.
The other point I was trying to make is that for Hydro to compete successfully, it has to be done the right way, and that's allowing the reactors to be put back in, recovered and brought up to world standards. When Ontario Hydro is in that situation, it is one of the most competitive utilities in this area of the continent. Again, that's another point that was supported by the poll we did. Eight out of 10 people in Ontario believe that's what should happen. We're not talking about eliminating competition.
We're not saying that Ontario Hydro can't compete. We're saying that Ontario Hydro can compete, and we're asking the select committee to do it so as to best benefit the province. Allow the proper timing, allow the rehabilitation to take place, and then, according to what we have looked at, the studies we have looked at, Ontario Hydro is one of the best competitors, and that benefits the province. It's the other point I made. If billions of dollars leave this province when energy is pumped in from Hydro-Québec and from the States, somebody, and I would say Ontario Hydro, had better be picking up a big part of the export market. If that doesn't happen, it's not just Ontario Hydro that has a problem. It's Ontario that has a problem.
Mr Conway: I want to deal with an area of this question that you didn't deal with. I apologize for missing part of the presentation, but you make a very strong presentation, as I would expect the society to make, and you highlight a point of view that I would have expected, which is also to your credit.
One of the areas that people like myself are having a problem with is what kind of culture, what kind of milieu has allowed the difficulties you point to in the early part of your presentation to develop. I'm coming to the point where I say to myself that we have to change this regulatory environment. I don't think you are going to get some of the behavioural modification unless and until we have a different regulatory framework, even accepting that at the end of the day we have your kind of provincial utility. What are the views of the society about a new or changed regulatory environment for the electricity sector, looking into the future?
Mr Wilson: It's our view that it's going to happen, and there's no way it's not going to happen, so what we can do is say how it happens. By saying how it happens, we'll determine whether we are still in the game.
Mr Conway: Maybe I'm not making myself clear. Let's assume for the sake of argument that we're going to continue with the significant public enterprise that is Ontario Hydro. There are some -- and I'm not so sure I'm not now in this category myself -- who believe, "All right, that beast is going to have certain corporate instincts that are not always going to be the ones that are advertised or are in the public interest, so we're going to need what we've never had before." We've not only had a public enterprise called Hydro. It's been a monopoly, but it has been unregulated.
I, for one, am coming to believe that a big part of the problem is the fact that it's not just -- some people would have you believe the problem is that it was a state-owned enterprise. I'm not so sure the problem was not more on the other side, that you had an enterprise that was unregulated, save and except for a bunch of politicians who are always vulnerable because the commodity at issue was electricity. A more political commodity is hard to imagine. What I want you to tell me is, do you think the time has come for a much clearer, much more independent, much more tough-minded regulation of the electricity sector?
Mr Wilson: As I said, competition is coming. That means the monopoly is gone. It means that independent regulation is here when and how we phase it in. It's a given that we're going to have independent regulation. That will occur with competition. What we have is a choice: How do we make it happen? When do we make it happen?
Mr Laughren: Mr Wilson, you may be right in your assertion that the nuclear recovery option is the one that's the best for Ontario, but I don't know how the hell you know that. I sure don't and I don't know how anybody else knows either. Who has done the work to say that's the option? The Hydro board never had a look at options. Maybe you have. I don't know. I've never seen any options to what Mr Andognini laid before the board and made a decision on the same day. I don't know how anybody knows this is the best option.
You have a faith in nuclear, and that's your life and the life of your society, so I understand that. I'm not being critical of you for that, but I don't know how anyone knows that's the best option. I really don't. I desperately would like to know if that's the case. I'd appreciate some indication from you of whence you derive such faith.
Mr Wilson: It's not just faith. We have looked at the numbers and we've looked at the studies. Let me take this in two phases.
Mr Laughren: Excuse me, but what numbers and what studies?
Mr Wilson: Let me answer your question in two parts. The first question is, do we need nuclear recovery for Ontario to survive? Those are the kinds of studies we looked at that I quoted. We can give you some today. We can supply as many as you want of those studies that say that if the province doesn't have a well-functioning nuclear part in Ontario Hydro, there's big trouble.
There's a second level to your question. Maybe that's the one you want the answer to: Do I know, does the society know that Ontario Hydro is recovering its nuclear stations in the best possible way? I don't have that information. I don't know if the nuclear recovery that Ontario Hydro has planned is the best. Those are the facts and figures I don't have my hands on. I would like to get my hands on the economics of the study, similar to the way the society demanded that Mr Macdonald produce the economic studies that said he had the answers. I would love to see the facts and figures that point to the way Ontario Hydro is doing it as the best way.
I can't say what they're doing is the ultimate best way, but what I can say is that if we don't have nuclear recovery of some kind and if we don't get those stations back and working, we're going to walk away, for the most part, from the electricity business in this province. That is a bad thing for Ontario, from the big studies I've looked at and referred to.
Mr Laughren: Who's going to walk away?
Mr Wilson: Go back to a point I made that says, when we open up to competition, some of the energy in this province is going to come from outside. The market is going to be eaten into. That means $1 billion or $2 billion is going to walk away from here every year, and all of the spinoff that goes with it. If we can't pick up something outside, if we can't pick up that market share outside, Ontario is going to suffer. Those are the kinds of studies, and we can show you what will happen when that happens.
We also know that to be a big player and to compete outside and to fight with Enron and Duke and Southern and Hydro-Québec, you've got to have very low cost, you have to have a fuel mix that makes you efficient etc. The only place in Ontario where I can see that is Ontario Hydro.
Mr Laughren: My phone has been ringing, since this committee began its deliberations, from people who say: "Don't let the same people who got you here lead you into the future. There are alternative sources of energy and we're prepared to deliver them and it's largely the gas turbines." I don't know. I'm a layperson in this whole field, but there's a lineup of people out there who want to ease the burden on Ontario Hydro who claim the ratepayers in the province -- what is annoying me immensely since we began these deliberations is the fact that there's no information for us. We're making a decision in a vacuum.
Second, we have the government, which has been sitting on a white paper of where we're heading with energy, and they won't give it to us. For the life of me, I don't know how we can seriously deliberate where we go with energy in this province until we know that. I don't know whether you have any advice for us on how we make these decisions -- which I think are important, the recommendations, at least -- and intelligent recommendations without having all this other information either on the alternatives for recovery or the white paper. Do you have any advice for us?
Mr Wilson: I think you need to know what the province is going to do, and that's the point I've been making, in order to make this call. You have to know the big, long-term game plan in order to make the move on nuclear recovery. I think there's some room for the select committee to help the government and respond to the people of Ontario, eight out of 10 of whom want things to happen, to say that the recovery has to take place prior to opening the floodgates to the people from outside; to say that the recovery has to take place with an intact Ontario Hydro that has the support of hydroelectric; to say that if those things hadn't been there, we'd be paying today. I'm talking about long-term, big costs. There's a short-term cost today. If the government had made moves a year ago this situation, which is arguably bad, would be catastrophic.
I think the select committee does have places to go and it can recommend to the government that the nuclear recovery is important enough that it has to have two things: It has to have the time to occur and it has to have an Ontario Hydro that's a single piece. I think that'll help the government with its white paper because the government also wants success. We're not talking about a level market here. We're talking about a place where Ontario isn't a loser but a winner. I think there are things the select committee can do and it's my opinion that you don't have alternatives.
You're right, combined-cycle gas: You listened to Mr Andognini say that the best combined-cycle gas on the market won't come near to rehabing the Bruce station, which was the highest-cost station he looked at. Wind and solar power: You can look to California if you want to see a wind farm that covers an area that makes the Parliament area here look very, very small and supplies virtually nothing in terms of what the city of Los Angeles needs. You don't have places to go that are safe for the people. You only have one answer, but I'm not saying your task is easy, because how you do that will make or break this province. I think there are things the select committee can do. If you move with the recommendations we asked for, you'll have done a great service for the people.
Mr Galt: I have to warn you, Mr Wilson, that I'm extremely disappointed in your presentation. You essentially have presented us with the status quo, which I can assure you is not satisfactory. We've heard from several presenters. We've heard from Mr Strong, who declared it was in crisis when he came into office. He more recently talked about a nuclear culture and the problem. We've heard from Franklin and how he improved it while he was there. We've heard from Murphy and the problems of the union and how great they are and how they volunteered their time to look after the heavy water plant etc. We've heard from Andognini that they do not have an authoritarian enough management style. From what I've read I would suggest it has been too authoritarian, and maybe you people have been the filter going up and coming down that has messed up this authoritarian style that Andognini is referring to.
As I read through what has been going on in the 1980s and into the 1990s, I'm sure if you'd brought in the Clampett family, they could have improved management considerably compared to what I'm reading about what has been going on in Ontario Hydro. I looked at your speech and I kept looking at the bottom to see what year in the 1960s it had been written, because what you're talking about is the status quo of what was being recommended at that time -- totally unsatisfactory.
We had the Power Workers here this morning, who at least had some suggestions and some ideas on how we might relook at this recovery plan. But I look at your four points here, and they're all status quo. I just don't know how you have the gall to come before us to talk about the status quo, which hasn't worked. We're now over $30 billion in debt, 80% has been brought on by nuclear, and you're recommending we continue. Please explain.
Mr Wilson: I think there's a subtle difference in the word Mr Andognini was talking about, between "authoritarian" and "authoritative." He was saying that we needed to be more authoritative, we needed a management culture that provided direction to people and that was accountable. You're right, Mr Galt, I agree with you that we don't need an autocratic situation where we have people who are afraid to speak up and say there's a problem here. We definitely don't need that. We've had enough of that. We admit there were problems.
Mr Galt: Were you the management group that filtered that out and wouldn't let it up to the top?
Mr Wilson: No, we're not the management group. We are the scientists, the engineers, the professionals. We perform the studies. We are directed by the management group. We do the pieces and parts that management puts together and then makes the call on.
Mr Galt: May I interrupt for a second? It says "Hydro professional and administrative employees." That has nothing to do with management?
Mr Wilson: That's correct, sir. We cannot be management. We are engineers, scientists, people who look at financial studies etc.
Mr Galt: We've also been told that we're overengineered and undermanaged.
Mr Wilson: I think Mr Andognini -- I don't want to put words in his mouth -- is talking about management accountability there and trying to say that we really don't need to substitute technical solutions; what we need is to change the management culture inside Ontario Hydro, and we need to bring about a culture that is accountable and provides direction. I think he specifically referred to himself in testimony before the select committee as saying that that's a problem, where people think they can substitute a technical solution for a well-managed business.
When you're talking about your being $30 billion in debt, the suggestion I brought --
Mrs Johns: The taxpayers are $30 billion in debt.
Mr Wilson: Whatever; all of our $30 billion in debt that we're talking about. There's only one way out of this situation that won't increase that debt, that won't eliminate or reduce radically the revenue stream to pay that debt down, and that's not to walk away from the revenue stream, it's not to decommission reactors prematurely; it's to get the money back from the investment that the people of Ontario put in.
Mr Galt: That's how we're there. Tell me how the plant that you people, as professionals, were responsible for at Darlington went from something like $3 billion to $4 billion to $14 billion. I gather, since that's not management, you're the professional people who were overseeing that. How did that happen?
Mr Wilson: What you're referring to is what Mr Andognini said would be substituting engineering for management. I think the people who are accountable for making things happen are the management. Our people perform the services. They're told to make this happen, make that happen, engineer this, engineer that.
Mr Galt: It went from $4 billion to $14 billion.
Mr Wilson: That may be.
Mr Galt: At that time, I gather it must have been coming from the professional group recommending that we build another 16 reactors, when we were into the mess with that development and at that time efficiency was dropping off because of concern for safety. Can you explain that?
Mr Wilson: The professionals at Ontario Hydro do not make recommendations on building another 16 reactors. Management makes that call. We provide the information we're requested to provide in terms of, "Is it feasible to do this? How can this be done?" That goes into the management group, as it should, and the call is made to move ahead or not move ahead.
I think you're confusing the people who are doing the work and performing the studies with the people who should be making the calls and being held accountable. Mr Andognini said that this confusion existed at Ontario Hydro, and that's one of the things he's setting out to eliminate, to say that the management people will be accountable and we won't have to look at situations like we looked at in the past, and the society supports that.
Mr Galt: You're telling me you've made all the right recommendations to management and they haven't responded.
Ms Leslie Forge: I want to take us back to your comment, your accusation actually, about the status quo. We very much are looking at a very new environment here, the competitive environment that is going to be at our doorstep shortly. You mentioned the status quo. I was intrigued that you mentioned the 1960s. I might more readily take you back to the origin of Ontario Hydro itself under the Conservative government and back to Sir Adam Beck's day, if you want to talk about going back, because we're more similar in that sense. At that point, they were looking to introduce something to the electricity system which would benefit the people of Ontario. That is where we are at. We're looking at and asking the committee to examine the long range for the province and what is in the best interests of the people of Ontario. So we go further back than 1960.
Mr Galt: Still, the status quo is what you're telling us with nuclear; you're not telling us something new, how to develop, how to do something with this recovery plan, other than that the status quo is great. But $30 billion is not great.
Ms Forge: Actually, thank you for that expansion, because it actually helps to feed into the question Mr Laughren asked about the nuclear. We don't come with ready-made answers and pretend to know everything. One of the parts of our training as professionals is to be open, to look at the options and to look at the information. We are not wedded purely to one technology. We represent members that are active in all technologies, nuclear included. We believe we should be looking at options for Ontario, but they have to be in the economic long-range interests of the people of Ontario. The simple economics of nuclear, the move-forward costs of nuclear, convince us of the wisdom of ensuring that we bring back nuclear generation as quickly as possible.
Mr Wilson: I think Leslie is saying too that there's a huge investment that has already occurred in nuclear. What we're talking about is spending a significant, but small in comparison to the benefit, amount of money in addition to that. The question is, what can we get back? Money has been spent; there is a debt. We're talking about spending some more and seeing if we can get the revenue stream that will pay for that debt and at the same time end up with a competitive animal that will be able to play and compete against Hydro-Québec, that will be able to play and compete against Enron and Southern, because competition is coming. We're not talking about the status quo. There is no choice here for Ontario in terms of competition. The choice Ontario has is, how do we bring it about?
Mr Galt: Obviously you have a different opinion on status quo than I do. The current chair referred to this as a cult. The previous chair referred to it as a nuclear culture and a crisis. Are you part of this cult, of this nuclear culture?
Mr Wilson: The people who worked at Ontario Hydro have problems, and you would have problems too if you worked under a management group that was unable to provide adequate direction and that was not accountable. What we're doing is sitting down with Ontario Hydro and saying, "We can do this, and we can do this well; and we have evidence that we can do it, because we were there." Ontario Hydro was there; the society was there.
This is a world-class organization. As Mr Andognini pointed to, there was some dizziness due to success. People thought they were the best, and they forgot how they became the best, how they had to work together, how they had to try. So we've got evidence that we can do it. This isn't speculation. It has been done.
Yes, there are problems. That's what I said in the beginning. We admit there are problems. The society pointed to some of these problems. We tried to make them known. We didn't push hard enough. We didn't push high enough. We've gone out, and I've sat down with Mr Farlinger and said: "I'll meet with you on a frequent basis. When we have concerns and issues, it'll be there. What happened before is never going to happen again. The Ontario Hydro board will know what's going on in the corporation."
Mr Galt: An awful lot of your presentation seemed to be hinging on the Environics poll and the position you were or were not in in connection with that. How much of an effect do you think the multimillion-dollar campaign of the Power Workers had on the public in Ontario, showing pictures of Niagara Falls and indicating or at least suggesting that Niagara Falls, water falling over a hill, was going to be sold, not the plant? Did that not have an effect on the poll they would have carried out prior to August 12, 1997?
Mr Laughren: Mention Mr Farlinger's ads.
Mr Wilson: I'm not here to speculate. That's not the kind of tack we're taking. The reason we did the poll was because we didn't know where the people of Ontario were. We did this poll after the announcement was made that nuclear recovery was required. We asked people, "Should this recovery take place prior to opening the floodgates?" Eight out of 10 people in this province -- and this is a long time since the Power Workers ran their big ad -- said, "Yes, Ontario Hydro should have the time to be able to play against the big people from outside."
I'm not here to speculate. That's not why I'm in front of you. I'm here to provide you with the factual information that I have, and the factual information says that the people of Ontario have an opinion on this. As I said, next week we will walk this up there, when we get the poll from Environics, and give it you. We'll be happy to sit down with you and go through it a piece at a time.
Mr Kwinter: I have some serious problems with what is going on. We have a situation where everybody who comes before us who represents the board or management says: "There is this culture, there is this cult, there is this priesthood, whatever it is. There are people who are running this operation, who, because of the very nature of it, are really the leaders."
Maurice Strong said he could walk around the nuclear reactor plant forever and not understand it; he doesn't have the training. Yet he's in a position where he has to make some decisions.
In your statement you're saying, "We were too silent, we were too reactive and we were too comfortable with the notion that it's up to management to deal with the problems."
It would seem to me that when you have a situation where the management does not have an expertise or a knowledge of what is happening, it's almost impossible for them to deal with the problems. All they can do is deal with the results of the problems.
Your association and your members are the so-called resident experts. You're the guys who have control of the facility. You're the ones who have to be accountable. I'm not being critical, I'm just saying that we have this situation where there's a real divergence, where the guys who are calling the shots have no idea of what is involved in calling the shots, all they can do is be reactive.
You say that you have been too reactive, so somewhere there's a void. There's a huge void in there when nobody is running this thing, because there isn't some bridge where there's somebody calling the shots who knows what shots to call. All they can do is react, as we have seen at the board meeting on the 12th, where suddenly: "Here's a plan. Okay, what do we know? This is what the guys say we should be doing. Let's do it." Do you have any comments on that?
Mr Wilson: Yes, I have a lot of comments on that. I don't think there is any hole in terms of what's supposed to happen. What's supposed to happen is our people are supposed to provide the information that they're requested to supply to the management people, who are supposed to look at the big, overall picture -- the technical information they get from this group of people, the financial information that our financial people provide, the research information that our scientists provide. They're supposed to put it together and they're supposed to say, "Okay, how do we weigh out these three options?" Then management people are supposed to do what they're paid to do. They're supposed to make the call and manage and be accountable for the call they made and not push it, as Mr Andognini said, down into the technical area and say, "There's where the responsibility is." We agree with Mr Andognini's assessment of where the accountability sits for the operation: Management is responsible for the plant.
And you're right, to go back to the fact it looks a little different. What are we saying? We didn't push hard enough? We began to understand that there were some problems with how this was being done, that there was a management problem, and we began to detail here and there, "There's a performance deficiency here, there's one here," and we would take it up the line and say, "There's some trouble here, there's some trouble there."
We didn't get the action that we wanted. We pushed but we didn't push hard enough. What I'm here to say is that's not going to happen again. We will push all the way. It's not our job to make the calls. It's our job to provide the information. But when we see there's a problem with the calls that are being made, we're going to speak up and this time we will yell as loud as we have to yell until we get the attention that we need to get.
Mr Kwinter: I sit on a few boards and I can tell you that I don't try to micromanage the company, that's not my role, but I have to take it as a given that if the professionals tell me something, I either have faith in them or I get rid of them. But if I have faith in them, I act on their information.
It would seem to me that somewhere along the line we have a credibility problem, because on the one hand we have these people who say, "We are the best," and the results of the Atomic Energy Control Board's findings over the years have indicated that you're not the best. You may be the best in designing the equipment, but you sure weren't the best in maintaining it and operating it. Somewhere along the line there's got to be some accountability. When I read that you're saying it's up to management to deal with the problems, I don't understand, given that this is a lay board -- there may be a couple of people on it who are experts, but by and large it is a lay board. These are people who are supposed to protect the public interest but have to depend on the competent professionals who are giving them the information on which they can make a decision. I think that is where this thing has broken down.
Mr Wilson: I think you're right, because what happens is, at least at Ontario Hydro, senior management feeds information to the board of directors. It's not technical people. Senior management provide the options and they explain that they have assessed here, they've gone to some technical people over here and they've got the engineering criteria for this one and this one and this one and they've gone to some finance people over here and they've got the economic costs of all the options, and then senior management at Ontario Hydro sits down and says, "We recommend that this is the way to go," and then they go to the board.
You're right, everybody has to deal with the problems that are there and everybody has to deal with their part of the problems. It's the board's part to set the policy, to point the direction, and it's senior management's accountability to come up with the calls and the recommendations, based on the work that our people do getting the information, providing technical expertise, providing financial expertise.
You're exactly right: If everybody performed their role and if everybody fulfilled the parts that they are responsible for, the problem wouldn't be there. There is a problem now and that's because there is a lack of responsibility. The people we have seen in the IIPA, Mr Andognini's report -- it's his assessment that management is not providing what is required.
As I said, even though we're not in the business of making those decisions, the society noticed that there were some problems and we tried to take those problems upstairs. Unfortunately, we took them to the senior management people, maybe, who were the problem. We now have set up a path to the board, so when you sit on that board, you will get our issues and our concerns. It'll be in the room. Mr Farlinger will know how we feel and what's there. We've set up a system to circumvent a bad situation. I hope we don't have to circumvent it. As I understand it, Mr Andognini and the Hydro board are changing the management structure and that culture will change.
The Chair: Mr Laughren, about a minute and a half each. I'm going around one more time.
Mr Laughren: There seems to be a certain amount of revisionist analysis going on here this afternoon. I always thought that you blamed the people who give the orders, not the ones who take them, when major problems occur. Yet here, especially Mr Galt seems to be thinking that it's the workers who are to blame for this whole thing.
Correct me if I'm wrong here, Mr Wilson, but surely to goodness, the people to whom your group reports -- I don't know the organizational structure -- have experts as well. All the experts are not resident in the society, are they? Does management not have experts who know and understand the way in which nuclear plants operate?
Mr Wilson: That's exactly right, Mr Laughren. At the lower levels of management, and there are several levels of management between the society and the Hydro board, there are people who have an in-depth technical understanding, financial understanding about nuclear power, about fossil, about hydroelectric. As you move up in the management level, the understanding becomes more general and less technical. But certainly at the first levels of management there are people with very good and excellent technical background.
Mr Laughren: I have never in all my days seen such downloading of responsibilities as I've witnessed in this committee in the last week. It is truly remarkable. It's true. The past chairs come here, debate it. The only person I remember assuming responsibility was Mr Kupcis, who packed it in. He said: "The responsibility is mine. I'm out of here."
Others are saying, "No, no, it's the union contract," or, "It's the aging process." They always found somebody to blame for the problem. I am very sceptical about some of the stories that we're hearing before this committee.
Mr O'Toole: I just want to make a couple of points and then I'm going to give my time over to Ms Fisher.
I think there are really two monopolies in operation here. One is the monopoly of knowledge and the other is the monopoly of the nuclear option.
But I put it to you that it's the structural problems, the organizational and communications problems that I see after your presentation. We've got the Power Workers, which Floyd has recognized as at the bottom of this pyramid; then we've got the technical staff, the professional staff -- that's you. Neither one of those are responsible. That's what you said. We've got the management staff, and they don't seem to be responsible. At least Ms Clitheroe and Fox and the other high-level people said, "It all happened before it got to us." Then we've got the board, and the board has had several cultural, cult kinds of definitions. "Élitist" is another word that's been used.
One thing you said is, "It will never happen again." I put it to you that if you don't learn from history, you are doomed to repeat it. That's the confidence interval that I put to you.
Ms Fisher, I would ask if you have a more specific question.
Mrs Fisher: I actually do. It follows up on the one that was asked this morning by the other representatives of the major part of the workforce at Ontario Hydro. I guess it goes like this: There was a plan put before us by management through the board. There is a plan that was put to us by the Power Workers' Union this morning. There is a reflection -- and I hate to be so rude -- of the status of Ontario Hydro today by yourselves now. I would like to suggest that there's nothing in this that talks to and addresses the issue of the major findings of the IIPA, and that was the human resource problem, which has further come to be known as a cultural problem and all those other words that Mr O'Toole just used.
I am very disappointed that you didn't come forward and address the IIPA. I would like to ask you, as the leader of a major group of employees of Ontario Hydro, where is your plan? Tell me how in your document I can find the answer to the culture problem. That problem, as Mr Andognini reflected on, is the difference of opinion between labour and management. You can't have it both ways. You can't say: "We're in the middle. We didn't screen it without having an effect. We made recommendations but weren't heard. We have a workforce on the floor that is trying to be something but isn't."
We have the AECB chair telling us, "It's minimally safe; at risk sometimes." Could you please explain to me what your answer to this culture problem is and what you propose to Mr Andognini and Mr Farlinger other than just meeting with them once a month?
Mr Wilson: Let me go back, because your question and Mr O'Toole's question are very similar when you draw the little pyramid and you put the various people in the various strata of the pyramid. I didn't say that one stratum or another wasn't responsible; what I said was they had different responsibilities. The board has a responsibility -- it's like my answer to Mr Kwinter -- the management people have a responsibility, the technical people and the hands-on people, and they're different. We are attempting to deal with what's come out of the IIPA, and that's what I said when I came in here. There are serious problems.
I mentioned just one way in which we're going to try to get information into the Hydro board. We're sitting down with Ontario Hydro nuclear now, with the people that Mr Andognini has brought in, with the management people who are there, to attempt to address the culture situation, as you call it, that's going on.
Mrs Fisher: What are you doing, though?
The Chair: Mrs Fisher, thank you.
Ms Forge: Can we also have the opportunity to answer John O'Toole?
The Chair: Very quickly, a response.
Ms Forge: It is quick because I can use a quote from the CEO of Duke Energy, a recently amalgamated utility in the United States, who said, "History shows that companies whose nuclear plants fail miserably often bounce back better than ever." You were referring to history.
The Chair: Just before you go, there is one troubling aspect of the testimony. May I just ask you to clarify it for me? In questioning from the government caucus and from the opposition parties, we've talked about this layering of human resources at Ontario Hydro. It's been stylized in words of the "management group." It has been stylized as the "resident experts" at another level, as a different layer. I pause for a moment to make sure you are with me. Do you follow where I'm at so far? Yes or no?
Mr Wilson: I'm not sure where you're going. I think I understand.
The Chair: I don't want you to know where I'm going; do you know where I am right now? Do you agree with that so far?
Mr Wilson: Yes, that there are various strata.
The Chair: There seem to be these two layers we've talked about so far. If you represent the resident experts, would it be reasonable for me to assume that it is from your group that the elements that constructed the recovery plan would have emerged?
Mr Wilson: My answer to that would be that some of the people in our group were involved in putting together some of the pieces. As Mr Andognini said, he had a team of many people who did the work. Let me separate it into two pieces. There is the assessment of the problem, the IIPA. We had people who worked with Mr Andognini and his group. When you're talking about the recovery, the plan and the basis for the plan, which I haven't seen to date, we had people, undoubtedly, who provided information. We didn't have people who were involved in putting it together. So we had people who provided financial information and technical information, because it's impossible for Ontario Hydro to come up with that kind of plan and not have input from our people, but we didn't have people who assembled the plan. In total, do we have people who are aware of the recovery plan? The answer is no.
The Chair: So I had a little bit of white smoke coming up over here and a little bit of white smoke coming up here and a little bit of white smoke here, but it wasn't all coming together from that group. Is that what you're saying?
Mr Wilson: That's correct. We noticed there was some white smoke here and some white smoke there and we went to Ontario Hydro, as we have in the past, and said, "We think there's a problem."
The Chair: Thank you very kindly for attending the committee. We appreciate your time.
The Chair: The next witnesses before the committee are the Ontario Hydro board members James Bullock and David Kerr. Would they be good enough to approach the committee. Welcome to the committee. We appreciate your acceptance of the invitation.
Mr Jim Bullock: I'm Jim Bullock. My day job is president and CEO of Laidlaw Inc, and I'm a member of the Ontario Hydro board, having been appointed in July 1997. I did not come prepared with an opening comment for you, but I thought I'd be here to try and shed whatever light or provide whatever assistance I might to your deliberations.
Mr David Kerr: I am David Kerr. I'm the chairman and chief executive officer of Noranda. I've been on the board of Hydro since mid-1993. Like Mr Bullock, I didn't come with any prepared comments.
The Chair: We will proceed. We began the last round with the Liberals. We'll begin this time with Mr Laughren.
Mr Laughren: Welcome to the committee, gentlemen. It's good to see you again. I say that as though we've spent a lot of time together.
Mr Bullock, I appreciate the fact that you've only been on the board a couple of months, right?
Mr Bullock: That's correct.
Mr Laughren: And Mr Kerr has been on it for about four years, which is a nice mix of experience.
What's bothering me, and I suspect other members of the committee will speak for themselves, and I'll go right to the heart of the matter, is the August 12 board meeting at which there was put before you Mr Farlinger's plan and also, I believe, the recovery plan flowing from that.
It's been quite startling for some of us to learn that you basically may have seen that report on the Friday before but made the decision in that one-day meeting on the 12th. Is that correct?
Mr Bullock: Perhaps I can start. The report itself, the IIPA report, was delivered to me late in the week prior to the board meeting. It's certainly voluminous. There are some 15 documents contained in that report. I recall spending most of my August weekend reading that report and trying to get a sense of it. Then we had our meeting early in the week of August 11 or 12.
In your preamble, Mr Laughren, you suggested Mr Farlinger's plan and then the IIPA report. As I recall, the sequence of events was that we received the recommendations of Dr Andognini and his team, and those were presented over a three- or four-hour time frame in the meeting. Several members of the board, myself included, asked a number of questions. The decision that was reached that day, in my view from the board's perspective, was an acknowledgment that the status quo with respect to the nuclear facilities of Hydro was unacceptable and that Dr Andognini had laid before us a recovery plan that, directionally, I was comfortable with, but there remained a number of questions with respect to the costs associated with many of the options.
The board, myself included, asked for further information. If you look at the plan, it's got some flexibility in it going down the road. As a board member, it would be my view that we would be challenging the progress of that plan on a monthly basis and examining the financial options as they came forward. By way of example, if we were going to make a decision to spend the money to restart Pickering A or the Bruce facilities, as a board, I think you measure the costs associated with that with the alternatives at the time, which is a couple of years out, and you also obviously measure it against the progress being made by the recovery process in the remaining 12 facilities.
So it was very much setting the course for the recovery of the nuclear facilities, but that was to be a process that would be followed by the board receiving monthly reports and requests for expenditures as we went along. The actual expenditures approved that morning to start down that road were the ones associated with the balance of calendar year 1997.
Mr Laughren: The what?
Mr Bullock: Were the expenditures associated with the balance of calendar year 1997, which, while not insignificant, were relatively minor compared to the cost of the overall plan.
I felt that the board had to take action. We've since received a sizable amount of information from Dr Andognini and his team and others within Hydro and I think the decision we made then is still the correct one.
Mr Laughren: On that day did you have any sense that -- either one of you, please jump in -- you were not given an array of options, that rather you were only given one option, basically?
Mr Bullock: There was discussion that morning centered around the need to close or shut down one third of the facilities while corrective action was taken on the two thirds and what the options were surrounding that. As I recall, other board members and myself asked for additional information in that regard to flow from the meeting, and it has. There was in due course, actually, documentation of details of six options; the one we chose still remains the preferred option.
Mr Laughren: At that meeting, do you recall seeing the letter from the Minister of Energy, Mr Sterling?
Mr Bullock: I recall -- do you have the letter?
Mr Laughren: The letter dated the previous day, August 11.
Mr Bullock: Yes, I have it here now. I don't recall seeing this at the meeting, Mr Laughren. I do recall the chairman speaking to discussions with the minister's office, and of course the deputy minister sits on the board. At my first Toronto meeting he was sitting next to me, as I recall.
Mr Laughren: The reason I ask the question is because in the last paragraph on the first page of Mr Sterling's letter, "As you can appreciate, 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 on an open market."
It seems to me, and obviously I'm not a member of the board, when I read that he's really asking you to go slow and to think about the decisions you're about to make because of the significance of them, not just to Hydro but to the province and, quite frankly, to the government. That's why I thought it was important to know whether or not this letter was tabled or discussed at that board meeting.
Mr Bullock: I don't recall the letter itself. I certainly recall discussions around options. I think if you look at the minutes of the meeting you'll see reference to myself raising questions about options. I feel the decision we made that day, I would suggest to you, is consistent with this paragraph.
Mr Kerr: I don't recall actually seeing the letter myself either, but I also remember the discussion around the issue of options and needing to know some more before we were getting full-fledged into the recovery plan.
Mr Laughren: We talk about options here, and perhaps I'm not being clear enough, because there is a sense by some of us that the only option -- it may end up being the right one, the nuclear recovery option, but that that really was the only one. There were different variations of that nuclear recovery option, but basically there was only a nuclear recovery option put before the board, as I understand it. I think that's what Mr Sterling was concerned about.
Mr Bullock: If you're suggesting, "Did the board that morning consider the discontinuance of the nuclear operations in the province and look for an alternative power source?" no, we did not do that.
With respect to the problem before us, which was the unacceptable performance of the nuclear facilities, there were several options considered. There were five or six of them: the status quo, which as I said was obviously unacceptable in my eyes, from Dr Andognini's report; and continuing to operate all the facilities and try and correct the problems. That's something Hydro had been trying to do unsuccessfully for several years. I think it led you to the possibility that if you were to pursue that course for another year or two, that you could simply move closer to the edge of an unacceptable situation than you are today. So the ability to, if you like, take and correct the problems within two thirds of the facilities and provide power from alternative sources, I felt, was the most flexible plan and did provide the most options going forward.
As my colleague here said a moment ago, no one on that morning in my view was saying to Dr Andognini and his team: "Approved. We'll see you here in 2001." What we were saying was that it seems to be the most flexible plan and the proper plan to pursue, and that there's a myriad of options that will come before this board in the months and years ahead as we go through this. As I said earlier, to be able to look at what progress was being made a year or so down the road, when some of the tough financial decisions and alternatives with respect to Pickering A and Bruce A need to be made, I felt provided us with the most flexibility as an organization, as a board.
Mrs Johns: Good afternoon, gentlemen. I just have some questions about the same issues that Mr Laughren raised. We had Mr Franklin in this morning talking to us about the plan and he suggested that he believed the plan has introduced both the IIPA report plus the recovery strategy, and I think he used the words "interim strategy." Did you feel that this proposal you were being subjected to on August 12 or 13 was a decision you were making for the future, or did either of you ask for further information or any of that kind of --
Mr Kerr: I kind of thought that what we had received was a very flexible set of options, and the plan that was being proposed was the most flexible of the plans. It wasn't interim in the sense, I think, that you're describing it to me. It was a plan, though, that could be changed as you went forward. There wasn't a single, one-time, all-encompassing commitment to this plan. It had a lot of flexibility in how you would change going forward. That was how I viewed it, anyway.
Mr Bullock: My views would be consistent with that. By way of example, I think the plan permits the board and the management of Hydro to assess its progress in getting to a more acceptable level of operation of these facilities as we go along.
I think our assessment of that progress would govern the expenditures in the continuation of the plan. It's not simply: Make a decision today and you're finished tomorrow morning. This is a three-year recovery plan. Against the options that we could foresee at the time and discussed with the experts, this seemed to be the most prudent course.
Mrs Johns: It's my understanding, and I'm not sure it's valid, Mr Bullock, that you had some concerns and wanted to see further documentation after that day. Is that true, and can you tell me what it was you were looking to see?
Mr Bullock: I think that I spoke, and it's reflected in the minutes of the meeting, saying that I wanted to see further financial modelling of the various steps within the plan. This isn't a simple, "Do ABC and you're done." There's a myriad of steps along the way where you can reach a crossroads and go A or B. While the plan does provide the flexibility to restart both the A facilities at Pickering and the A at Bruce, you may well reach a decision from market conditions or costs or other reasons at the time, lack of progress in getting the existing 12 properly operating, "Do not restart the A."
I wanted to understand the financial modelling over the full three years of the plan in better detail. Also I asked, as did other members of the board, that the various options we were considering and discussing be more formally documented, and they were, the six options.
Mrs Johns: And is this the document? Have you received this document now?
Mr Bullock: Yes, I have.
Mrs Johns: When did you get this document, which I believe is the six options?
Mr Bullock: Yes, I would have seen that in late August or early September. It was considered at a September audit committee meeting. It was in September.
Mrs Johns: Okay, and Mr Kerr, the same for you?
Mr Kerr: That is the case.
Mrs Johns: Did you have other documentation that you were looking for after that meeting, Mr Kerr, that you needed to look at also?
Mr Kerr: No. I think Mr Bullock had done a good job of summarizing the kind of information we were looking for.
Mr Bullock: Can I just interject here? When you ask, is there other documentation we want to see, I think the board -- by my answers earlier, we want to see documentation every month on the progress being made and what the expenditures are and what the alternatives are going forward in this recovery plan.
Mrs Johns: You also were concerned about financial information. I believe we've heard that Ms Clitheroe was concerned about some financial information and you asked for additional financial information. Have you been given that since the time?
Mr Bullock: Again, I think you're looking at the minutes, unless someone else is suggesting something else. The minutes of the August meeting speak to the need to understand the financial costs associated with the various steps and alternatives in the plan. We've been seeing those and will continue to see them. I think that's what the reference in those minutes is about.
Mrs Johns: We've had a great deal of consternation about Ernst and Young doing the audit of the options. Are you two satisfied that Ernst and Young has done a fair and equitable job, and have you seen the results of their audits?
Mr Kerr: They made a presentation to us at the audit finance committee of their conclusions from their review of the optimization plan. From the kind of comments they made, I think it added to our level of confidence that the optimization plan was probably the best route to be following at that point in time.
Mrs Johns: Mr Bullock, were you involved in that?
Mr Bullock: Yes. I would say generally that's the case. If you look at what's taken place here, the first opinion was the existing management of Hydro, the second opinion was Dr Andognini and the third opinion was Ernst and Young. The latter two seemed to be pretty consistent with the board assessment of this situation. It's not a happy set of circumstances, but it's a course of action that I believe is the right one at this stage for Ontario Hydro.
Mrs Johns: I guess my concern is that I have young children and I represent a lot of young people in the province of Ontario. Do you feel comfortable that the board has made the right decision not only for today, but for the future of our kids and their ability to have energy and electricity in the province of Ontario tomorrow?
Mr Bullock: After you, David.
Mr Kerr: Within the constraints of our abilities to do it, yes.
Mr Bullock: I think the plan that's been adopted here provides the province with the most options going forward that are available, that I can see, in that you could foresee a set of circumstances down the road where the province becomes less reliant on nuclear; ie, that the existing facilities that are going to continue to operate be the nuclear assets for the province. You could foresee a plan where the A and B Bruce facilities are the most economical at the point in time you have to reinvest in those and restart them. And you will see develop over the intervening period here alternative generating capacity to fulfil the needs of the province. You're asking me, do I think this is a good course of action for the future of the province? Yes, I do.
Mrs Johns: We've agonized over the public versus private sector over these last three or four weeks. You both run and operate major successful businesses. I suspect that you're probably some of the Who's Who of Ontario.
Mr Bullock: David is. I'm just from Burlington.
Mrs Johns: Well, Laidlaw is definitely up and coming. Tell me, were the decisions made by the board substantially different or was the process different than would have been made at either of your organizations? Do you feel the information you received was different or that somehow the board is not running effectively? Can you comment on that?
Mr Kerr: The answer is, no, I don't think it is terribly different than would have happened in our company. I can't parallel it exactly because the circumstances are a bit different, but in terms of my expectations of management, their reliance on third parties, outside parties, to give them guidance and expert advice and the board's role in being a supervisor of management rather than being the management itself, I'd say followed the private sector parallel quite well.
Mrs Johns: Mr Bullock?
Mr Bullock: Yes, I've had less experience with this board than Mr Kerr has, but in terms of this particular decision, I think the documentation was pretty fulsome. The presentation by Dr Andognini and his team was reasonably thorough. The board was given an opportunity to challenge many of his statements and to ask for further information, and that's been provided, so I would say this is consistent with the board and that the challenge for the board now going forward will be to monitor and satisfy itself that the plan that's being implemented is carried out as is being recommended.
Mr Kwinter: Mr Bullock, you've already heard about the letter that the minister, Mr Sterling, wrote to Mr Farlinger. I think one of the problems we have is a matter of interpretation. I'd like you to just give me your idea of what the interpretation is.
It says: "You can appreciate that the government expects all options will be thoroughly evaluated." Do you read that as all nuclear options will be thoroughly evaluated, or all options period, of any kind, dealing with the generation of electricity?
Mr Bullock: I would read the minister's letter, having seen it here before me, in that it references at its start the nuclear performance advisory committee and the IIPA documentation which he had just received and was commenting on, that the options being referred to here would be the options with respect to the nuclear facilities of Ontario Hydro, all options to the restoration of those facilities to the kind of standards we should demand in the province.
Mr Kwinter: So your interpretation is that the only option, the grand option, is that we've got nuclear, we've got to stay with it, but now we have this recovery plan and there are all sorts of options within that recovery plan, and as a matter of fact, Mr Andognini suggested option 5, maybe 6, and eliminating --
Mr Bullock: There are six options, yes.
Mr Kwinter: Yes, but as I say, his recommendation --
Mr Bullock: Do nothing, try to continue to do what you're doing, or four others is the way I would describe it.
Mr Kwinter: So these are the options that we're talking about, that the board had to deal with.
Mr Bullock: With respect to the nuclear facilities of Hydro, yes.
Mr Kerr: We did ask the question, were there options other than running with nuclear, and that was buying power or generating power somewhere else, but that did not turn out to be a satisfactory alternative.
Mr Kwinter: At that same meeting at which this decision was taken, Ms Clitheroe, who was the chief financial officer of Ontario Hydro, noted that a key element missing from the overview is an economic analysis on the revitalization of Bruce-Pickering versus other generating options. She further explained that, "Although the nuclear option will most often be presented as the preferred alternative because of the associated sum costs, other means of judgement will have to be applied before any decision is made with respect to bringing back the A units."
My interpretation is that she was raising concerns that all of these decisions were being made within the context of the nuclear solution. I'm not saying it's not the right solution. I'm just saying, was anything done concerning her concerns that other forms of generation weren't being considered when this decision was taken?
Mr Bullock: Option 5, as you refer to it, which is Dr Andognini's recommendation, deals directly with that issue in my view.
When you start with a generating capacity in the province where about two thirds of it is nuclear today, to say, "Did you consider an option that said, `Let's just discard that completely and go to zero nuclear'?" that was not discussed. But with respect to the viability of restarting Pickering A or Bruce A, the two thirds that's going to be shut down while you get to the performance standards you should expect on the remainder and the financial alternatives to that could be looked at as part of option 5 here. That's why I think it is the most flexible plan that permits that.
Mr Conway: I would like to pick up, gentlemen, with a variety of questions. One of the obvious to me is that you meet on the 12th, having had two or three days to assess a pile of information and recommendations that commit the utility to billions of dollars worth of expenditure, most of which are going to, like most things at Hydro, bear the lovable guarantee of Her Majesty's provincial government. I'm not surprised that we've got the minister writing a letter, because what makes Hydro different than Laidlaw and Noranda is this lovable thing that the Globe and Mail likes to editorialize about so much, the provincial guarantee.
You've got the guarantor writing this letter on the 11th saying, "We hope, before final decisions are made, you look at the waterfront and we look at all of the options." We get decisions made on the 12th which, as Mr Laughren and Mr Kwinter and others here have said, may very well be the best decisions. I don't know. I don't know how I could know, though, on the basis of 72 hours worth of analysis, and quite frankly a lot of it coming from people, I say to you, Mr Bullock, who were there for the genesis of a lot of this problem.
Having said all of that, one of the questions that strikes me is, I'm a board member and I'm going to buy this plan. One of the things that somebody must have said to me is that this replacement energy -- because I'm going to lay up, perhaps permanently, a third of the nuclear capacity of this utility. In the short and intermediate term, I'm going to replace that lost power with some very controversial US electricity that's going to bring a bagful of environmental controversy. Did anybody spend any time at the board that day talking about that issue?
We had the Ontario Clean Air Alliance in here last night and they were pretty impressive. They were saying a lot of the things that I expect Ontario is going to hear a lot about over the next three to five years.
Mr Bullock: Mr Conway, we started from the premise that the report that was before us readily identified -- not by the people, as you described, who created the problem, but by Dr Andognini and his team -- that the operational problems that were there needed to be addressed. I don't think anybody's challenging that you can't continue to operate at unacceptable or minimally acceptable standards for any period of time.
I can't let your comment about the financial guarantee of the province pass as being different from how I operate my company. As a director of Ontario Hydro, I take my fiscal responsibility seriously, and that provincial guarantee represents me as a taxpayer in this province both individually and corporately. I understand the seriousness of the financial decision we were making here, and I wouldn't want to let that pass any other way.
With respect to the decision we made that day, we made a decision to set ourselves upon a course of recovery for the nuclear facilities because continuing to operate them as is was unacceptable.
Mr Conway: Let me just come back, though, and I direct this point to Mr Kerr. The committee has got all kinds of paper now, some really interesting paper. We've got paper from the federal regulator. We've got all kinds of Hydro minutes that tell us that something called the board's nuclear review committee was up to some very interesting activity in the early to mid-1990s. Quite frankly, the board's nuclear review committee was apparently receiving data much like Andognini presented to the board in 1997. In fact, you could argue on the basis of the data we now have that in a qualitative sense Andognini did not tell the board anything that the federal regulator had not been saying for several years and, quite frankly, that the board's own nuclear review committee was highlighting.
My question is, first of all, what was the board doing when that nuclear review committee was apparently beavering away with all of this stuff that basically Andognini came to confirm in the summer of 1997?
Mr Kerr: I'm not sure my memory goes back as far as you'd like it to in this respect.
Mr Conway: I'm looking at data from 1994, 1995, 1996. You were a board member --
Mr Kerr: With due respect, I haven't read it since probably the meeting following those meetings, which might have been a month after those meetings. That would be the most recent exposure I've had to that information. So I find it difficult to respond to what you're saying.
Mr Conway: The committee is having a problem and I am having a problem because if Andognini came as a bolt out of the blue, then I would say, all right, some of what you said is obviously credible, but it didn't come out of the blue. The federal regulator and the board's own nuclear review committee, for months and years prior to the summer of 1997, were highlighting a number of these basic points, and nothing was happening.
In fact, Mr Kerr, there is some very clear evidence that the action plan that the board took in 1993 to shed thousands of people exacerbated the problem in a very real way. You were a board member for four years. I'm trying to get my mind around what the board was doing in 1994, 1995 and 1996, before Andognini arrived, a board that was clearly, according to these documents, being told by the federal regulator and its own nuclear review committee that there was trouble and things were getting worse, not better, pre-Andognini.
Mr Kerr: Without having read the documents, and I can't remember reading them at this point in time, although I undoubtedly did since we approved minutes, I'll go back with my memory as best I can to probably mid-1996, when there was a shutdown of the Pickering plants and the issue of the reliability of the nuclear facilities really became a front-and-centre attention issue at the board. It may have been before that; I just can't recall.
In any event, I think that's what triggered the idea of a nuclear recovery plan. I remember the president, Al Kupcis, at that time hiring some people to help with the development of a recovery plan. I think by the end of the year he had decided that he would get what turned out to be Carl Andognini for Hydro. But beyond that mid-1996 period, I'd have to go back and look at the documents to be able to help you.
Mr Conway: I appreciate that. The problem I'm having is that many of these documents make the point that there was a management problem, a culture problem, and a big part of that -- Bob Franklin was in here talking about it this morning, and others have spoken to it as well -- was that too many of the central players at the operational level were leaving. There was no replacement. There was no replacement strategy.
It's as though you're running the Blue Jays and you're being told by every scouting report that you've got a problem in centre field, your bullpen is a mess and first base is about to develop into difficulty, and the response is, "I think we need to hire a new consultant because I think the marketing people in head office need some help." Well, the problem was at first base and at centre field. That's where the operational difficulty was.
I'm trying to think, where was the board? Where was this nuclear review committee? Where was the board through 1994, 1995, 1996? The evidence getting up to the board, according to these documents, is clear, and the board didn't act.
The Chair: Question, please.
Mr Conway: All of a sudden we have this dramatic development in August 1997. When Andognini confirms a lot of what's been said, all of a sudden there's this cataclysmic response, bang: "We've got to really do things."
Mr Kerr: I didn't hear a question, did you?
Mr Bullock: Maybe I can comment. That the problems existed before Carl Andognini arrived on the scene in January I think is quite evident even to someone who just joined the board in July. That the board had been receiving information that there were problems and trying to deal with those and challenging management to deal with those things -- after all, the board does not manage the company; the management does -- and that the management had been unsuccessful in dealing with those problems I think is also evident. That led to the ultimate decision to bring in Carl Andognini and get a third-party appraisal because the in-house activity wasn't solving the problem.
That's how I view the situation. Carl Andognini brought forward a report that in its breadth and depth was frankly startling to me as a new board member, and I think probably startling to the other board members, as to the urgency and depth of the problem, not that there were problems. That was what we were confronted with in August and that's what we acted upon, and I think the course of action we've taken is the right one.
The Chair: We'll do another round again with the caucuses, about five minutes for each caucus. Just before we start that up, Mr Bullock, we were talking last evening in evidence before this committee about the 1989 memorandum of understanding that exists between the Minister of Energy and the board of directors of Ontario Hydro.
I'm reminded of article 20.1, which reads in part, "To reach concurrence on all matters involving Ontario Hydro's financial arrangements which could increase the province of Ontario's direct, indirect or contingent liabilities or could otherwise have an effect on the finance and debt management policies of the province of Ontario." Article 20.3 reads, "Ontario Hydro shall keep the treasurer informed in a timely way of its activities and proposed decisions which could affect the financial, economic and fiscal responsibilities of the treasurer."
In your opinion, was the action of the board on August 12 within the spirit and the letter of that agreement?
Mr Bullock: In my opinion, yes, sir.
The Chair: You indicated to this committee you did not see physically the letter by Minister Sterling on August 12.
Mr Bullock: I'm saying I don't recall seeing it. The contents of this letter were certainly discussed. There is nothing in this letter today that comes as, "Oh, my goodness, that's a surprise from the meeting," as I said. The issue of the options and so forth was certainly discussed at great length at the meeting.
The Chair: It would be helpful for me just for a moment to understand how in your mind the recovery plan was formulated that was presented to you on August 12. How long had that been forming? Who had been the constituents who assembled that plan? We heard evidence just before you assumed the witness stand that it seems as though it was a plan that was developed by smorgasbord; it was a little bit taken from here and a little bit taken from there and a little bit from here, and it came somewhat from the expert group and perhaps some did not come from the expert group -- resident, that is. Can you perhaps cast a little bit of light on how that plan was formulated?
Mr Bullock: It was a broad analysis undertaken within the nuclear facilities under the direction of Dr Andognini. I did not hear the testimony before me here today, Mr Chair -- I just arrived before we started -- but in the sense of the responsibility for the report and the contents of the report, it's clear to me it rests with the chief nuclear officer of Ontario Hydro, Dr Andognini. He employed a number of new resources he brought to the organization as well as resources within the organization to prepare and put together his assessment and his recommended courses of action and the alternatives. So I would say Dr Andognini is the leader of that report.
The Chair: I see. The final point, back to the memorandum of understanding and the words that read, "To reach concurrence on all matters": Is it your opinion that the Minister of Energy was in concurrence with your decision taken on August 12?
Mr Bullock: In the following sense, sir. The deputy minister attended the meeting, sat next to me and participated in the discussions. While we were having the meeting, the minister was on CFRB discussing the contents of the report while we were considering it, I recall. So it would be hard for me to accept that the minister was unaware of the report.
I think what we made was a decision to set forth on a course of action. As to reaching concurrence on the costs associated with that action, I think that's a process that's before us rather than behind us.
The Chair: So in your mind, concurrence is awareness.
Mr Bullock: We've set forth a course of action for the board. Ultimately, the minister can challenge the board. I presume part of this process here is challenging the validity of our decisions.
The Chair: Let's start the round again, please. Mr Laughren, five minutes.
Mr Laughren: When you talked about the minister being on CFRB discussing the report --
Mr Bullock: I may have the wrong radio station.
Mr Laughren: I'm sure it was the right radio station. It was the IIPA report you're talking about?
Mr Bullock: Yes, sir.
Mr Laughren: In his letter to Mr Farlinger on the 11th he says, "This morning I received a preliminary briefing from my staff regarding the results of the IIPA report," so it's clear he had been briefed on that.
You gentlemen are both members of your respective boards, I assume, voting members of your respective boards?
Mr Bullock: Yes.
Mr Laughren: I'm wondering, just as a matter of interest more than anything else, and I know you're CEOs at your respective boards but not at Hydro: Is there any qualitative difference in the way in which the board meetings are handled at your respective companies and at Ontario Hydro?
Mr Kerr: I don't believe there is. I think the board emphasizes hearing from the individual members of the management team with respect to the subjects that are being brought to the board so we can hear from the horse's mouth, so to speak. We do take time at the board meetings to exclude management so the directors have a chance to discuss issues they might not like to bring up with management present. We certainly have far more board meetings than we would have in our own company, so we get to know each other perhaps better than our own directors get to know each other. But on the whole I'd say that qualitatively, yes, it's good practice.
Mr Laughren: The reason I asked the question is that I've often wondered how, as outside directors on Hydro -- there's a difference between doing that, I would think, being an outside director, and your respective roles in your companies.
Mr Bullock: Giving advice and getting it are the two roles: giving advice and getting it.
Mr Laughren: Yes, that's right. It seems to me that it must be extremely difficult as an outside director -- and believe me, I don't feel sorry for the Ontario Hydro board of directors; that's not where I'm coming from. But it must be very difficult coming to that position and, given the complexity of Ontario Hydro and in particular its nuclear division, how you know you're getting all the information, given the history at Ontario Hydro and in particular its nuclear division.
At the board meetings, did you always feel you had all the expertise you needed to make important decisions?
Mr Bullock: I have a much shorter tenure with this board.
Mr Laughren: Yes, I appreciate that.
Mr Bullock: I think on the specific issue here, could I be 1,000% satisfied that I've had all the information, no, I can't. But did Dr Andognini and his team stand up to the rigours of the examination of the board? Yes, they did. Did the report itself seem to be fairly comprehensive? Yes, it did. In the end, a board, whether it be at Ontario Hydro or Laidlaw or Noranda, ultimately applies its judgement and its business experience, if you like, to the decision at hand and the recommendations of management and the experts available to it.
Mr Laughren: Mr Kerr, you've been on the board for about four years, I believe. You must have been aware of this ongoing problem with the nuclear division, given some of the federal regulator's comments. Did you have a sense of increasing alarm as time went on about whether or not you were getting enough information and getting the accurate information and whether you were capable, quite frankly, as an outside director, of making the right decisions?
Mr Kerr: I think the record will show we did have an increasing sense of alarm through a period of time. In terms of my own comfort, I guess I relied on a number of things. One was simply the board processes, that is, that we had a nuclear review committee that would be considering these issues in greater detail than the full board as a whole and that the nuclear committee had access to and heard from expert testimony in the areas they were dealing with.
Mr Laughren: Is that what they call the oversight committee?
Mr Kerr: I just know the name nuclear review committee, which is a committee of the board. I guess it's the same thing, although there may be an oversight committee which is a management committee as well, which is different. I'm thinking of the board committee now.
Mr Laughren: Were either of you members of that board committee?
Mr Kerr: No, neither of us.
Mr Laughren: Thank you.
Mr O'Toole: Just following up a little bit, Mr Kwinter and Mr Laughren both asked about board performance. I know it's kind of conjecture in your case, Mr Bullock; You've just been there a few months, I gather, on the Hydro board.
Mr Bullock: Yes.
Mr O'Toole: We have also heard from previous CEOs who have characterized the organization as somewhat suspect. We have heard from board members and executives, Ms Clitheroe and Mr Fox. We have heard from the society and we have heard from the Power Workers. I'm just asking a question from the board perspective, the broader view, if you will. In your view, is the organization well managed from a human resource management perspective? I question the gold-plated buyouts and the now shortage of personnel. The $32-billion debt: Is it well managed financially? Is it well managed technically, since we have heard that since 1985 it has been nothing but recovery plan after recovery plan that never worked? I put to you, following up on their questions on the board, how are we doing? We learn from history. Would you buy stocks in this company? Laidlaw does fairly well in the marketplace.
Mr Bullock: We have had our challenges in the past as well.
Mr O'Toole: Of course.
Mr Bullock: I think your question is a very serious one and I take it as such. That there are HR challenges within the organization that have been there for some time I think is self-apparent. Can they be addressed? I hope and believe they can.
You asked a question about the management of the debt structure of Ontario Hydro. In terms of the technical management of that and financial record-keeping and so forth, I think it's quite adequate.
On the recovery plans you talk about within nuclear, you are quite right, they have been around in one form or another for a number of years. I have not been, but from what I have read of them within the material I have seen, the problems have become increasingly serious in the period, so the recovery plans -- they may have had a different name -- didn't accomplish the goals.
Frankly, one of the questions I asked in August of Dr Andognini was, "Based on the track record, how confident can I be of your plan?"
Mr O'Toole: That's a very good question, which leads me to pursue one of those four sort of management functions: human resources, finance, kind of admin and technology. I wonder about the decision to recruit an American, Mr Andognini, and his plethora of experts, pretty well all American from what I'm gathering.
Is this not an admission by the organization that there was indeed a cultural problem, that they had to get some kind of neutral nuclear expert to say, "Yes, you're right in your suspicions here, Mr Farlinger," or whoever drew on -- I think Mr Kupcis was the person responsible for saying, "Look, give me some clean-hand expert to come in here and look at the peer reviews, look at the AECB reports" -- he looked at every report the board has seen apparently -- "and tell me what I already should know if I was really paying attention."
I'm not blaming you, you weren't there long enough, but do you understand what I mean? Is that not an admission that the organization internally was incapable of turnaround management?
Mr Kerr: I would comment that, yes, it must have been in part, because the order wasn't to go out and find a Canadian who can do this; the order was to go out and get the best person possible for the job.
Mr O'Toole: Which is appropriate, I agree. I'm going to draw a little bit different circle here. This one is looking at A Framework for Competition, the Macdonald report. I was interested in the coincidence, if you will, of the Macdonald report -- my riding has two nuclear plants, and as Mrs Johns said, we represent the interests of our broader constituency, and there is a lot of concern for both the jobs and the safety. They were very satisfied when it was admitted in the Macdonald report that privatizing the nuclear was not one of the options.
I put this to you: If we're going to privatize the nuclear, here enters my almost conspiracy theory mind, saying, "Okay, we've got this plan now that's going to bring everything up to snuff in both fossil and nuclear in the recovery plan." That's what this is. "You take down the coal, you bring them up to scratch and they're great assets. We spend all the taxpayers' money bringing all this stuff up to gold scratch. Then we bring in the white paper which says, `By the way, let's look at this whole framework for competition.'" You look at the experience in Britain, selling undervalued assets. Is this just my devious imagination or is there some other piece to this very expensive puzzle?
Mr Bullock: I can comment, and then I guess Mr Kerr can provide his views. I don't frankly understand the link you're trying to make here. The safe operation of the nuclear facilities in the province is the goal of everyone, whether they are privately or publicly owned. When you sell something, if you sell it -- this is a personal point of view; it's not Hydro or the board -- I remain to be convinced of selling anything at this stage but maybe I can be convinced. That's something that's before us if it comes forward in the form you are suggesting. To me it's no different than I can sell you a seven-year-old bus badly in need of repair and get one price, and I can sell you one that's restored, and I can sell you a new one at a different price. A nuclear facility that is shut down and not operating isn't worth a lot either, whether it's private or public. I don't understand the --
Mr O'Toole: I'm only saying that perhaps your assets are better sold in the private market, and most experiences are they are sold under value. That's the British experience. We have been told that a couple of times. Just one more thing --
Mr Kerr: I just might add that the board doesn't spend time thinking about that.
Mr O'Toole: No, I would hope they would have a little longer view than just the immediate decision.
Mr Bullock: As someone who has bought assets from the public before, I can tell you --
Mr O'Toole: We're looking at a deregulated marketplace and competition. That's clearly on the table.
Mr Kerr: As far as our responsibilities at Hydro are concerned, that isn't on the table.
Mr O'Toole: You're not looking at the opportunity for privatization?
Mr Bullock: We're going to react to the government policy.
Mr Kwinter: I'm not directing this specifically at any one of you but anyone who wants can respond to it. One of the concerns I have is that there is a problem at Ontario nuclear that everybody knows about. It has gone on for years and years. We had Mr Franklin in here today saying he was very disturbed that during his tenure from 1986 to 1991 the licence was reduced from two years to one year, which set off red lights. It was obviously a problem. Subsequent to that, in 1996, the licence at Pickering was reduced to six months, eventually up to nine months. If you take a look at the AECB reports over those years, they were highly critical of the operation of this facility.
My concern is that we get Mr Kupcis in. He gets a handle on what is happening. He knows there is a problem, admits that everybody knows there is a problem, but he wants to quantify what that problem is, and that is why he engages Andognini to come in and tell them what the scope of this problem is, not to say, "Give us a clean bill of health." He knows there is a problem. They get this report. On April 10 or 11 they get an interim report to say, "Here are the problems," and then finally on August 12, the final report is tabled.
As members of the board: One of the concerns I have is here is a man who has gone out, has decided he has to know the scope and the size of the problem, brings in a report and then resigns. What was the urgency of this whole scenario? There wasn't anything really new in the report other than the size of it, the scope of it. Everybody who had an interest in Ontario nuclear knew these problems were there. Suddenly the report is tabled. The board, under normal circumstances, would have received it and then they would have had to come forward with this recovery plan. I admit there's a huge potential liability in doing it, but that could have been done in an orderly way. But suddenly the report is received, the recovery plan is accepted and the CEO resigns which immediately escalates the whole issue, and we now have a select committee looking into it.
Why was there this urgency? Why did he resign as opposed to saying: "I'm the guy who has finally come to grips with this thing. Let's see if we can see this thing through"? Why did the board not say: "We're not going to accept your resignation. This is what is going on. You've brought this thing to this point. Let's see if we can now move forward."
Mr Bullock: Perhaps I can try and answer that, Mr Kwinter. I'm not sure my answer will be very satisfactory to you, but I'll try. As I view it, the role of a CEO is not to simply identify problems, particularly if the problems are partially of his creation. You have in Dr Kupcis I think a highly principled individual who, when he saw the report and recognized the depth of the problem, tendered his resignation. For you to suggest the board should have rejected the resignation and said, "Carry on," I don't think is a very practical solution.
The board felt at the time, having read the report and having seen the recommendations, that it was time for fresh leadership at Ontario Hydro. Dr Kupcis chose to resign. If he hadn't done that, I guess the question for the board to ask would have been whether the board felt he was the individual to lead the recovery, because it is the CEO's role to lead the recovery in an organization like this. That's a question we weren't confronted with because of his resignation.
As to the speed with which we made the decision, I don't think I can add anything new to what I've already said today. We received the material, we set the organization on a course of action towards recovery that will take place over two or three years, and there are going to be a lot of decisions that will be weighed going forward as we reach points of options as we go along this recovery route. This is the most flexible recovery plan available, I believe.
Mr Conway: I'd like to come back to you, Mr Kerr. I am deeply troubled by the last round. I'm going to set aside for the moment the latest recovery plan. I want to go back to 1993, because unlike some members here, I was here in 1992-93 and I remember the sounding of trumpets: "Big, bad Maurice has ridden into Hydro and he's going to fix the bloody problem. He's got a solution." And apparently the board approved it.
A big part of it was shedding 10,000 people. All kinds of evidence now suggests there was a very real concern, getting worse as days went on, Mr Kerr, that the wrong people were leaving. It wasn't unusual. Corporations everywhere were downsizing. There was beginning to be some feeling and some evidence that, just maybe, not all the right people were leaving.
I'm back to 1993, 1994, 1995. The board, Mr Kerr, of which you're a member, is there superintending this recovery plan, Mr Strong's recovery plan, which is exacerbating the very problem you're trying to fix in the big part of your business -- nuclear. What was the board doing, Mr Kerr? How much did the board know? You were there for those four years.
If I'm trying to make an assessment about the implementation of the next recovery plan, I think it's only fair to look back at the success or lack of it of the last recovery plan. What we now know is that the last recovery plan appeared to have made the situation worse. You scowl, Mr Bullock, but I'm going to tell you that the chairman of the federal regulation was in here saying that they got this close in December 1996 to closing Pickering down.
Mr Bullock: I'm not challenging that one.
Mr Conway: So my question to you, Mr Kerr, is, where was the board in this period, 1994, 1995, 1996, as the problems were developing, being reported through the nuclear review committee? What did the board know and what, to the best of your knowledge as a board member through that four-year period, did you and your colleagues on the board do to address the problem?
Mr Kerr: You're stretching my memory but I'll do my best. I think when the people-cutting went on under the chairmanship of Maurice Strong, it was generally believed that was necessary because there were too many employees at Hydro and it needed to be reduced. Then they obviously ran into the very practical problem we've run into in our own company, and that is, when you cut people, where do you start? Generally what you have to do is make some sort of early retirement package available to people generally. As soon as you do that, you're unable to choose the people you want to keep and the people you wish to depart. They are on their own. They make their own choices under the programs for retirement that are available. As a result, you lose good people when you don't want to.
The Chair: Thank you. Let me give you another minute or two.
Mr Conway: No, I'll come back.
The Chair: We've only got about another hour. I don't want to cut you off when you're in good flight, but I have to be fair to the other members.
Mr Conway: These are board members, and I'm telling you, they're impressive people with impressive credentials.
The Chair: I am not prepared to discount the importance of that either, so let's get around it. We'll discipline ourselves very promptly.
Mr Laughren: I feel guilty. I'm interested in knowing the kind of information that would percolate up, if that's not a contradiction, the kind of information that would come up to the board. I'll give you a very specific example. Mr Kerr would be a better one to respond, I suppose, because of the date. This is August 11, 1995, two years ago. It's a letter from the AECB to Mr Charlebois, the director of the Pickering nuclear division, Ontario Hydro, and it says:
"There has been recently a significant number of serious events at both Pickering...A and B leading us to question Ontario Hydro Nuclear's effectiveness in maintaining a satisfactory level of safety. For example, we have observed that station management staff have not been demonstrating by their example appropriate consideration to safety, we have confirmed that less experienced workers who have thrived in the present environment do not possess or understand the fundamental principles of safety which were instilled in Ontario Hydro workers of the past and we have found evidence that other corporate priorities are overriding safety."
The letter goes on, if you want more, but that's fine. Would that kind of letter, which I think is a serious letter from the federal regulator, be brought to the attention of the board or would that be swallowed by the structure between the head of the Pickering nuclear division and the board? Would it be swallowed up in there somewhere?
Mr Kerr: I would hope that kind of letter, while maybe not appearing specifically as a letter in the hands of the directors, would be reported at least to the nuclear review committee.
Mr Laughren: But it doesn't ring a bell in your mind?
Mr Kerr: Not specifically, no.
Mr Laughren: This was a year before the federal regulator is saying they came within an eyelash of shutting down Pickering A, yet this is saying the problems are there in Pickering A and B. I'm wondering, as a board, when you see something like this, when something like this is brought to your attention, does it give you pause for thought? How much else do you not know as a member of the board?
Mr Bullock: Perhaps I could comment there. The report of Dr Andognini I think fully acknowledges that the reporting structure on this kind of thing is inadequate and has been inadequate within Hydro, and that needs to be addressed as part of the re-engineering of the management process of this company.
On something of that significance, and you were asking a while ago about comparing this board with other boards, it would be unusual for a letter like that to go to all board members of the board of another company, but would the CEO report that as a significant event and challenge to the board? I would think it would be a normal course thing for the CEO to do. Whether it occurred in this instance I just don't know, but I think Dr Andognini has pointed out that some of the occurrence reporting within Hydro needs to be changed.
Mr Laughren: But wouldn't you feel blindsided in your private life with Laidlaw, or with Noranda, if something like this happened? Wouldn't you have somebody walking the plank or at least having to answer for that if you didn't know about it?
Mr Bullock: When responding to Mr Kwinter earlier, I suggested that I took a different view of the responsibility of the CEO in this matter. It's with that in mind that I would have similar views to yours in this matter.
Mr Laughren: Thank you.
Mrs Fisher: Good afternoon. Welcome to this hearing process.
Mr Bullock: Thank you.
Mrs Fisher: I guess the common understanding is that the Andognini report was needed and in essence technically has been accepted as -- I haven't heard anybody yet challenge the technical findings of it. However, there continues to be this issue with regard to the human resource side of it. Most of the findings within all of the 16 or 17 volumes of the IIPA report relate to the human resource side of it, whether it be training, safety application, available numbers of qualified staff. I'm coming at this from an approach I've been trying over the past whatever time. I don't really want to spend a lot of time finding blame. I don't think that's going to help Ontario at all. I'm very much interested in going forward on this. So my questions are going to be directed in that way.
The Andognini report came to the board and we can be critical of the amount of time it didn't have for full evaluation. In reading the board minutes I guess that was reflected by the chief financial officer of the corporation, Ms Clitheroe. When she was here I tried to get into a pattern but it's very difficult with time restrictions as well -- I'm not looking at you because of that; I understand how the fairness happens.
With regard to the financing of the recovery, her comments from the August 12 board meeting reflect that the key element missing was the overview of the economic analysis on the revitalization of Bruce and Pickering versus other generating options.
Then this paragraph concludes by saying, "The board discussed the sensitivities surrounding taking the units out of service, and it was noted a large percentage of the cost is required replacement energy cost." I'd like to focus on that for a second. Either fortunately or unfortunately, I am the representative for Bruce, so we all understand what that means in terms of impact. But I look at it more globally than that. I've been involved with Ontario Hydro for 27 years now and a lot of my community volunteer work was contributed towards making sure that whole program continued to be one not only in my community but for Ontario. I want to start with that.
I tend to get criticized, within the room even, on my objectivity with regard to Bruce, but I have to focus on it because obviously it is the one that is most seriously impacted immediately. I would share my same concern for the future of Pickering A, although they say right now it looks like it should come up on a first priority basis, and further to that to Darlington because of changes that are common with Bruce and Darlington that you don't find necessarily with Pickering.
Having set that stage, what I can't get through my head is this: I absolutely share Ms Clitheroe's concerns, and as a senior vice-president of a corporation responsible for public dollars I can't understand why -- it sounds like criticism and I have to say it -- she wouldn't have been stronger, more influential in not letting the decision happen that day.
I'm a layperson on the outside but I happen to do a lot of homework, and the thing that's bothering me is this. If I know that the replacement costs for energy will run anywhere from $2.5 billion to $2.7 billion and I know -- for example, let's take the Bruce site to start with and we can move over to Pickering in a second, I realize Pickering has a billion dollars invested in the reactor retube, already there, ready to roll. Unit 4 is supposed to come up and be licensed this December if it meets safety requirements.
If we look at the cost effectiveness of the application of this thing, I have to ask you this: Instead of buying replacement power and taking away the ability to sell, instead of not investing in what Mr Andognini recognizes is the most important lacking feature within Ontario Hydro right now, and it's not infrastructure, it's staff, qualified staff, and good management decision makers --
Mr Bullock: Practices.
Mrs Fisher: And decision makers. Practices, I agree. But a practice is only as good as the decision in the end, and none of the decisions lately have been very good. That's not a criticism of the board. The board reacts to what management feeds it. Now, I want you to have me understand -- they say there were six options presented. I know for a fact that the community economic impact of the Bruce, for example, was not considered seriously. I think it got a mention. In the past when Ontario Hydro was making significant downgrading decisions in its staffing numbers, it came to the community and said, "What will it do?" and it had a bearing.
Do you not feel Ontario Hydro has some type of social or moral obligation to a community where it knows it is the only major industry in that backyard?
Mr Bullock: Let me try and answer that. I think you've raised several very interesting points. You mentioned the fact that there's a significant investment in this program for replacement fuels. It obviously raises the question that if you don't restore the nuclear facilities, that's not a one-time cost, it's a continuing annual cost that multiplies several times going forward. That's an important thing to bear in mind when you look at this plan.
Your comments about the Bruce facilities or the Pickering facilities are quite valid, but Hydro has struggled now for several years to operate these things in an acceptable manner and has come up short. What has been put before us in the form of the Andognini report is a process that should lead, I believe, to the kinds of standards we should have in this province, albeit starting with two thirds of the facilities and then having the ability to add back Pickering A and add back Bruce, or add Bruce, add Pickering. Those decisions are yet to be made based on economics, and yes, I think the impact on the first community is part of that consideration.
Mrs Fisher: But it wasn't brought into consideration -- the economics of it.
Mr Bullock: We did not make the decision to shut Bruce and not re-open it.
Mrs Fisher: Well, excuse me. You did make a decision to shut Bruce down at least until 2000. By the way, by the time you come back to rediscovering that you shouldn't have done that, my suggestion might be that you'll have lost all your human resource potential from that community. You will have totally affected, and not only that demolished the rest of the secondary impact side of that community. I don't mean to be rude and I know you're brilliant, but I'm just a little bit bright --
Mr Bullock: I'm far from brilliant, believe me.
Mrs Fisher: All I have to say is that kind of comment causes me more irritation instead of giving me some kind of comfort level. You got a little bit of comfort level when you said Pickering first or Bruce. I thought, "Oh, a ray of light, this thing's starting to click somewhere." But what I have to ask is this. I'm going to tell you I applaud Mr Andognini, he's got more guts than anybody else I've seen in Hydro for 27 years and I've been on the outside banging on doors forever. I thought maybe getting here, this might help the situation, can't quite figure out yet if it has or not; we'll see over time. But the bottom line is this. Let's assume his report is right. Let's assume IIPA is right. I asked Mr Farlinger, I asked Mr Kupcis, I asked Mr Andognini, why don't you just admit -- I asked Mr Strong, this was the one that got me -- you're wrong? You've spent the money on the wrong buyout. Reinvest. Forget your mistake. Admit a mistake. It's done. Bring them back.
He says there aren't available staff. That's not a fact. Now I hear yesterday via a rumour -- this morning at one o'clock in the morning I get a call telling me -- there's an ad out there. Well, wonderful, a bit late. What consideration was given to numbers and fact-finding? I don't know what the replacement salaries were, but I know that somewhere, somebody said $5-billion recovery program. I know that the 1,725 that have been announced since were announced a month and a half later. Why wouldn't you know that the day you announced it, if in fact you considered all financial implications?
I know the private sector has made an offer, in a 1996 management study, to refurbish Bruce A with private equity injection, which quite frankly took a little bit of time for the labour force to understand and accept that changed philosophy, but they did. Even Mr Murphy talked about it here this morning. That wasn't part of the options that were considered. How then can you make a decision to close it now, what you've done? Unit 1 got its final announcement last Friday, 2 is out, 3 and 4 are coming back for three months if something isn't done. Are you willing to open the door for reconsideration?
Mr Kerr: I don't know that it's necessarily our decision to open the door for reconsideration.
Mrs Fisher: You're the board.
Mr Kerr: The board -- I think the point was made -- responds to management's initiatives, and we do.
Mrs Fisher: In the end, you're the board. In the end, you decide. What do you mean, you don't know if it's your decision?
Mr Kerr: Well, that's what you said. I think earlier you said that we respond to management's initiatives, if I'm not mistaken.
Mrs Fisher: And you can deem them correct or incorrect and then you make a decision.
Mr Bullock: That's right and I think the best advice we had before us is that the continued operation of Bruce A as is, and Pickering A as is, with the resources available, will ultimately lead to an unacceptable situation, the date of which is hard to predict but it's likely sooner rather than later. That's what I've been operating on. I accept that there's pain for Bruce, and it's great pain. Whatever could be done to mitigate it should be done, but the fact remains you can't run the status quo. They've continued to deteriorate for the past several years and they're getting dangerously close to an unacceptable level right now.
Mr Conway: The interesting thing is that the federal regulator, both in testimony before the committee and in documentary evidence elsewhere, made the point that the situation from their point of view, they thought, was getting somewhat better on the eve of the dramatic announcement by the Hydro board on August 13. Let me come back to another aspect, again particularly --
Mr Bullock: I don't think we share that view.
Mr Conway: I can only tell you what we were told by Dr Bishop, and supported elsewhere with material. Let's look at the recovery plan, because, boy, you guys were in a big hurry. I understand the status quo is not acceptable, there's trouble looming, trouble that was looming for some time. I am very unpersuaded by what I've heard here this afternoon, particularly from you, Mr Kerr, about the board's oversight and due diligence of the 1993 recovery plan, which was dramatic and significant, but that's for me to be concerned about.
Now we're at another phase, another recovery plan. Let's take a look at that. I'm trying to get my head around the board that day in August 1997. You've got a recovery plan. It's got financial implications that are going to be of interest to a number of people. Obviously the Ministry of Finance will have an interest. To the best of your knowledge, gentlemen, was the board made aware of whether anyone from Mr Eves through to his deputy or any senior person at the Ontario Ministry of Finance -- when the board was making its decision, were you aware that anyone at management or at the board level had canvassed Mr Eves or Mr Gourley or other senior people at the Ministry of Finance about the cost implications of this proposed recovery plan that you were about to endorse?
Mr Kerr: Not specifically, no.
Mr Bullock: Could I comment further on this?
Mr Conway: Absolutely.
Mr Bullock: I think what we were trying to do in embarking upon this plan, and understanding the costs associated with the cost to Hydro, was satisfy ourselves that Hydro had the ability to finance those costs. I think we are satisfied that is the case.
Mr Conway: There are those in the community who will argue that the recovery plan you have in fact endorsed will lead Hydro to showing negative retained earnings in the immediate or intermediate future. Is that your view?
Mr Bullock: Absent rate changes and absent financial restructuring, that's correct.
Mr Conway: And the government has stated a policy that there is a rate freeze through the end of the decade.
Mr Kerr: That's my understanding, but I can't say I've ever seen anything in writing.
Mr Bullock: That's my understanding as well.
Mr Conway: So there's a real prospect that the recovery plan that you've embarked upon will leave the corporation with negative retained earnings.
Critics will also point out that your recovery plan will put the corporation in a situation where it will not be able to meet its statutory debt retirement obligations. Was that matter canvassed at the August 12 board meeting?
Mr Bullock: Within the current operating environment of Hydro being essentially a monopoly?
Mr Conway: All I know is that there's a statutory requirement that sets out conditions about debt retirement. You've approved a recovery plan that some --
Mr Bullock: This suspends the debt retirement that we were undertaking prior to that, that's correct.
Mr Conway: Did the board have any concern about that?
Mr Kerr: We have had concern. In fact, I think we were shown some legal opinions relative to whether or not it was necessary to continue to have a statutory debt retirement provision amount set in the accounts. I cannot recall at the moment just how clear that opinion was. Do you recall?
Mr Bullock: The legal opinion the board had received in this area was that if in its wisdom the board felt the negative equity and suspension of the debt recovery program were the best course to pursue, we could proceed to do that. There was no impediment to --
Mr Conway: Just so I'm clear, Mr Kerr, the board was given a legal opinion as it considered this recovery plan, which legal opinion suggested that there may be circumstances under which the statutory debt retirement obligations would not apply. Is that what I heard you say?
Mr Kerr: No, I think Mr Bullock summarized it correctly. As I said, I wasn't specifically able to recall what the legal opinion said, but my understanding is just what Mr Bullock repeated to you.
Mr Conway: You're both business people and you're approving on the quick a new recovery plan with multibillion-dollar obligations. Nobody has apparently checked with the shareholder, to the best of your knowledge. The recovery plan is almost certainly, in the short and intermediate term, going to involve the corporation in the purchasing of or in the production of controversial power. The environmental questions that I mentioned earlier were clearly discussed. Am I right?
Mr Bullock: We were satisfied we could operate within the emission standards.
Mr Conway: You were satisfied that you would be able to meet the emission standards?
Mr Bullock: As they exist today.
Mr Conway: As they existed; that's interesting. You're also presuming a recovery plan that has some very interesting implications for stranded debt. You're going to lay up a third of your nuclear capacity and there are those who would have us believe that if you lay those reactors up for any length of time, it may be very difficult and very expensive and perhaps even impossible to bring them back into production. Your recovery plan certainly, at the very least, complicates the stranded debt issue. What was the attitude of the board on that question?
Mr Bullock: Perhaps I could try to respond to that. As a relatively new board member, I've had difficulty with the concept of whether it's stranded debt or stranded assets, but be that as it may, it's the left- or right-hand side of the balance sheet we're talking about here. If Hydro continues to operate in its present legal structure with no competition, I don't believe there is a significant amount of stranded debt. This issue you're raising is an apples-and-oranges argument. It's different from what we're considering here today. The stranded debt issue comes about whether you introduce competition to the marketplace, sir, not whether there's the assets related to the nuclear recovery plan.
Mr Conway: There are those who will have observed that over the course of the last three or four years this corporation wrote off $7 billion worth of assets. I think that may be the number; I may be incorrect.
Mr Bullock: But stranded debt, by definition, is an organization's ability to repay.
Mr Conway: But you're now going into a recovery plan where you're almost certainly going to be showing negative retained earnings. You're going to be incurring billions of dollars worth of additional liability. You're laying up a third of your nuclear capacity. What kind of signal are you sending to Wall Street and Bay Street? By the way, you may not be able to meet your statutory debt retirement obligations, which I gather weren't considered too onerous to start with.
Mr Kerr: I think we crossed the bridge that we weren't going to be able to meet them. But I don't think the debt will be growing. I think the change in introducing the plan has been that instead of being able to reduce debt, as we have been doing, the program will probably result in the debt remaining at about the same level going forward.
Mr Conway: So I take it, particularly from what you've just said, Mr Bullock, that you were thinking about this recovery certainly in the context of a new electricity environment -- competition and other things?
Mr Bullock: I'm sorry, would you repeat that?
Mr Conway: I'm trying again to get my head around the context in which the board made this decision. I gathered from something you particularly, Mr Bullock, said a moment ago, that the board was looking at all of these questions, particularly the financial questions, but some of the other questions, not just in terms of an independent recovery plan but also the new world order of competition in the electricity marketplace.
Mr Bullock: No, I did not say that, sir. If you understood me that way, it was incorrect. What I was saying was that Ontario Hydro, with the recovery plan for the nuclear facilities, would have debt in the order of just over $30 billion. It was paying its way down, and it'll go back to that to pay for this nuclear recovery plan. Within the current operating environment which Hydro is faced with, which is not a competitive environment, it has the ability to service that debt. That was the point I was making to you, that on the issue of stranded debt as you were using it, stranded debt by definition is your ability to repay. At least, that's my definition.
Mr Conway: But again -- and I'm certainly no financial expert, far from it -- I'm looking at this corporation and you're laying up a number of reactors that we're told by the regulator and others could continue to operate. But you can't operate them because you don't have the people. That's basically what Andognini told us, that it was more a human resource issue than anything else.
Mr Bullock: And building back the capacity to restart and reoperate those facilities.
Mr Conway: But you're looking at a corporation that's going to lay up a third of its nuclear power division, thereby taking out of production, or potential production, significant revenue generation. In its place, you're going to have to go into the market and buy replacement power in the short term. Again, there are a number of people who are saying there are not just environmental problems with that, but there are real cost issues. A number of people have spoken to me, some in this committee, and said, "The Hydro recovery plan is very suspect on these replacement power costs because it's going to be very dependent on a number of issues that no one can guarantee at the present time." Did you as a board feel comfortable that you had all the information you needed to have, that the replacement costs -- which are not insignificant if you look at the data in the overall package of --
Mr Bullock: The replacement cost of power is the most significant cost.
Mr Conway: That's right and it's a multibillion-dollar item.
Mr Bullock: The board is well aware of that.
Mr Conway: Were you comfortable as a board that Andognini and others had given you the best information on that key question?
Mr Bullock: I was satisfied with the level of information, yes. I would offer you one additional thought, and that is that operating 100% of your facilities at 55% to 60% of capacity may not be that much different from operating two thirds of your facility above 80% operating capacity. The math is there. The facilities as they were presently being operated were continuing to deteriorate in terms of their performance.
The Chair: We'll start one more round and members can decide if they will take the full 10 minutes each or if you wish to share that. Just let me know as you move through that round.
Just before we start the round, Mr Kerr, there was a statement you made in response to a question raised by Mr Conway and I ask you to elaborate. It puzzles me. The direct statement from Mr Conway was: "Was the board made aware that the Treasurer had been advised concerning the cost implications of the recovery plan?" Your direct quote was, "Not specifically, no." That response seems to fly in the face of a question I had asked earlier, which Mr Bullock had responded to, that goes back to this whole questions of concurrence and the memorandum of understanding. I am puzzled. Do you understand perhaps how I am puzzled by your answer, your response, and what that means, whether there was in fact treasury acknowledgement, understanding about the plan at the time of the August 12 meeting?
Mr Laughren: Hydro never tells the Treasurer anything.
The Chair: This is the recovery plan I'm talking about.
Mr Kerr: This is the Treasurer of Ontario?
The Chair: Yes, the Minister of Finance.
Mr Kerr: It was a very specific question, so I gave a specific answer.
The Chair: I see.
Mr Kerr: But in general I'm aware that the chairman of the board communicates after each board meeting with the minister and advises him of what went on at the meeting. It could have been in that communication.
The Chair: Was that concurrence before? Was it concurrence after? What form did this concurrence take?
Mr Kerr: Concurrence with?
The Chair: The recovery plan.
Mr Kerr: Oh sorry, I thought we were talking about something else.
Mr Bullock: He's asking whether the board had the concurrence of the finance minister with the recovery plan before we made the decision. Is that what you're asking, sir?
The Chair: That's what I'm asking.
Mr Bullock: Formally, I don't believe we did. Whether the chairman of the board talked to the finance minister before the meeting, I don't know. You asked me if I was satisfied we had met our obligations. I said I thought we had, because what we were setting was a course of action to be pursued here to recover the facilities. There is a variety of costs associated with that which will need to be justified as we go along. The cost of staying the way we were was unacceptable.
The Chair: In response to a question about the debt retirement, Mr Kerr, your response was that the debt will probably remain stable and go forward, or words to that effect.
Mr Kerr: That's what we've been shown, yes.
The Chair: I am troubled by the word "probably."
Mr Kerr: When you look at a forecast, the only thing certain about a forecast is that generally it's --
The Chair: So there are cost-benefit analyses the committee can have access to and there's a range of background studies that undergirded the meeting and the decisions taken by the board on August 12?
Mr Kerr: I presume there was a whole network of the support evidence, but what we looked at was the plan and the evidence that was placed before us at the meeting, unless I'm misunderstanding you.
The Chair: Let's go around again. Mr Laughren.
Mr Laughren: Mr Bullock, a few minutes ago, in response to a question from Mr Conway, you made a reference to being able to retire the statutory requirements on the debt -- and I don't want to put words in your mouth here -- based on the assumptions of a world without competition. Did I hear you correctly?
Mr Bullock: I believe that Ontario Hydro, left to operate as it is, can retire its entire debt, can deal with its debt load without looking to the province for direct financial support.
Mr Laughren: Do you really believe that Hydro is going to operate in the future without competition?
Mr Bullock: At this point, sir, what I know about the alternatives is what I read in the newspaper.
Mr Laughren: You're usually much more direct than that, Mr Bullock.
Mr Conway: I hope you read Bill Farlinger's speeches.
Mr Laughren: Yes. Given what Mr Farlinger is on the record as saying, given what Mr Sampson, Mr Harris --
Mr Bullock: The decision to change the competitive environment for Hydro in Ontario is not a decision of the board of Ontario Hydro; that's all I'm trying to say.
Mr Laughren: I understand that.
Mr Bullock: What I was responding to Mr Conway about was mixing stranded debt into this discussion of the nuclear assets. It's an issue of whether you have a competitive environment.
Mr Laughren: Okay. But at the same time you and I both know that the board has made decisions based on -- maybe I heard you wrong, but it seemed to me that you were saying that Hydro was making decisions based on its statutory debt retirement, and probably other decisions as well, based on the assumption of no competition. At the same time, we all know that competition is coming. It's not there right now, but --
Mr Bullock: When it comes, the issue of stranded debt will need to be addressed; if it comes.
Mr Kerr: We have made decisions obviously trying to prepare the company for a competitive environment, or we would not have been in support of many of the actions that have been taken by management.
Mr Laughren: Let me be very specific then: Can Hydro meet the statutory debt requirements -- I think it's 0.5% of the total debt of the corporation per year -- if there's competition in the system?
Mr Kerr: I would doubt that very much.
Mr Bullock: It's unlikely.
Mr Laughren: At that point then I presume one of two things would happen: either you're simply in default or you change the legislation. This is statutory, right?
Mr Bullock: Yes. I think that any plan to introduce competition has to be accompanied with a plan to deal with the debt structure of Hydro under those circumstances, and deal with such other issues as the obligation to serve, and so forth, in a competitive environment.
Mr Laughren: I know the province guarantees Hydro's debt, right? But they don't do it for nothing, either. That's a good chunk of change you hand over to the province every year. I don't know what it is now but I think it's well over $100 million.
Mrs Johns: Mr Chair, with your indulgence, we're just going to ask one quick question each, if that's all right.
The Chair: I have been advised that this will be a trio.
Mrs Johns: Is that all right?
The Chair: Yes. You do not need to hold hands on this. I have now been advised.
Mrs Johns: Thank you very much. I appreciate that.
I just wanted to go back to something that was said before. Mr Conway talked about the board and decisions that it made, I think in the first year you were there, Mr Kerr, in 1992, and how they were -- I think he used the word "cataclysmic" decisions that you were making. It seems to me, as I've heard throughout the days, that along the line there have been a number of strategic decisions about how to put nuclear back on track. You may have corrected the situation for a few years -- and I know neither gentlemen was here -- and then it's fallen back and the board has made different decisions. Is this, in effect, what's happening here, that the decisions in the past have not worked? The problem has once again come to the board and you people have looked at a decision and believed that this is the right decision to move Hydro forward?
Mr Kerr: I'd say that's a pretty good summation, yes.
Mr Bullock: Yes.
Mr O'Toole: You've been very through in your responses. I appreciate that. I have the most trouble with not just the $32 billion but the full accounting perspective. I think that, being a crown corporation, it's sort of protected with its liability, even the fact that it doesn't have to cover itself in insurance for nuclear. For my riding, that's a huge issue. What happens in the event of some particular site problem? This has been recently in the news.
I want to get to the eventual worse-cast scenario -- I call it full-cost accounting -- and any recovery plan. I don't have much confidence in it with respect to decommissioning a site. It's my understanding, and I want you to respond, that if they do decommission a site and, for environmental and other good community reasons, put the site back to greenfield, we're talking huge, like double the Ontario debt. That's my understanding. It's huge, uncosted liability. Right now, Ms Clitheroe told us it was 2% or something per year on revenue that was supposedly put into -- well, it was put into debt -- to deal with decommissioning of the site. How can they tell me the rates are only two cents per kilowatt to bring this upgrade in when I'm not confident they've taken all of the consequences of full-cost accounting into play? They don't even know how to take the spent fuel cells out of commission. They still store them in a swimming pool.
Can you respond? How can I, looking for a full-cost recovery plan, where this recovery plan to me is a fairly decent number -- it represents almost as much as the deficit we have in this province and you know the problems we're having to just balance our budget, and you're going to stack that on to somebody else -- that's called the taxpayer -- eventually even money we haven't accounted for. Can you just give me some confidence in this managed accounting environment I'm listening to?
Mr Bullock: Maybe I can start. The costs that are discussed in the plan, if expanded, would hopefully result in the facilities being restored to the kind of operating standards we should demand in this province, operationally.
You're quite correct, though, on the issue of decommissioning of those sites when they're no longer used, that the reserves that have been put away to date are probably inadequate. I'm not sure the restoration of the operations and that issue are one and the same, that's all I'm saying to you. It certainly is a fact that in the United States the decommissioning reserves are built up over time and are more substantial than they are here, and that is going to be a cost to Ontario at some point.
Mr O'Toole: Mr Franklin, this morning in his presentation, was talking about the aging process, how this is currently an issue across the world. Aging is the 40-year amortization formula you've used to do all this accounting jargon, and it isn't 40 years. It appears to me that's somewhat diminished, which increases the cost. That's my discomfort with this whole number thing.
Mrs Fisher: Just a little bit extended to that is coming back to the question that was raised earlier, and has been raised with others as well, as it relates to the legal opinion you had with regard to the long-term debt repayment, the whether-or-not-to, long-term debt repayment. By the minutes it shows that the board was advised -- mind you, it was in a draft external legal opinion, so I don't know what that means -- by a certain law company that indicated that negative retained earnings are legally permissible. Yet my understanding of the Power Corporation Act -- and that seems to be the only link of accountability, if you will, where the government can legally intervene and say, "Hang on here now, you're going a little bit beyond your mandate." What was this draft external legal opinion? What was that?
Mr Bullock: The opinion was discussed a couple of times, once in draft, once in -- I believe Hydro does have in its possession a legal opinion to that effect that's been shared with the board, as opposed to a draft legal opinion, and they're one and the same. Having said that, the legal opinion basically says -- and I'm not a lawyer; this is a layperson's interpretation -- that if you exercise proper judgement, care and prudence in discharging your responsibilities, and include in that that in your judgement it's in the best interests of Hydro to have negative retained earnings, then you can go ahead and do it. That's the legal opinion.
Mrs Fisher: Regardless of the fact that it has a responsibility under the Power Corporation Act and the appointment of the board?
Mr Bullock: If they've reviewed the Power Corporation Act and believe that to be the case; that's what the opinion says.
Mr Kwinter: Mr Bullock, in the minutes of the meeting where this decision was taken it says: "Ms Clitheroe supported Mr Bullock's proposal. In particular, he suggested that financial impacts surrounding the program be further reviewed and challenged by the board." Has this ever taken place?
Mr Bullock: Yes, it did, sir, in the September meetings. That's what led to the report that I believe Mr Laughren held up here earlier.
Mr Kwinter: One of the concerns I have -- I'll give you an example. When we were in government and we came to deal with Hydro, particularly Darlington, some colleagues of mine were of an opinion, and when they were in opposition they expressed the opinion, that they probably would stop Darlington, and they found out that it cost more to stop it than to keep it going. As a result of that, it went ahead, because they figured that if you shut it down, you had nothing and it was going to cost you more money to have nothing. You might as well put the money in and at least have the power.
My concern is that a minute of the board meeting on August 12 outlines what the decision is going to be, such things as: lay up Pickering A on January 1; lay up Bruce A over the spring of 1998; shut down and decommission the Bruce heavy water plant. All of these decisions have been taken. The caveat that was put in as a result of some of your input --
Mr Bullock: Interventions.
Mr Kwinter: -- and Ms Clitheroe's is that we have to monitor this. We have to monitor the cost on a monthly basis.
Mr Bullock: And the progress being made in the recovery plan.
Mr Kwinter: And the progress. My question is this: Once the commitment is made -- which has been made as a result of this board minute, "This is what we're doing" -- you're going to monitor the progress and the cost, but what recourse do you have once you're down that road? We've already heard from the union that the heavy water plant is going to be junked. Once it closes down, you can't suddenly decide, "You know what, maybe we should go back to the heavy water plant." That's gone. Some of these other decisions are irreversible. What kind of control do you have, effectively, by saying: "You know what, these costs are far greater than we thought. We're going to stop it, or we're going to do something else. We're going to go to another plan"? How do you see that happening?
Mr Bullock: I think if you break the plan down into its components -- you're quite right, you can't keep all the balls in the air and say, "Which way do we want to go?" each month. "Do we want to go another way?" You're going to go down a recovery plan here which should ultimately lead to better operation of these facilities going forward than we've had in the recent past. One of the monitors I would see in there, Mr Kwinter -- I don't consider it an HR function as much as the management practices in place at the operating facilities. If the management practices don't improve dramatically over the next 12 months, then it's highly unlikely you're going to be making further investment in restarting nuclear facilities. You're going to be looking for alternative sources of power. That would be my view.
That's an option you have, as you go through this recovery plan, as opposed to simply saying, "Go ahead, Dr Andognini, and we'll talk to you two years from now." I think there are options within the plan. They're not unlimited, but I think it is the plan of recovery that offers you the most flexibility, from what I've seen presented today. To continue to run all 19 as is and try to improve management practices, I think the history of Hydro has shown that hasn't worked.
Mr Kwinter: Not only has it not worked, the problem I have is that decisions are being made -- and both of you two gentlemen are in the private sector. Notwithstanding that you've both said you think what happens at the board is very much like what happens in the private sector, in the private sector you don't have some Big Daddy guaranteeing your debt. When it comes to the crunch, whether it's taking Darlington from $4 billion to $13 billion or $14 billion, those decisions are not as critical because you know that at the end of the day Big Daddy is there to pick up the pieces and guarantee the debt and that is going to happen. I can assure you that if your money were on the line, you'd be making other decisions. I'm not being critical; I'm just saying --
Mr Bullock: Than the one we made, sir?
Mr Kwinter: Yes.
Mr Bullock: I don't agree with that at all.
Mr Kerr: I would have trouble agreeing with you as well.
Mr Bullock: Are you suggesting that we'd make a different decision if it were our money? It is our money; we're taxpayers.
Mr Kwinter: It's your money collectively, but it isn't your money individually.
Mr Kerr: And the company isn't obligated to --
Mr Kwinter: Your share of that amount of money is minuscule. What I am saying --
Mrs Johns: He makes more than us.
Mr Kwinter: I don't care how much he makes. When you're talking about billions and billions of dollars, and I've seen the financial statements of both those companies --
Mr Bullock: On a more serious note, I believe that the board members and myself take our responsibility here quite seriously. We're not frivolously spending money because it isn't ours.
Let's go down the road you're talking about. If you ran along as is and shut down the nuclear facilities, the big cost of replacement power is the issue here. These things are not going to continue to operate indefinitely at minimally acceptable standards. You've got to do something. I think the course we chose is the right one.
Mr Conway: Just a couple of things. I'm not suggesting that you operate all 19, but you may not decide to lay up seven in the way you have. In fact, there are a number of people around more knowledgeable than I who say, "They're not going to be able to do that, certainly not the way the schedule suggests."
I want to come back to something. I am intrigued by something you, Mr Bullock, said in response to Mr Laughren. I feel somewhat unfulfilled and unsatisfied this afternoon. We had Uncle Maurice here last night and boy, he put on a show. You know Maurice; it's always somebody else's fault. He did everything he was supposed to do and it's some kind of criminal conspiracy that kept key information from him. He's gone; he's off into other deadlines.
You come today, particularly you, Mr Kerr, and this board didn't really seem to know a great deal about what may have been happening on the personnel side -- a critical question -- as regards the last recovery plan. But now you, Mr Bullock, say something really interesting to Mr Laughren. You say that on the financial side of this recovery plan, you, and presumably the board, believed you could manage the situation, including the debt, in the current environment but that in a competitive environment --
Mr Conway: Well, I certainly got that, and that's what my question is going to be. I thought I heard you say to Mr Laughren that you believed that the recovery plan was manageable, particularly on things like debt retirement and the like, in a world as it is now, that if we get into a competitive environment, there will have to be other adjustments or the corporation is simply not going to be able to meet its obligations. Didn't I hear you say that?
Mr Bullock: Generally, yes. Would you like me to try and clarify?
Mr Conway: No. You've confirmed what I thought I heard you say.
Mr Bullock: It's my view, not the board's.
Mr Conway: But you're a board member.
Mr Bullock: One member of the board.
Mr Conway: But we had John Murphy in here. I want some accountability; I don't want infallibility, but I want some accountability. So you're a board member and I accept that.
Mr Bullock: Mr Murphy voted for this decision, as did I, sir. I'm accountable for the decision we made. I'm not accountable for my personal --
Mr Conway: Did Mr Murphy vote --
The Chair: Mr Murphy did not vote --
Mr Conway: I don't think Mr Murphy voted for the recovery plan. But my point is, I'm thinking: "All right. Bullock is a smart guy. He's got to know" -- everybody at that board meeting on August 12 has got to know, because you're not dolts -- "that competition is coming around the corner." That's a given. I haven't met anybody anywhere who doesn't think that between now and the end of this year, if not this decade, competition is going to be here in a real and meaningful way. So I say to myself, why would this board embark upon a recovery plan that has obligations that are going to be difficult for the corporation to manage in the competitive world? Was this our last --
Mr Bullock: Let me try and help you, if I might.
Mr Conway: Please do.
Mr Bullock: Historically, in the recent past Ontario Hydro has had debt levels of around $30 billion. Is that fair?
Mr Conway: It seems to be a bit higher.
Mr Bullock: It's reduced its debt down to something like $25 billion or $26 billion and has an expenditure here of $5 billion or $6 billion, including replacement fuels, to do this recovery program, taking the debt back to around $30 billion. It has been able to handle its debt to date, and my view is that it can handle the debt in a status quo situation. Now you're saying, "What about competition?"
Mr Conway: Just to correct you there, you're right, with one important proviso: You've been able to manage that debt, with a lot of your own capacity in operation, producing revenue. If you look particularly at the 1994-95 period, you're running your plants at full bore in many cases, generating a lot of revenue that is allowing you to bring that debt down.
Mr Bullock: When you spend $3.5 billion on fuel for replacement power, you're obviously going to sell it and get revenue from it. I think that's a reasonable assumption, is it not?
Mr Conway: But you're laying up a third of your nuclear assets.
Mr Bullock: I'm not going to get into a line-by-line discussion with you on the balance sheet here. I'm saying that the debt associated with the recovery plan is manageable within Hydro --
Mr Conway: In the current policy context.
Mr Bullock: -- and that to the extent that the policy changes and introduces competition -- I think you've touched on it yourself -- there's an issue of stranded debt or stranded assets, whichever you want to call it, mostly stranded debt, under those circumstances that would need to be addressed.
Mr Kerr: As another director's opinion, I would say I'd like to see some more financial numbers before I concluded that we could survive in the current expenditure environment, with the current requirement to deliver power, without competition.
Mr Conway: Last question: A reasonable person has got to conclude that Kerr and Bullock and Farlinger and these smart business people were up to more than they're admitting when they approved this recovery plan on August 12. There has got to be another agenda here. You clearly know you're going into a new world order here. You're embarking on a recovery plan that adds substantial cost and debt to the corporation on the eve of something significant happening.
Mr Bullock: I suggest that I find that conclusion offensive and not in keeping with my understanding of the role of a director.
Mr Conway: I appreciate that you might consider it offensive.
Mr Kerr: Nor in keeping with the responsibilities of Ontario Hydro.
Mr Conway: But you know one of the responsibilities, presumably, of the Hydro board is not to make major decisions without checking with the shareholder, and that wasn't done in this case. You did not, as a board, think it worth your while to phone up the Minister of Finance or to have a reasonable level of certainty. "Bill, have you talked to Mike or Ernie lately? Do they have a reasonable level of comfort that this plan is going to be acceptable to them?" I can't believe that wasn't done at some level. Whether the board was informed I guess is another matter, but it's inconceivable to me that --
Mr Kerr: What did they reply when you asked them that question? What did Bill reply?
Mr Conway: We'd have to check the record. What did he tell us? You talk about the board's responsibility. The part I can't believe -- if I'm the Minister of Finance for Ontario and I read in the paper that a crown corporation, of which I am the only shareholder, has embarked on this kind of plan, that's going to bring this kind of environmental controversy, that's going to put this corporation in a position of negative retained earnings --
Mr Bullock: It's going to increase its debt. Let's not overestimate what "negative retained earnings" are, Mr Conway.
Mr Conway: Listen --
The Chair: Thank you, Mr Conway. Any final comments? Mr Bullock, I cut off Mr Conway very abruptly some minutes after he had run over his time. Mr Bullock, Mr Kerr, is there anything you wish to add as you complete your testimony?
Mr Bullock: The only comment I would make in closing is that I believe that this plan before you is the most cost-efficient plan. The board and Hydro are faced with what I would describe as unpleasant choices here. The restoration of our nuclear capacity in this province is an important issue, and that's what the board was focused on in making this decision, not some of these other things we've debated in the last few minutes.
Mr Kerr: I would simply comment that I believe the board did adequate due diligence in the circumstances. I agree with Mr Bullock. We think this is the best plan, in the circumstances, for Ontario Hydro.
The Chair: Mr Kerr, Mr Bullock, I thank you on behalf of the committee for attending. If we have further requirement of testimony, I hope you'll respond as generously with your time and attend the committee.
We have two deputants, the Consumers' Association of Canada and the Provincial Council of Women of Ontario. I've been advised that Gracia Janes has to leave just a little bit earlier, so we'll ask if she will make her presentation first. They could both come to the table so we can be prepared to move from one deputant to the other. It will be Peter Dyne and Robert Warren from the Consumers' Association of Canada.
PROVINCIAL COUNCIL OF WOMEN OF ONTARIO
The Chair: Gracia Janes will be the first deputant from the Provincial Council of Women of Ontario.
Ms Gracia Janes: My name is Gracia Janes. I am the vice-president of the Provincial Council of Women for environment. I am also the vice-president, at the National Council of Women level, for housing, environment and public safety. I'm going to use my notes. I apologize, everybody else seems just to have questions, but I would like not to forget anything. You may or not be able to follow my brief that was passed out to you earlier. What I've handed out since is just an enclosure that is a brief I presented to the phase 3 panel hearings on the disposal of high-level nuclear waste this spring.
The Provincial Council of Women of Ontario, with hundreds of thousands of members from all walks of life, represents the broader public. Established in 1922, today it includes seven local councils from Windsor to Ottawa and a diverse membership of provincially federated organizations such as the business and professional women of Ontario, the Ontario Secondary School Teachers' Federation, the Salvation Army and the Ontario Farm Women's Network.
While we realize that this committee on Ontario Hydro nuclear affairs is not constituted to provide broad public consultation, we consider it to be an opportunity for some vital public input, not just from the experts and those advocacy groups that concentrate solely on the nuclear issue or cheaper power options but as well from groups such as ours, whose diverse membership makes our views a good indicator of public concerns. We have no vested interest and we are not a single-issue group. We deal with health, women's issues and just about everything as it relates to the broader public good.
We are bound by international, national and provincial policy, which encompasses all aspects of the nuclear cycle and has remained steadfastly cautionary on this issue since its first resolutions many years ago. For example, in 1955 the National Council of Women of Canada urged the government to issue an authoritative report on the known and unknown aspects of the potential effects of radiation upon living things. In 1974 we asked that they delay widespread siting of nuclear plants until a more thorough, unbiased assessment of their safety and design is done.
This year we urge the government to reject as unsafe the AECL concept for the burial of high-level nuclear waste in the Precambrian Shield; to initiate a public policy debate with broad public consultation on the energy future of Canada; to expend research moneys on the search for safe technology to treat nuclear waste; to upgrade current nuclear site safety; and to develop alternative sources of energy; to bring Canadian radiation standards into conformity with those adopted by the International Radiation Protection Association of 1990, while encouraging that association to improve these standards even further to reflect gender and age differences of women and children; and finally, to do all that is in its power to prevent the expansion of the nuclear industry.
For its part, the Provincial Council of Women of Ontario requested the province, for instance, in 1978 to shift its investment priorities to energy conservation and the development of renewable energy technologies. This year, we asked them to ensure that nuclear plants are phased out and that sustainable energy strategies and alternative energy sources be key features of the long-term provincial energy plan for the utility. In February this year we presented our brief to the federal nuclear fuel waste environmental assessment panel regarding AECL plans for disposal of nuclear waste.
In light of our strong policies regarding the nuclear cycle and the recent confirmation of our long-held fears about nuclear safety, our president, Margaret Jackson, sent a letter to the Premier of Ontario in August asking that the government "open up the debate, not just to experts and those who seek to privatize Hydro for profits or to large-scale users, but to the broader public, whose energy future and safety are at risk."
The discussion around the recent findings of the review committee and the safety of existing plants, the closed-shop, corporate culture of Ontario Hydro, the apparent plans to temporarily close some plants and refit for future use, and the province's hints regarding a possible privatization of Ontario Hydro all ignore many important questions in the public mind.
For instance, why are Ontario Hydro and the government of the day not discussing the very real dangers inherent in using nuclear fuel? How do we break our dependency? What about the risks associated with mining and the transportation of waste, the safety at the current sites, the lack of public trust around this issue, the grave difficulties posed by disposal of nuclear waste, and the promotion of nuclear power by the federal government and Ontario Hydro? Why are they not talking in depth with experts outside the nuclear field of the need and the method to be used to move to less dangerous and more sustainable energy forms while maintaining a secure supply of power?
The discussion is moving towards a continued and expanded use of nuclear technology for our electricity needs without a wide-ranging public discussion. Ontario Hydro ads in the national newspapers talk of getting things in shape and moving on. They presume considerable investment in nuclear and ignore any problems.
Behind the scenes, federal policy now makes the generators of nuclear waste responsible for their disposal, and cuts to federal funding have necessitated a partnership with AECL and Ontario Hydro to do so. Internationally, Ottawa sells the technology abroad and there is some talk of the waste coming back to Canada and Ontario for treatment. As well, Ontario's Chalk River plant will burn weapons-grade plutonium on a test basis.
It is difficult to understand why the people of Ontario should trust Ontario Hydro after the recent revelations regarding safety. It's hard to fathom how Ontario Hydro can ignore its past track record and continue to talk of a nuclear future with such confidence. Certainly at the AECL assessment panel hearings last year, the lack of trust from most of the public and many experts was evident.
For instance, nuclear waste transportation expert Martin Rosnikoff outlined the serious flaws in Ontario Hydro's plan to transport nuclear waste. Citizens wondered how Ontario Hydro could promise shutdowns of plants and greenfields and yet continue to promote nuclear into the future. Scientist Rosalie Bertell questioned the standards for nuclear emission and public exposure, which at 1977 levels fall way behind the 1990 international standards.
The challenge is to move into the next millennium with a safe, reliable power system in place for Ontario. First, however, Ontario Hydro must recognize its faults and be determined not to repeat them, and the government must take a leadership role through legislation in steering the way. The final responsibility for such a vital issue must lie with the elected representatives and must reflect a broad public consensus. Such a consensus can only come through wide-ranging public debate.
The discussions must look closely at issues such as the interim proposals for an adequate supply, which should not further pollute the environment or be unsafe; the significant role energy conservation might play; the need to reduce exports; the potential of other hydro sources; the growing potential of wind, solar and cogeneration sources; and the responsibilities: the need for strong regulation; dangers; and the enormous full costs of any continued investment in nuclear power.
The most significant caution around the current situation lies with the likelihood that Ontario Hydro has not learned from its mistakes and is still determined to renew and expand the role for nuclear power. Hydro, having cancelled its energy conservation program in 1993, downplays the role of energy conservation and alternative technologies. It highlights the presumed need to turn to dirtier solutions. This underplays the nuclear dangers and the minuscule role that nuclear plays in reducing CO2 and presents a false choice of either the dirty technology or the nuclear.
A complicating fact is the provincial government's trust in the private sector to solve everything. This thinking was front and centre in the 1996 Macdonald commission report. While the report did not recommend privatization of the nuclear stations at present, its terminology in some cases certainly pointed in this direction. Currently in Britain, private firms are operating nuclear plants and now have partnerships with American firms. I believe that tomorrow you will be hearing from one of these firms, the president or whomever.
Other components of the system are most definitely favoured for privatization and there are fears that cherry-picking by the private sector will go on, with nuclear assets being stranded and their debts and costs of decommissioning paid for by the public. The Provincial Council of Women of Ontario cautions that the Macdonald commission plans for privatization of our system are quite revolutionary. Few jurisdictions have tried this fully open electricity exchange system. Those that have are only a year or two into the change, and that comes from the Macdonald report. There have been some major power disruptions attributed to this.
We also bring your attention to the lack of public trust in the private sector as far as safety is concerned. We do not ignore the lack of provincial regulation to date and the grave dangers we have just begun to uncover regarding Ontario Hydro's operations. Nevertheless, we observe that the privatization of water in England, where profit is the bottom line, has led to many safety infractions by water companies and to a substantial drop in public trust in the industry.
In conclusion, the Provincial Council of Women of Ontario urges this committee, in fully exploring the issue of Ontario Hydro's nuclear track record and future, to measure it against the following questions: How can we best overcome the reticence of Ontario Hydro management and the nuclear industry as a whole to admit the dangers of nuclear power? How can we break Hydro's dependency on nuclear expansion that has put the public in danger in the past and has precluded the use of alternative sources of power? What are the true costs of rejuvenating the nuclear plants, and would it not be better to invest in alternative sources of renewable energy? Why did Ontario Hydro promise greenfields within 50 years to station residents and yet continue to promote nuclear rejuvenation and expansion? As partners with AECL in the disposal of nuclear waste, how can Ontario ensure a safe solution? The public has a right to be involved fully in the discussion of its own future; how can this be achieved? Finally, how should the provincial government take a lead on this issue that is of such importance to its citizens? Will the public be fully engaged in the upcoming white paper on Ontario Hydro's future, and will the debate be framed to fully encompass the issue the public finds important overall: a safe energy future?
I also have a little plan. You were talking about plans. I think Mrs Fisher was talking about plans. I won't go beyond our policy but I will look at some practical ideas. This is not in the brief. I think this committee's role should be expanded, as was the role of Donald C. MacDonald when he first started looking at just hydro rate increases, and he came to look at the whole issue over a period of many years. It is an extraordinarily important situation and it's our whole future. There's a lot of danger involved. There's a lot of uncertainty. There are a lot of unknowns. I think this committee should have an expanded role including, perhaps, taking a look at possibly phasing out nuclear.
Regardless of whether you do or don't, I think we have to find out about the safety and make sure the current sites and the sites that are being closed down are safe. We have to get all the facts in the open. We have to know the important role of the alternatives and energy conservation. We have to have some of these experts talking at length. How much power do we really have? Hydro says there's no problem, that we're okay, that we'll make it this year. We want to know how long we've got.
We must open it up to the broader picture. There are joint responsibilities with AECL so you have to look at those. That is your responsibility now under federal government policy in the framework. You have to get rid of what you produce, so this is an ongoing thing. I think somehow you have to find ways to open up the Ontario Hydro board to perhaps an independent or joint board, some kind of mixture, a hybrid. There is a culture, you know. It's not just this management that's closed. It's a whole nuclear industry that's really closed. If you had been at the hearings last February, and before that at the federal level, you'd have seen this. There is a really closed point of view and there's very little room for anybody to come in from outside and show a different picture. Even experts had trouble.
I would like to see legislative changes to ensure the openness at Hydro and we want broader stakeholder participation. Above all, we want wide-ranging public hearings. Last, I leave you with this thought: We want to know why this rush. Is there really a crisis or can we believe Hydro that there's enough power there and that we have time to look at the alternatives? Very last, just keep in mind that nuclear is not benign. We can't put our heads in the sand and say that it is. It's not a toy for the engineers. The public must be involved in its own future.
Mr Laughren: Ms Janes, I appreciated your presentation. It was thoughtful. I think what's bothering a lot of us -- I've never met anyone outside the corporation itself who loves nuclear. There's a nervousness and a jumpiness about it. But as we head now into an era when Hydro has to sort out its problems, there seems to be a sense that we can't live without it. You can't live with it and you can't live without it. I've heard that applied to other things in this world.
Mrs Johns: Men.
Mr Laughren: I didn't want to say men or women.
I'm wondering whether or not you feel that we really can move now to a nuclear-free world, given what the alternatives are. You have to be realistic about the alternatives. Does that mean fossil fuel, which has all sorts of other problems? Most people I've talked to say that the truly benign alternatives like hydraulic and wind and solar won't fill the gap. I'm wondering to what extent you are comfortable that you can move in the direction you imply in your presentation.
Ms Janes: I can say that we have been talking about this for an awfully long time. Even when we first started, our first resolutions talked about a phase-out. We didn't talk about something sudden. I guess the danger of this situation is that suddenly you have shut down seven plants and it seems like an amazing crisis. I think if we could be assured that there is enough power there with the remaining plants to keep going and that we could be assured of the safety of the existing plants and those that are going to be phased out, we must take the opportunity -- there is no either/or -- of looking. We've never looked fully at the alternatives. We really never have.
It's just like the automobile industry. Up until recently, they've completely shut out anything but gas and oil and such, but today I read that Ballard has found a new kind of fuel cell and they are using a new system that is going to be absolutely pollutant-free. They are willing to get into that frame of mind and I think we have to get into that frame of mind.
We also seem to ignore energy conservation. I think one of your witnesses today or tomorrow, Bruce Lourie, who has been part of the Canadian Energy Efficiency Alliance, said that anything between 10% and 50% of the power can be replaced by energy conservation. There are experiences in the States -- it's either in California or Washington; I get them mixed up -- where they have gone to the energy conservation mode, and I think it's the fellow who is the director who was down further south in the States, he's from Sacramento, California, and he moved up to New York state and he refused to take power from Hydro-Québec because he knew they could do some energy conservation if they really put their minds to it.
Mr O'Toole: Thank you very much, Ms Janes, for a different perspective on the hearings. I've kind of reminded myself that the mandate of this committee is basically to review and be reassured of the safety of both the existing and the recovery plan in IIPA. We've heard from many people who represent a particular perspective. Mr Andognini assured us -- that was a question very specifically directed to him -- that the current status meets the standard or whatever the measurement was, that it was safe for my constituents, indeed for all the people of Ontario.
We also heard from Dr Bishop from the AECB pretty much saying the same thing, with some caution. She was formidable, actually, I think as one of the presenters to the committee. You've asked the question, is there enough power? You seem to be concerned that the 20,000 megawatts or whatever it is we need -- do we have enough? I guess the solution to ensuring that for the future of all of Ontario, indeed our lifestyle, is an important part of this discussion.
I've heard from other presenters much like yourself -- I'm just looking through here -- from Energy Probe, and we've heard from the Ontario Clean Air Alliance -- of the requirement to look at alternatives to nuclear. I suspect that debate has been going on longer than this committee has been going on, before they built the plants. I hope that isn't kind of the agenda here, to say -- but if I look at the choices, I put to you, even as they reviewed the recovery plan there was fossil and there was natural gas fired, all of which created some kind of effluent or particulants, all of which are harmful. Wood burning was mentioned here and energy from waste. Do you know of any form of energy creation, the machinery, technology or byproduct of same, that's environmentally friendly?
Ms Janes: I just spoke of one that I haven't read thoroughly. I just saw it briefly as I came in, about the Ballard fuel cell and the separation of hydrogen --
Mr O'Toole: But that probably has attendant dangers too.
Ms Janes: It's not running yet. Nothing is running yet. If you just sort of dig your head in the sand and say, "We must go with what we've gone with before" -- we've heard these questions and answers for many years. Meanwhile we've ignored the dangers, and look where we are at. We've overextended in nuclear. We're one of the most dependent in the world next to France, and we shouldn't have been.
Mr O'Toole: Well that's a choice.
Ms Janes: Even Maurice Strong, who is perhaps more knowledgeable than I, indicated according to the Globe this morning that alternatives should have been looked at in more depth. It's always looked at very superficially and it's always looked at with a bias.
Mr O'Toole: I have one other area, just a couple of words I want to clarify. I know you wanted time to explain them. We've heard from three of the CEOs, current and past, Farlinger, Strong and Franklin. They all suggested and recognized that competition is both beneficial and unavoidable. What's your view with respect to the competition, the regulation framework and the whole restructuring, the Macdonald recommendations?
Ms Janes: Our policy as of this June 2 is that we wish Ontario Hydro to be kept public. Having read the Macdonald commission report and knowing one of the members and debating it at length, I don't think that privatization and competition are this panacea that everybody looks at. They're not.
Mr O'Toole: Therein is the conundrum. Ontario Hydro as it exists today -- we just heard from the society, CEOs and the two board people just before you. I'm going to go back a bit here. Some of the characterization has been the culture. Some have used the words "cult," "élitist," you said "impervious" or "closed"; you used the word "closed." If you want to maintain Hydro and you've heard their choice is nuclear, isn't that kind of conflicting? You want to maintain Hydro the way it is and their choice -- some of the alternatives are the smaller fuel cells --
Ms Janes: We've not said that. We said we want to move to alternative sources. We've asked to open up Hydro, to make it more accountable to people, to have a broader sector involved in it and have it work for the betterment of the people of Ontario. I sat on the Ontario Place board for six years and as members of that board we came from all different walks of life and we had to find our way through. There needs to be an independence and a separation from this nuclear closed circle, and we feel there's no contradiction. We've been saying for years that we wanted Hydro to be opened up. We want the alternative forms to be allowed in. We wish cogeneration to be private sector, but not privatization.
Mr Kwinter: Thank you. Ms Janes. We've spent a lot of time today talking about a letter the minister wrote to the chairman of Hydro in which he says that you can appreciate that the government expects all options will be thoroughly evaluated and assessed before a decision is made. My interpretation, and I think some of the members on this committee's interpretation, was that it means what it says: that all options will be canvassed before a decision is made. Today when we questioned members of the board I asked them specifically if their interpretation was all options or all nuclear options. They said it was all nuclear options.
Ms Janes: I heard that too.
Mr Kwinter: As a result of the huge amount of money that's been invested, as a result of over 60% of our energy requirements being provided by nuclear, it seems to me the decision has already been taken, certainly by Ontario Hydro, that whatever solution there's going to be, it's going to be within the nuclear context. Do you feel that?
Ms Janes: I think they're taking advantage of the crisis, yes. I think they're taking advantage by moving further into nuclear, by saying that you can't do without it, and then maybe we're going to see this privatization white paper unfold. I'm not sure.
Mr Kwinter: Okay. Given that scenario, and hopefully that isn't the scenario entirely, although I want to make sure it's understood that it may be the only scenario that makes any sense -- I haven't decided that yet because I haven't heard all the counterarguments -- given the fact that this could be the scenario, and certainly from the testimony of the two members of the board that is the context the Hydro decision is being made in and their monitoring is going to be not to see whether there should be an alternative but whether there should be alternatives within the nuclear solution, what recommendations would you and your organization make?
Ms Janes: I think we may be caught in a box. All the decisions nowadays are being made very quickly. I really, truly believe that this is one issue we cannot look at quickly. We've talked about it for a long time. There's a long time into the future we have to think about. We have to look at the native groups that spoke at the panel hearings and talked about seven generations into the future. You can't do this quickly. I think you have to take hold and make recommendations to the government, as I said at the beginning, to broaden the mandate of this committee, open it up to broad public consultation, get all your facts together and not just have this hit and miss of whoever might get here in these few days. It's too big for that. I think there's a lot of information out there about alternatives, about gradually phasing in alternatives and about energy conservation that can be delved into and could help you find your solution.
Mr Kwinter: The practicality is that this committee has been given its marching orders. It has its mandate, it has its reporting date, and notwithstanding that I might be very supportive of what you're proposing, the reality is that it's not going to happen. We are dealing with a committee that has had its terms of reference very carefully defined. As I say, we already have a reporting date, which is December 1. This committee is going to be making a report based on its mandate and its time constraints. What I'm trying to get from you and from your organization is, given those constraints, given all the things I've recounted, what suggestions would you make as to how we can make the best of what you might consider to be a bad situation?
Ms Janes: It is a bad situation. First of all, the letter: I think you have to interpret it the way you wish to interpret it, which is that the minister asked that all alternatives be looked at. I think you have to insist that the parameters of the white paper be inclusive so that the broader public can be involved. I don't think it hurts to reach for the moon. I don't know what happened when Donald C. MacDonald's mandate was extended several years, from just looking at the rates. There was a crisis at that time, I believe. There was a supposed shortfall in the Hydro output and that commission found that indeed there wasn't a shortage. They looked at it and found that. I think it's worth a try, if you can ask.
The Chair: Thank you very much. We appreciate it. I know that you are trying to get away a little bit early so we brought you forward.
CONSUMERS' ASSOCIATION OF CANADA
The Chair: I appreciate the Consumers' Association of Canada waiting and moving up to second on the deputation list. Peter Dyne and Robert Warren, we welcome you to the committee.
Mr Peter Dyne: I am a volunteer speaking for the Consumers' Association of Canada. We talk in the interests of residential consumers, and in the context of what was said earlier, we are Big Daddy who pays for all this.
The Consumers' Association of Canada is a national association of volunteers dedicated to bringing the interests and concerns of consumers to the attention of government and industry. CAC is a vital communications link between consumers and other stakeholders on all marketplace issues.
You have my CV. We are a volunteer organization. I am one of those volunteers, a retired scientist-public servant. I might add to the CV which you have that in the late 1960s I worked as an AECL employee with Ontario Hydro on chemistry problems during the startup of Douglas Point and Pickering. I must emphasize nevertheless that neither I nor CAC hold any brief for or against nuclear power.
CAC's starting point is that electricity is an essential commodity. Security of supply is paramount. The province and Ontario Hydro have fiduciary duty to the residents of this province to ensure that this essential commodity is delivered safely, reliably and at a reasonable cost. If they fail, they must be held accountable. Residential consumers will have to pay the largest part of the costs of correcting the problems at Ontario Hydro. We are thus vitally interested in a clear, unequivocal outcome to your deliberations.
Dr Kupcis commissioned the IIPA to find out why Ontario Hydro's reactors were operating poorly, perhaps 60% availability by comparison with 95% in the early days of the Bruce plant. A cruel summary of this report might read:
"The operation and maintenance of the plants is not properly done.
"The staff at the reactors do not recognize this nor appreciate the gravity of the situation.
"Senior management also did not know or realize the gravity of the situation even though the problems are of long standing, predating Maurice Strong's reports." They were mentioned in the Hare report. I gather you are meeting Dr Hare some time later, and he will be a very good witness for you.
"There also exist fundamental management problems which make it difficult, if not impossible, to rectify, without significant management changes, the problems."
CAC has two broad concerns. The first is whether Ontario Hydro has proposed the best response to the IIPA findings. The second is whether, at a broader level, fundamental changes in the management and control of Ontario Hydro are required.
This committee and the residents of the province need to be satisfied that Ontario Hydro's response, the NAOP, is the best response to the problems which are identified in that report. This committee and the residents need to be satisfied that Ontario Hydro has canvassed all of the available alternatives, and needs to be satisfied that there were cogent reasons for rejecting those alternatives.
This committee has rightly concentrated on the safety implications of the report. In the nuclear business, safety can never be compromised. CAC's reading of the evidence is that a full response to the IIPA recommendations should ensure that public safety will be protected.
But more explanation is required to show how the $1.6-billion nuclear asset optimization plan assures better performance. The plan appears to consist of doubling up the staff at Pickering and Bruce and retraining them. If the problem is that preventive maintenance has been neglected, there would surely be major capital expenditures: new pumps, valves etc. There must be an infusion of capital for non-maintained infrastructure.
While the NAOP is necessary, it has not, in my opinion, been shown to be sufficient. I would suggest that the committee needs to know more about how and why 95% reliability was obtained at the Bruce plants, what were the reasons for the decline, and what it will take to reverse it. You have a 1991 statement by Elgin Horton, manager of Bruce, admitting to being "humiliated" -- an extraordinary word -- by their problems and not being able to do what they, the AECB, said. I think Elgin knew how the 95% availability had been attained and was frustrated that he could not continue to deliver. Was this because of money, manpower, technical problems, preventive maintenance? We need to know.
In his quarterly report, Mr Farlinger said in the context of the NAOP, "We will maintain our pledge not to increase average rates to the end of the decade." He did not, however, say this to you. Ms Clitheroe said to you that the NAOP can be financed internally by slowing down planned debt reduction and that in some scenarios Ontario Hydro could not meet its statutory debt retirement requirements.
This an extremely serious position. Ontario Hydro's financial health and the possibility of restructuring to operate in a competitive environment depend on its paying down its debt and on the way in which stranded debts are to be paid off by ratepayers or taxpayers. While it may be politically convenient to finance NAOP without a rate increase, it may nevertheless be imprudent, even irresponsible. Residential consumers deserve more than a mere financial sleight of hand. They deserve to be told the truth about Ontario Hydro. Residential consumers are mature enough and responsible enough to accept a rate increase if it is necessary to ensure the long-term viability of Ontario Hydro and the safe and reliable delivery of an essential commodity.
There must be public review of the data to be satisfied that the NAOP is the best approach and to be satisfied that Ontario Hydro can and will make the necessary management changes, and that this all can be done without a rate increase, which we question.
I turn then to the broader issue of whether fundamental changes in the management and control of Ontario Hydro are required.
As the committee will be aware, Ontario Hydro is not regulated. It is accountable to its board of directors and ultimately to the cabinet. While it must advise the OEB of any proposed rate changes and while the OEB holds a public hearing and makes recommendations, Ontario Hydro can ignore those recommendations. Indeed, it is clear and on the public record that Ontario Hydro almost always ignores the recommendations of the OEB in circumstances where it disagrees with them. The OEB hearings provide a window on the management of Ontario Hydro, but the public can have no satisfaction that the OEB's analysis and recommendations will ever be followed.
Given the importance of the fiduciary duty which Ontario Hydro holds to, among others, the residential consumers in Ontario, there must be some body independent of Ontario Hydro that ensures that this fiduciary duty is fulfilled.
Mr Andognini made an important observation on the operation of the nuclear plants which bears on the options for restructuring Hydro. Maurice Strong restructured Ontario Hydro Nuclear into three independent competing units: Bruce, Pickering and Darlington. Macdonald recommended that these three units be operated by separate independent crown corporations to reduce the market power of a single nuclear company. Now Mr Andognini has said to you that "another major blow hit OHN when they," Ontario Hydro, "did a decentralization program and put the three sites in competition with each other. That caused duplication, triplication and quadruplication of effort and the misuse of resources."
The message is that competing nuclear business units don't work. Whether the competitive model which dictates that there may be competing nuclear business units is in the best interests of Ontario and the public of Ontario must now -- excuse me. Let's unscrew this a bit. It is an extremely good question as to whether or not you can have three competing nuclear units. The people drafting this white paper and the government should be aware that it is a serious question.
The fact that the IIPA report had to be commissioned at all shows that senior management also did not know or realize the gravity of the situation. The province, taxpayers, ratepayers cannot tolerate a publicly owned corporation whose senior management does not understand and appreciate what is going on in all its activities.
There is a broader concern. There is no reason to suppose that Ontario Hydro's senior management are any better informed about any of their other activities. An internal study to address this now is just not good enough. In this context, I would like to draw your attention to the OEB report, HR 22, on the hydraulic operation, the power dams and so forth:
"In its business plan, the hydraulic business unit claims that historical spending patterns have led to the harvesting of assets and increased backlog in maintenance and reduced reliability."
It further states that this situation has continued with no improvement. So there is another issue. I realize it is beyond your immediate frames of reference, but it is there on the record.
CAC has consistently argued that Ontario Hydro must become a regulated utility, not a self-regulated utility as it is now. Given the fiduciary duty which Ontario Hydro holds to the citizens of Ontario, there must be some independent body that ensures that this duty is fulfilled.
The first and essential step is to amend the Ontario Energy Board Act to make Ontario Hydro subject in all respects to the regulatory supervision of the OEB. Such regulatory supervision is the norm in every other jurisdiction in North America. Ontario Hydro is an anomaly. Its anomalous status should end. By having the OEB regulate the affairs of Ontario Hydro, the public will be assured that there is an independent, critical analysis of whether Ontario Hydro is fulfilling its fiduciary duty.
Giving the OEB the authority to regulate Ontario Hydro will require the government to commit sufficient resources to the OEB to allow it to carry out that responsibility. CAC is quite aware that this government's ideological bias is away from government regulation. Unfortunately, however, the IIPA report makes it clear that independent regulatory supervision is absolutely essential if the public interest is to be protected. The OEB has the public confidence and prestige to perform this oversight. They will, however, need significant resources to perform this very difficult task.
CAC recognizes that regulating Ontario Hydro is not a panacea. It is, however, an essential first step to re-establishing public confidence in the management and control of Ontario Hydro. It is, CAC hopes, the minimum result to flow from your deliberations.
In summary, the public needs to be satisfied that NAOP is the best solution to the problems identified in the IIPA report. The complexity of the issues and their importance requires a full public examination of the available alternatives and the costs and benefits of pursuing them.
Second, strict regulatory oversight of the management of Ontario Hydro is essential if residents and the government are to have any confidence that Ontario Hydro is acting responsibly in the public interest.
Mrs Fisher: Thank you for your presentation this afternoon. I would like to ask you if you could further expand on where you feel the shortfall of the recovery program in the IIPA report might be. I certainly acknowledge your warnings, if you will.
Mr Dyne: The recovery plan essentially says, "We will retrain all the staff." The staff at Bruce way back in 1980, when it was working at the top of its form, were motivated and keen and enthusiastic. They knew they were the best, and they were going to keep it that way.
What the IIPA report says is that the current staff of the nuclear reactors are not that sort of people at all. Plainly the first necessary step is that the staff have to be retrained and motivated so they have that attitude of mind. But if there are technical problems -- valves that need to be replaced, whatever -- that has also to be done. I cannot believe that simply cheering up all the staff with a rah-rah activity will solve the problems. The plan submitted by Ontario Hydro just doesn't address that clearly.
Mrs Fisher: I absolutely agree with you. A point I made earlier this morning to both of the labour groups, and I would make it also to the Ontario Hydro recovery plan, was that a major absence is how you change that culture or that mentality or that working atmosphere, if you will, so that this -- I like your word -- cheering up happens.
I happen to recall the Bruce when it was cheered up and it did perform at over 90% productivity levels. I agree with you that something has changed. Can you put your finger on what that change is and how you, if you were the one being able to make that decision tomorrow, would recover that cheering-up attitude or that quality/productivity issue?
Mr Dyne: The cheering up depends first on having a plant which they can really operate. I alluded to what Elgin Horton said as being humiliated that he couldn't deliver. There is something there which has not been exposed to the committee: what happened in 1980 which changed the way Bruce was operating so that there was a gradual decline. That's a matter of looking at history, and I feel that is a good question for the committee to address.
Again, a person like Elgin Horton could tell you in the mechanical, operational terms. We need that sort of input to understand all the hardware problems etc, given that all the personnel problems have also to be addressed.
Mrs Fisher: Is it lack of incentive programs or is it --
The Chair: Thank you, Mrs Fisher. Good question, though.
Mrs Fisher: Well, it was going to be.
Mr Kwinter: Mr Dyne, in your presentation to us, the CAC's position, and I assume their paramount concern, is that electricity is an essential commodity and that it be delivered safely, reliably and at a reasonable cost.
Mr Dyne: Yes.
Mr Kwinter: I'm sure you heard my comments to Ms Janes. I certainly got the impression from talking to two members of the board today that they did not canvass other than nuclear solutions, that their interpretation of the minister's letter is that he wanted them to examine all options -- their interpretation is that "all options" were all nuclear options -- and that their only concern is whether or not Mr Andognini's options, whether it be number 5 or number 6, are what they should be addressing.
The other part of that equation is that they seem to be going the nuclear route but they haven't got a total fix on what it's going to cost. Mr Andognini said that he's still plumbing the depths of the problem.
Mr Dyne: I heard him, yes.
Mr Kwinter: We have a situation where we don't know what the impact is going to be on the financial structure of Hydro as a result of that and we don't know what impact that's going to have on rates. Do you have any thoughts on that?
Mr Dyne: In the short term, and by the short term I mean the next three to four years, with what Hydro has done in taking out Pickering A and Bruce A, the existing nuclear plants have to be cheered up and have to be run at maximum capacity. There is no practical alternative to that.
On the question about what happens with Pickering A, Mr Andognini gave quite startlingly low numbers of what he thought Pickering A could deliver if it was cheered up, but that is something we will know three years hence when we find out whether or not the existing plants can be cheered up.
It's true that if we were building Ontario Hydro today from scratch, we would build a very large number of gas-fired plants, and I suspect from scratch we wouldn't even build any hydroelectric plants because the environmentalists would stop us. That's true, but that's an academic argument. We have the investment in the existing plant. As taxpayers, we have to get the best value for money out of the existing plant. The recovery plan is couched in those terms. But having said that, what are the full costs of that and whether it will be effective are not known. Whether it will be effective, we will have to wait two or three years.
Mr Kwinter: In the same area, one of the things that Macdonald is recommending -- there seems to be almost universal acceptance that we're going to be entering a competitive regime in the supply of energy. One of the observations that Macdonald makes is that there's got to be a level playing field. By that, he says that Ontario Hydro has its debt guaranteed by the province, which puts it at a competitive advantage; it pays no taxes, which puts it at a competitive advantage. He is calling for there to be a level playing field, which means, not a level playing field and everything's going to come down, but it would seem to me, just on the facts, that it should go up. Those who are advocating competition and privatization are saying: "No, that's not the way it's going to happen. Once you get the competition, the price is going to come down." Do you have any observations on that?
Mr Dyne: Macdonald made the observation, in my opinion dead right, that if you're going to have competition, there has to be a level playing field, so that the publicly owned parts of the utilities pay taxes and make a return on their investment. Inevitably that leads to an increase in costs.
The other point is that in order to achieve that, a large amount of the debt has to be moved to one side and has to be financed. Macdonald proposed in his appendix a stranded asset charge, which is essentially a tax on electricity. I agree, if you're going to introduce competition, that has to be done. But the question which has not been addressed publicly to my knowledge is how much that stranded asset charge is likely to be and also how a government is likely to get re-elected if it introduces such a charge. But that's a detail.
The real financial and rate implications of the Macdonald structuring have not been fully discussed, in my opinion. I do not know what the implications are.
Ms Frances Lankin (Beaches-Woodbine): I'm going to follow up on that question. I think you're right: We don't have enough implications of what that would mean and there would inevitably, in the first phase, be an increase in cost.
One of the things you've indicated as sort of the basic principle you work from is that electricity is an essential commodity. I believe your organization is also very interested in rate equity between classes of energy users, electricity users. It seems to me that in that competitive basis, in most other models I'm aware of, there become incentives in terms of volume use and other sorts of things, something which Hydro has been attempting to move to but hasn't been able to do effectively because of the Power Corporation Act and the restrictions on equity issues between rates of payers, but a move towards discounting industrial users for economic development purposes and a resulting need for the residential user to pick up the additional costs of that.
Do you have opinions on that issue with respect to where we're headed?
Mr Dyne: We are very concerned about that, and all we can do is to make the general statement that when it's structured, custom and rate equity have to be addressed. In the US with privately owned utilities in the gas utilities, the regulatory agency said: "Go ahead. Fine. Give introductory reduced rates to large industrial consumers. But you do that at the shareholders' expense, not the ratepayers' expense." That proposition is entirely acceptable under those circumstances.
The problem we have in Ontario is that the residential consumers are also the shareholders and there's a basic conflict.
Ms Lankin: Can I follow up then on that question, because that really leads to the secondary. I appreciate the answers you gave to my colleagues' questions around your concerns on the recovery plan, so I won't pursue that.
Your second major recommendation is with respect to the issue of regulation and making the Ontario Energy Board an effective regulator of Ontario Hydro. I'm interested in your views on what role an organization like the Consumers' Association should play. As I understand it, in the States in many areas there is legislation which allows for utility-based consumer associations to form, that those organizations are financed through voluntary contributions through the ratepayers' billing system, and that they therefore are financed and can play a more active role on behalf of utility users or shareholders than is the context in Ontario.
Would part of your recommendation with respect to more effective regulatory oversight of the management of Ontario Hydro be to build in an enhanced role for a ratepayer/consumer association watchdog to become an effective player at oversight?
Mr Dyne: Simple answer, yes. But the business of a consumers' association getting funding to keep Mr Warren here in heat, light and sound is a very important issue. At the moment, we can recover costs when there is a hearing. This particular operation will possibly be financed by CAC. It's a $60 train bill. It's peanuts.
If an organization is going to intervene and participate, those costs are significant. It's an absolute waste of time for organizations like ourselves to intervene without having skilled attorneys like Mr Warren and being able to retain expert witnesses. That requires big money. I can't help it; it requires big money. Without adequate financing somehow or other, or some access to that, essentially we're going to be dead in the water.
Mr Robert Warren: Can I just add to that this perspective? There has been some discussion in reviewing Hansard about the costs. One of the members of the committee asked a question about the costs of the OEB proceedings. CAC participates, and we recover our costs for doing that. Those costs would be perhaps $20,000 for full-time participation in a hearing. Those are the best dollars in the public interest you can imagine, because in proportion to the burden which Ontario Hydro's expenditures place on the taxpayers of this province, that kind of full, searching public inquiry is relatively, indeed absolutely inexpensive and a tremendous benefit. That's one of the critical features of having effective regulatory oversight in our view.
The Chair: Mr Dyne and Mr Warren, I appreciate your testimony very much. We appreciate your attending upon the committee and we will obviously revisit your deputation with great interest. Thank you for your time and interest.
The Chair: I remind the committee now we turn our attention to Dr Mohan Mathur, board member of Ontario Hydro, who will now approach the committee and give evidence. Dr Mathur, please make yourself comfortable. As soon as you are ready, please identify yourself for the purpose of Hansard, and then we're in your hands.
Dr Mohan Mathur: My name is Mohan Mathur. I am dean of engineering at the University of Western Ontario and also a member of the board of Ontario Hydro.
By way of introduction, I want to give you a little bit about my background. As I mentioned, I am dean of engineering at the University of Western Ontario. I have been at the University of Western Ontario for the last 10 years, starting in 1987. Prior to coming to the University of Western Ontario, I served for a little over 18 years at the University of Manitoba.
I am an electrical engineer by profession, and my research area is electrical power systems. In my research I work primarily on transmission innovations which attempt to maximize the amount of power transfer capacity on given lines by using very innovative techniques.
I have some exposure to industry as a part of Manitoba Hydro's purchase of high-voltage DC from Europe. I spent a year with the Brown Boveri, Siemens AG, Telefunken consortium, and brought the technology home and participated with Ontario Hydro, Teshmont Consultants and Federal Pioneer to put this Bi-pole 2 in operation.
After coming to the University of Western Ontario in 1990, I was invited to join the board of Ontario Hydro, and I have been on the board ever since. I have served in various capacities at the board. I have been the vice-chair for several years. I served on various committees of the board. All these committees were related primarily to the technical aspects of Hydro's operation. I served on the technical advisory committee from 1991 to 1993. I served then on the power systems operations committee. That was a time of transition, and the technical advisory committee's role and mandate were merged into a new committee, the power systems operations committee.
I chaired the health and safety committee of the board in 1995 and joined the nuclear safety review committee when the power systems operations committee was redesigned to deal with the nuclear issues.
In 1995, there was a restructuring of the Hydro board committees once again, and the nuclear safety review committee was replaced by the nuclear review committee. I served on that committee and became its chair on May 13, 1996.
That's my background. I have also served on corporate governance and human resource committees. In my capacity as a member of the nuclear safety review committee, I also had an opportunity to chair an ad hoc committee which at one time examined the future of Bruce nuclear station.
The Chair: Are there any other comments you wish to make, or would you be ready now for questions?
Dr Mathur: I'll be very happy to answer questions to the best of my ability.
Mrs Johns: Thank you for being here today, doctor. The first thing I want to draw attention to, mainly for Hansard, is that we now have had three board members: one, yourself, appointed by the Liberals, one appointed by the NDP and one appointed by the Progressive Conservative government. We have seen a wide range of appointees, and I certainly was impressed by the calibre of them from all sides, so let me say that first.
I guess I'm assuming your calibre because you're a dean of a faculty of engineering science, so it seems to me that you come to us --
Mr Conway: I thought you would want to add, for the record, at Western.
Mrs Johns: At Western, close to my home town.
The Chair: Actually the university began from Huron College.
Mrs Johns: That's right, and we all love Huron.
Let me start by saying that you bring to the board a significant amount of technical knowledge. Other people bring other expertise, but you bring technical knowledge, I expect with some very specific knowledge of the nuclear area. Is that true?
Dr Mathur: My personal specialization is not in nuclear engineering. As I mentioned before, I am an electrical engineer and I have a fair understanding of the power system operation. As an engineer, it's not too difficult to appreciate some technical aspects of the nuclear industry. I submit to you that none of us can become a total expert in any one of the areas unless we are working in a very narrow specialization.
Mrs Johns: That is from a true educator. Let me ask you this question: You have been at the board since 1990, and most of the time you have been in the technical areas with respect to the board. From 1990 on, have problems been brought to your attention relating to the nuclear facilities of Ontario Hydro?
Dr Mathur: The answer is yes. Let me just expand on that a little bit, but before I do that, I really appreciate your confidence in people who have been appointed by various parties. I have a unique privilege: I was appointed by all three parties.
Mrs Johns: I suppose that's true, because you have been renewed. Thank you for that.
Dr Mathur: I was appointed by the Liberals and then reappointed by the NDP and reappointed by the Conservatives.
Coming back to your question with regard to the nuclear operation, in my very first year I was deeply involved as a board member. I was not serving on any specific committee at that time, because committees were already formed when I joined the board. In virtually every board meeting the major issue used to be progress of Darlington's nuclear station. At that time they were experiencing certain technical problems with regard to the cracking of the end shields of the fuel bundles, and also there were these cracks in the rotors of the generators at Darlington nuclear station. So in the initial phases, Darlington, a nuclear issue, was on the table all the time.
After some time, when Darlington's problems were more or less fixed, Bruce surfaced on the scene. There were concerns with respect to deteriorating performance of the Bruce nuclear station. Ontario Hydro had come from a position where its nuclear operation was regarded as one of the very best in the world. Gradually we started seeing some problems, and that led to a little more interest on the part of the board and formation of various committees such as I mentioned to you. Initially, the power systems operations committee used to look after some of those issues. Later, in 1993, forming the nuclear safety review committee was an indicator that the board had starting taking a greater interest in what was happening on the nuclear side.
Major decisions were made at one stage which meant that unit 2 at Bruce nuclear station was mothballed, a major decision, and ever since there has been deterioration in the performance. The board has been trying to understand where the problems are and to get to the root of the problems, because we have been receiving concerns at the board that there are a lot of issues which have not been dealt with. There was a backlog of corrections that were required which were not done. Then came the peer reviews, and the peer reviews didn't come out very complimentary. So there was an escalation of the concerns that were expressed to the board, to the point where we are today.
Mrs Johns: I'd love to delve into those things and I hope some of my colleagues will. From my standpoint, the issue that's been most important to me is, with your substantial level of education and experience in this area, why did you accept the IIPA report on August 12 and accept the recovery plan philosophy that was presented to you? You didn't have very much time to look at it for all apparent purposes. Did you not have very much time to look at it?
Dr Mathur: I think they had a fair amount of time so far as I'm concerned, because I've served on various committees. A lot of issues were always on the table, but there was this real question. We wanted somebody to give a very accurate and honest assessment of the status, where it was, and point out the directions where the recovery could start. In that effort, prior to the team that has been talking to you, there was another consultant that was hired, a Mr Gregory Kane. It's possible that their board members and others have talked about it.
Mrs Johns: Who was he hired by?
Dr Mathur: He was hired by Dr Kupcis, the president. This was in an effort to generate additional feedback. So we've had several feedbacks. We had the TAPNS committee, a committee advising the board on nuclear issues. Then Mr Gregory Kane was hired and he provided his assessment to the nuclear review committee. Then this team was brought in. We have had, all this time, the feedback from AECB and we have made it our business to hold our meetings of the nuclear review committee at various nuclear stations so that the members working in those stations can understand the importance the board assigns to the nuclear operation. So all that information had been coming. As far as I'm concerned, for me, the confirmation came from IIPA, which was a very extensive, very detailed report, and it was time to act.
Mrs Johns: Did you feel that you got enough information on that day? Let's assume right now that you felt the IIPA was the final crescendo, if you will, to a whole bunch of information that came along. Why did you accept this nuclear recovery plan? In your mind there must have been a lot of different alternatives where you could have gone. Tell us what your thought process was as you were listening to the nuclear recovery plan being outlined at the board meeting.
Dr Mathur: It was not just at the board meeting. I had the material at least one week ahead of time, and there was a briefing with Dr Kupcis and Carl Andognini, together with the chair of the audit and finance committee and myself. The four of us discussed the findings of this plan. The entire report had already been delivered to me and actually I was flipping through the pages of it because I didn't have enough time to have read through it, but in that discussion I updated my information base quite a lot.
Then I had an opportunity, like most of the board members, to read through this report, which was a massive amount of reading, I must say. Basically, as I said before, it was confirmation, so far as I was concerned, of the extent of the problem and the clarity of the vision, in my judgement, which came from an independent source. It was no longer a story which was being told by the middle management or the senior management of Ontario Hydro. I saw this as a very independent assessment that was done for people who did not have, in a sense, an emotional attachment to the nuclear operation of Ontario Hydro.
Mrs Johns: Having had two or three months since that decision, and more information, for example, the optimization plan and some financial information, do you believe your decision was the right decision on August 12?
Dr Mathur: I would say so, yes.
Mr Conway: Dr Mathur, thank you for coming. I want to roll back a bit through the early 1990s. What was the nuclear review committee reporting to the full board?
Dr Mathur: There was no nuclear review committee in 1990.
Mr Conway: Well, whenever it started.
Dr Mathur: There was a technical advisory committee and, as I mentioned to you, at that time the reporting was primarily with regard to the problems at Darlington nuclear station.
Mr Conway: Would it be fair to say that committee was a precursor of the nuclear review committee that was formed in 1994, was it?
Dr Mathur: If I look back, I would not quite say so, because Darlington was a new station which was just coming on board. It was having its teething problems, because with all the stations we have built, we have kept on increasing the size of the units. So no two units from one station to another station are identical. The problem that was experienced by Darlington was very unique. There was resonance in the cooling system which was causing vibrations. It was causing the cracks and the little bumps. Those kinds of things were there.
Mr Conway: Let's just focus then on the nuclear review committee. When was it formed?
Dr Mathur: The nuclear safety review committee was formed in 1993.
Mr Conway: And you were a member of it?
Dr Mathur: Yes.
Mr Conway: And you remained a member of it throughout?
Dr Mathur: I remained a member of it as it kept on transforming.
Mr Conway: I'm trying to understand, because in the previous testimony with Ms Johns you made it clear that when Andognini arrived there was a clarity of vision, it was independent, and I can understand that. I'm having a problem with the board members, particularly people like yourself and Mr David Kerr, who was here earlier this afternoon, who was there for a three- or four-year period in the mid-1990s. What was the board hearing from its subcommittee, the nuclear review committee, and other sources about problems at the nuclear power division? We now know and there has been all kinds of evidence presented to the committee that the AECB and others were very concerned about a gradual decline in operating standards. Let me be very specific. It's clear to me now that the recovery plan that Mr Strong embarked on exacerbated the problem, because clearly too many of the wrong people left. That certainly seems to be pretty clear to me now. Did anybody ever say that to the board?
Dr Mathur: I don't think at this date. That may be a different opinion. I guess you are referring to the downsizing in 1993.
Mr Conway: That's right. Andognini comes along in 1997 and says, "It's a management problem; it's a culture problem." Then you go below that and say, "What's part of the problem?" Part of the problem is that there were just bad attitudes, poor attitudes, in part because there wasn't a replacement strategy for people who left. That move in 1993 took hundreds, if not thousands, of people out of play, and it appears that a number of good people left who shouldn't have left and weren't replaced. I just want to know, did any of those concerns percolate up to the board?
Dr Mathur: The human resources issues were discussed at the board level, and our understanding was that the number of people who took early retirement or voluntary separation packages from the nuclear sites were very few. The total numbers remained more or less unchanged in the nuclear division even after 10,000 people had left Ontario Hydro.
Mr Conway: So the board didn't really have a sense, prior to Andognini, that there was a real problem with manpower.
Dr Mathur: No. The board had a sense of the problem but not necessarily of the manpower. It was the management issues and the manpower. What was happening was that as we kept on receiving reports from AECB and shortening of the licence, as well as peer reviews, there were repeat findings. Also, we were told that temporary fixes which were labelled as jumpers were used in a lot of operation sites. The board was very concerned that some of the maintenance issues were not being dealt with properly, but the board was not very clear what the root cause of it was. It was not simply insufficiency of the number of people, but probably the communication lines between the management and the people, the workers, were not very clear.
Mr Conway: But we now know that the AECB was very concerned about the depth of the cuts, and that starts to show up as early as October 1992. We have correspondence from the president, Mr Lévesque, to the president of Ontario Hydro and others, saying, "We are very concerned that these cuts are going to impair the operational standards and qualities of Ontario Hydro Nuclear." The board really never understood that?
Dr Mathur: No, the board was informed that in the judgement of the AECB we did not have sufficient number of people. But the difference that you and I have in terms of understanding the information is that it was not primarily as a result of massive reduction in the total human resources of Ontario Hydro that nuclear suffered. Certainly there were some people who left but there were other people who joined.
Mr Conway: But to outsiders -- I remember being here and the number 10,000 was floated and many of us thought the bulk of those people were in construction and in design. We were past Darlington, so it made sense that those people would go. The overall number could be justified. There was certainly in the general community -- I put myself in that category; I had no idea that the situation was a bad as people like the AECB were beginning to feel it was, as early as 1993 and 1994.
Dr Mathur: I don't think that was the issue. Certainly a large number of people left, and you're quite right, the largest number of people who left were the contract employees and employees from the design and construction side. There were some people who left from the nuclear side, nuclear operators, but the percentage was very small.
Mr Conway: But we're now left, Dr Mathur, with a really interesting proposition. We had Andognini in here a couple of weeks ago saying, in part, "We're going to pursue this recovery plan because we have just enough human resources to effectively manage 12 of these 19 reactors, though we understand," and he was at pains, as was Dr Bishop, to say, "that we can continue to operate all of these." How did that happen? How did we get to a stage, over a five-, six-, seven-, eight- or nine-year period where we had so drawn down the human resources component at Ontario Hydro Nuclear that by 1997 we can't operate any more than two thirds of the installed capacity because we don't have the people?
Dr Mathur: Let me give you my understanding of the problem. When the units were new, the stations were new, the maintenance problems were a lot less, the maintenance requirements were a lot less. The units were operating extremely well, with very high capacity factors. Gradually, the maintenance started getting neglected and the backlog of the work kept on building up. So Mr Andognini is completely right in saying, "If I have to fix this problem today, I require a staff increase in the resources to clear up all the backlog," which is not to say that the same manpower would have been required 10 years ago or 15 years ago to maintain the stations in good health.
Mr Conway: I want to look back to August 12, because I'll tell you the board was nothing if not seized of the matter. Talk about urgent and pressing necessity. The board really acted with remarkable dispatch. Given what the board hadn't been doing over the period 1995-96, or earlier, all of a sudden, "We have to have a decision and it has to be a major multibillion-dollar decision and it's got to be taken at this board meeting." That really strikes me as quite remarkable. Why the urgency? What was the urgency at that board meeting on August 12, 1997? There doesn't appear to have been an urgency previously through much of the late 1980s and the 1990s.
Dr Mathur: You just asked, why did the board not act before? The reason I say that is that the situation was deteriorating gradually, and the board reached a stage where it felt confident that the assessment of the problem was quite clear and the recovery plan must start now. The recovery plan was primarily to turn around the nuclear operations. What should we do in order to increase the capacity factors of whatever stations we can manage at this time, and what should be the phasing of bringing in other nuclear stations to build up the total capacity to wherever it should be? The fallout from this is, what is the cost? It's not the cost that was driving the decision, in my judgement; It was the decision to turn around the nuclear operation. We could not afford to go on and on, because stations like Pickering have had six-month licences, repeated by another nine-month licence. The situation was getting pretty bad.
Ms Marilyn Churley (Riverdale): Thank you very much for appearing before the committee today, Dr Mathur. Perhaps I can just follow up and continue with this line of questioning. This is one of the areas that is of real concern to the committee and there is some perplexity about how it came about. I just wanted to go back to something you said in answer to a question to Ms Johns earlier. I believe you said that you thought you did have a fair amount of time to look at the recovery plan. First let me be clear you did say that.
Dr Mathur: Yes, I did say that.
Ms Churley: I guess then, coming back to that, it's the committee's understanding that the board only had access to that recovery plan four days in advance of the board meeting where the recovery plan was adopted by the board. Is that correct?
Dr Mathur: No, I had the report for at least a week, if not more.
Ms Churley: So you and other board members had it available for a week?
Dr Mathur: I'm not 100% sure about the other board members, but I certainly had the report at least a week before, and the reason I say that with confidence is because of this preliminary discussion between the four of us: the chair of the nuclear review committee, the chair of the audit and finance committee, the president and CEO, and Kerr. I had that report in front of me at that time. I did not attend the meeting physically in Toronto because this meeting was arranged at short notice; I attended it by telephone call. So I had this. But just to go back on it, there were interim reports that had been coming out ever since Kerr came on the job. He was providing periodic reports to the board telling us where his assessment process was at the time. In my judgement, the board was building up this information base as we went along, and then came the August 12 meeting. That was the decision time, and that's where the decision was made.
Ms Churley: At that time you were at the board meeting via telecommunication. You were on the telephone, in other words.
Dr Mathur: No, on August 12 I was there.
Ms Churley: Oh, you were there in person, so at that board meeting, when it was decided to accept this recovery plan, was there any discussion whatsoever about alternatives or was there just a general sense that this looked like a good plan and to accept it very quickly? I add to that that we know that Minister Sterling had written a letter to the board asking that the board take its time and consider the remedial action carefully. I'm just wondering if you remember any response to that letter. Was there any discussion at the board about, "Hey, this is big money we're talking about here and a very serious commitment"? Was there any discussion around other alternatives?
Dr Mathur: I recall the minister's letter being copied and duplicated and distributed to board members. I recall very clearly that the letter asked for board members to look at all options. Different people may have interpreted options differently. So far as I'm concerned, when we have to make a decision or whatever decision is made, there are two kinds of options that are looked at. Number one, within the nuclear operation, what are the options of turning around the nuclear performance operation? Number two, what are the options to supply the missing amount of power which we may lose if we have to close some of the stations down? It includes discussions of all options from various sources, that is, how will the shortfall be met and what options are available systematically in arriving at a particular decision?
Ms Churley: You said earlier that you weren't surprised by this report, that this had been building up for some time and that you -- I don't know if you said the whole board -- but certainly you were aware of problems.
Dr Mathur: Yes.
Ms Churley: How long had you been aware that there were problems in the nuclear division?
Dr Mathur: As I mentioned, virtually since 1993 the situation had been building up: incapacity of the nuclear staff to take care of the backlog of complaints, repeat findings in peer reviews which -- and I wrote letters to the station staff, that we have looked at the problem and it is not acceptable.
We were told that some nuclear staff may think Ontario Hydro is primarily interested in the production side of the nuclear operation, so we had a motion pass, and actually I wrote that motion for the board, in which we said very clearly that the primary focus of the nuclear operation has to be safety, that safety must not be compromised under any circumstances, and of course that we want our nuclear units to operate as efficiently as possible, which was later inserted in the Ontario Hydro newsletter, that particular part of the motion.
What I am suggesting to you is that the scenario was building up: incapacity to be able to handle all the maintenance issues, the number of jumpers increasing, the number of repeat findings increasing and backlogs increasing. We kept on getting assurances from the management from various nuclear stations, "We are going to take care of it," but a lot of those plans did not work. We didn't see a significant change.
Ms Churley: Did any of the managers in the nuclear division come to the board, write to the board, express concern about loss of staff, suggesting that they needed to replace some of the staff who were let go? Was that ever raised?
Dr Mathur: I don't recall any grave concern expressed. Of course each division would like to have as much manpower as possible.
Ms Churley: So that was never conveyed to the board as far as you recall, from the managers, as being a problem.
The Chair: We are about to start the final round. In terms of the questioning, it will be about six minutes or thereabouts for each caucus. Just a little clarification, if I may, please, Dr Mathur, some information: The report you refer to you that you indicate you received prior to the board meeting on August 12, was that the IIPA or the recovery plan?
Dr Mathur: The IIPA.
The Chair: When did you receive the recovery plan?
Dr Mathur: The recovery plan report was received later.
The Chair: Can you give me an approximate time?
Dr Mathur: I don't remember exactly.
The Chair: Before the board meeting or some weeks later?
Dr Mathur: I don't remember. I think it was after the board meeting.
The Chair: It was after the board meeting?
Dr Mathur: Yes, as far as I remember.
The Chair: I just want to make sure I'm very clear. The recovery plan information you received was after the board meeting on August 12?
Dr Mathur: Let's clarify. I have to look at that report you're talking about, this recovery plan report. Which one is it? Can you give me some more information on it?
The Chair: The NAOP.
Mr Conway: Previous board members have told us that the information came in two packages. The first package was the IIPA, which was the assessment of the problem, and the second package was the nuclear --
The Chair: Response to the --
Mr Conway: The so-called recovery plan, the specific plan that was going to lay up seven reactors and do a variety of other things.
The Chair: We just want to know the date when you, in your mind, approximately received that information.
Dr Mathur: I am not very clear.
The Chair: Thank you. May I ask you to just clarify for me from your evidence, you indicated you were at one meeting by telephone.
Dr Mathur: Yes.
The Chair: Which one was that?
Dr Mathur: This was a briefing which was arranged between Dr Kupcis, Carl Andognini and myself and Don Fullerton.
The Chair: Finally, you indicated that Minister Sterling's letter, you do recall, was circulated to all board members.
Dr Mathur: Yes.
The Chair: Do you know when that was circulated?
Dr Mathur: That was circulated probably at the August 12 board meeting.
The Chair: During the August 12 board meeting. I'm a little perplexed that you seem to be the only board member who recalls that with any clarity at all. Nowhere in the minutes do I note the tabling of that letter or the appendage of that letter to the minutes. Can you explain that?
Dr Mathur: Could you repeat it, please, for me?
The Chair: Yes. I am perplexed by that evidence because you seem to be the only member of the board who has clarity of the circulation of that letter. I am particularly interested that this letter, with the clarity you present now, was not attached to the minutes of that meeting, nor was it noted in the minutes of that meeting. Could you explain why?
Dr Mathur: I don't know.
The Chair: We'll begin the next round with Mrs Fisher.
Mrs Fisher: Thank you, Dr Mathur. I've followed your career a little bit, as a matter of fact, and I appreciate the value you add to the board in terms of technical expertise. I see evidence of that again today in some of the things you've said. I want to ask a couple of questions, and some of it might be reiteration but I'm not clear and I want to be clear.
I heard you say that you received the IIPA report a week before. I also heard you say there were regular updatings by Carl Andognini to the board of directors previous to that.
Dr Mathur: Yes.
Mrs Fisher: Was there an indication previous to that that in fact this was going to be the finding? Were there any allusions that perhaps these units would be affected, as has been decided upon now?
Dr Mathur: There was the possibility expressed that we may have to look at closing some of the units, but not clearly saying the final decision.
Mrs Fisher: Given that you're part of the review committee for the nuclear affairs committee, I would ask this: If you received the IIPA report even a week before -- I have a copy of the IIPA report and it does not have with it the economic substantiation for the decision that was made at the board, that I can tell. Would you agree with that?
Dr Mathur: There may not be a very explicit economic evaluation there.
Mrs Fisher: I don't remember seeing any dollar values in there.
Dr Mathur: The dollar value may not be there, but the point I'm making is that so far as I'm concerned the decision was, what do you do with the nuclear station at this time?
Mrs Fisher: I'm trying to differentiate the difference here between the infrastructure repair requirement versus the economic need and separate that also from the human resource issue, if we can talk about the three of them that way.
The IIPA report, from the best of my reading, tells me there was a human resource problem. I go back to 1993 on the point that I want to make. One of the previous members talked about the decreased staff to the tune of almost 10,000. We know the construction was reaching an end, so we know that absorbed, if I recall, around 5,000. I wish I had those numbers in front of me right now but my memory reminds me that for the Bruce it was 708 nuclear workers affected of a total workforce of 4,300. That's a very significant number, isn't it?
Dr Mathur: I do not know the numbers but what I do know is that when the total numbers were looked at before and after, the reduction in the total number of people working in the nuclear division was not significant.
Mrs Fisher: Maybe not the reduction so much as the transfer back and forth. We're talking about three sites right now: Darlington, Pickering and Bruce. I understand that as late as just last month they're finishing up the article 11 transferring of all of the mess of that. But what I will say is that if I was told by Ontario Hydro, as I was in 1993, to expect a loss of 708 -- I think they almost met that number, if they didn't, by the way -- would you not consider -- and they are nuclear workers. That's not the head office engineering staff that got moved around, that's not the management staff otherwise that got moved around, we're talking about front-line workers. Would you not consider that to be a significant number? If you knew staffing was around 4,300, would you not consider 708 to be a significant impact?
Dr Mathur: If the information is presented to me and says that we have lost 708 people, or something like that, from the nuclear operation and these people are not being replaced with equal skills, it would be a concern to me.
Mrs Fisher: Let's go back to one other thing here. I consider you, from watching your past, to be of the technical experience the board needs and you bring that to the board. I think there are people there -- and I'm not diminishing your position when I come with this next statement -- who have been brought to the board with some business experience who you hope would have the economic overview, maybe even to a higher degree than you would have. If it's counting on you technically, perhaps they'd be counted on financially.
If you can't remember when you got the NAOP report, and yet a decision was made on August 12 which included numbers that I recall -- a $5-billion to $8.5-billion recovery program -- don't you think that time is very tight in terms of your ability to apply those numbers against the recommendations that were being made for recovery of the infrastructure side of it?
Dr Mathur: Let me just say a few things: Initially a lot of these issues came to the nuclear review committee as technical problems, which were reported to the board from time to time. As the cost of fixing became more and more important, there were several meetings in which the members of the audit and finance committee participated with the nuclear review committee. In fact, many of the nuclear review committee's tours in the last few months were attended by a large number of board members because they were interested in in-depth study of certain aspects of the nuclear operation. There were joint meetings of the audit and finance committee and the nuclear review committee.
You are quite right that I may bring to the board table a certain amount of technical expertise. It's up to you to judge the quality of that technical expertise. But I also trust that there are a number of very experienced people on the board who bring to the board their expertise in management and in the finance side of things, so I rely a lot on their analysis and opinions.
Mr Conway: I want to come back, Dr Mathur, to the urgency of the decisions taken on August 12, because the board, during your time, didn't appear to have the same urgency about protecting the nuclear assets which were deteriorating in the period from, say, 1990 to l996. Why was that?
Dr Mathur: The board has been concerned about it.
Mr Conway: No, I realize that. There was concern apparently but not the kind of dramatic action that was occasioned on August 12.
Dr Mathur: Just before August 12, only months before there had been very serious incidents where Pickering had to be shut down, so there were some very drastic things that had started happening as a result of the accumulation of the problems. Clearly it was in the interests of Ontario Hydro, and I believe in it firmly, that we have to address this problem as soon as possible. Any time you made that decision, that would have been -- why delay?
For example, let me just say, Carl came in the months of December and January. It took him almost six months and we kept on asking, "When is your report coming out?" because we hinged an awful lot on very detailed findings of this independent body, of the people who were experts in the nuclear area, who were experts and who had looked at stations in the United States and had participated in turnarounds. So we had enormous faith in their findings. They were reconfirming a lot of things and they were adding a lot more detailed information that was not available to the board.
Mr Conway: I take it then that one of the things that really you found compelling and that explained the urgency was that Andognini was an outsider, that Carl was more compelling than Al Kupcis or some of the inside crowd.
Dr Mathur: No. Al was trying to do exactly the same thing as the board members were trying to do. He was also trying to get a better handle and that's the reason he brought these experts from the United States and the board supported the appointment of these people.
Mr Conway: You told us you're an engineer, Dr Mathur, and one of the things that strikes me about the plan -- I've got to believe, by the way, that you had the plan, that you authorized it. It's inconceivable -- I find it hard to believe the board acted as quickly as it did without a second opinion and without some independent financial analysis. But I've got to believe that you have the -- what do they call that thing? The nuclear asset optimization plan, right? Is that the official -- the specific proposal. You had that --
Dr Mathur: Yes.
Mr Conway: -- before you made a decision to approve it. One of the things that jumps out at me in that plan, and you're a man of some technical expertise, is that you're going to lay up seven reactors and in the interim you're going to replace that power in part by contracting for what you must have been told was going to be some controversial coal-fired electricity. How much discussion at the board meeting of August 12 was there about the environmental problems this committee has heard about, that are associated with the replacement power part of the recovery plan?
Dr Mathur: There was discussion on it. There were concerns raised with respect to, are we going to cross the limits of emissions? We were sure that we will not cross them, and if it comes to that point then we will have to rely on purchasing power from neighbouring areas.
Mr Conway: But there was no doubt in your mind surely that you were going to be purchasing some out-of-Ontario power, that you weren't going to be able, in the short term, to lay up seven reactors and fill that demand, fill that gap in the short term with made-in-Ontario electricity?
Dr Mathur: The gap was very, very narrow. In fact, you have to understand that in addition to the capacity requirements, there is always an operating margin, and within that margin we are able to supply most of the energy needs from within Ontario sources. At times, when you fall below that margin there is a need to import. But clearly there was a plan to fire up some of the thermal units. Without those units, we could not operate.
Mr Conway: Again on a technical matter, I look at what went wrong and one of the questions I have in my own mind is, did the utility get itself in trouble, particularly in the 1993-94-95 period, faced as it was with a rate freeze and other issues? They ran those facilities at full bore and they cranked out a lot of power. My guess is by deferring some of the maintenance and driven by a bottom line, they stressed the technology to a point which led to some difficulties.
That may be a wrong assessment, but let's talk now about fossil plants. My understanding is that Ontario Hydro's fossil capacity was never intended to be base load.
Dr Mathur: You're right.
Mr Conway: Under your plan I've got to conclude that you are going to be running these fossil plants absolutely full bore and, in part, to meet base load requirements in the short term. Has anybody done an assessment about the technical impact of that kind of program on the technical integrity of the fossil plants?
Dr Mathur: Technically these plants can be run for base load, but the cost of producing power is very high. That's why you use the fossil plants generally for the peaking part. They have the capacity to start and shut them down at very short notice.
Mr Conway: So you don't have a worry that in the short term, this recovery plan is going to put very substantial burden on the fossil plants, part of which burden is going to be for base load purposes, and you're not concerned that there could be some very real stress on those plants that could give rise to some difficulty and perhaps some loss of production on the fossil side?
Dr Mathur: These plants are designed to operate as a base load and there are --
The Chair: Thank you, Mr Conway.
Mr Conway: Bill Morison made those kinds of comments about these nuclear plants in this room 20 years ago.
The Chair: Ms Churley.
Ms Churley: At the board meeting, when you looked at or discussed the possible environmental impact from firing up fossil fuel plants, was any kind of analysis done then for the board meeting or since the board meeting which would show you in some detail what kind of levels we're talking about here?
Dr Mathur: I don't remember the levels, but John Fox who is in charge of the generation of thermal and hydro had given us an assurance that, as these plants are used in this period of time, we should be able to manage within the limits.
Ms Churley: So he gave you an assurance, but you were not supplied with any kind of analysis or graph or bars or anything that would show peak increases or --
Dr Mathur: I don't remember if he provided a table or data and other things. Generally we asked some questions from the management and we have to rely that they have done their homework and provided us with the answers.
Ms Churley: I'll tell you why I worry about that and would like more information. As you well know, fairly recently we found out basically through the media that there were, for 20 years or more, copper and zinc, I think it was, from the tubing being deliberately put into the lake and there are some real questions about a possible coverup around that. We've seen memos that were flying around internally for some time. There is some evidence that -- perhaps coverup is too strong a word; I don't know. From some of the information I've seen, I'm inclined sometimes to think that. Whatever you call it, it had been going on for a long time and some people knew about it and no action was taken. I have some real concerns when I'm being assured that technicians who know about this have assured you, the board, that there won't be a problem, but there is no backup information to really assure us of that.
Dr Mathur: Just to assure you, you talk about discharge of copper, lead and zinc into the lake. We all get very concerned because you suddenly see a report which talks about the total volume or the weight that has been discharged. I submit to you that when you use the water tap in your house, which is flowing through copper pipes, and it has got soldering which has used zinc and lead, you are discharging, in proportionate amount, the same amount into the sewer as Ontario Hydro is discharging through the normal wear and tear of its condenser plants.
Ms Churley: Are you suggesting that was okay, then, for Hydro to do that for over 20 years and not try to do something about it, when there were certainly concerns expressed internally about it? You're suggesting it isn't a problem.
Dr Mathur: What I'm saying is that this is the normal process. Hydro realized that in terms of the volume the discharge is very significant in total volume. Therefore, it made a decision at one stage that when some of these condensers were replaced they were replaced by stainless steel, which cut down the amount of the copper and other things going into the lake. Hydro did react to it in a number of condenser units.
Ms Churley: I would like an answer to this. You personally, in your background and viewpoint don't think it is a significant problem.
Dr Mathur: It is not an insurmountable problem. This is what happens in everything that uses the normal wear and tear of the pipe through which water is flowing at a certain pressure and velocity.
Ms Churley: You don't think it's necessary to actually change to --
Dr Mathur: It is important. It all depends how much concern we wish to express and how much investment we want to make in terms of not discharging anything. It's a judgement issue: what is tolerable within the environmental constraints in terms of damage to the environment and what the costs are.
Ms Churley: Do you think there should be more limits put on to the total loading of some of these pollutants? As you know, some of them accumulate, and accumulate in the body.
Dr Mathur: You're right. This is what is happening. Year after year, some of the limits which are allowable limits on various kinds of emissions keep on coming down. What it means is the cost of operating an outfit keeps on going up, and this is the value you have to place on environmental protection.
Ms Churley: I come back to environmental considerations, and we're not going to spend much more time on that, but I think overall, that when we hear about nuclear cults and Hydro, there have been concerns in the past, and still, about the commitment to the environment. That leads me back to the issue of the total load and perhaps exceeding limits when the fossil fuel plants are fired up, particularly now. Since that recovery plan was announced we're hearing more about acid rain and that in fact we haven't solved the problem. Despite Hydro and Inco and others drastically reducing the total loads, it has become a factor. How do you think that is going to factor into the recovery plan?
Dr Mathur: Would you say then that Ontario Hydro's decisions way back in going with nuclear technology and not going into hydro and thermal -- there is only a limited amount of hydro generation in the province. If the balance of the power came from thermal, we would have created far greater damage than what is being done now, for sure.
Ms Churley: I suppose that would get us into future considerations and where we're going in the future and I believe we're trying to find out what happened, aren't we?
The Chair: I thank you for your question, Ms Churley. That was fine. A good place to bring it to an end at that point.
Ms Churley: I think we do need to look at alternatives and green forms of energy.
The Chair: Thank you, Ms Churley. That was an interesting segue and I appreciate that.
Thank you, Dr Mathur. We appreciate your being here. Just a couple of small questions to finalize the information for the committee.
I was reminded by staff that there are some members of Ontario Hydro staff in the room who may be able to assist you with your recollection of the meeting of August 12. I asked you some very specific questions about dates and times of circulation, and if you wish to consult with them, I would be very pleased if you would like to do that very quickly. I asked you, for example, when the NAOP report was circulated to you and when it was received.
Dr Mathur: That was on August 12.
The Chair: Do you recall when during the meeting it was circulated to you?
Dr Mathur: This was right at the beginning.
The Chair: And there was discussion about it during that meeting?
Dr Mathur: Yes.
The Chair: Do you recall the circulation of Minister Sterling's letter?
Dr Mathur: Yes, I do.
The Chair: Was that circulated at the beginning of the meeting or at the end of the meeting or some time during?
Dr Mathur: It was towards the end.
The Chair: Was it discussed?
Dr Mathur: I don't recall a great discussion, but we did read the letter. The letter was read to the members.
The Chair: Was it debated? Was it introduced and was there some follow-up debate about it? What weight did that minister's letter carry for the discussions?
Dr Mathur: The letter indicated to board members that it is the minister's wish that we examine various options. I guess in the judgement of a lot of board members, certainly in my case, we were doing precisely that.
The Chair: To make sure I'm very clear: That letter was circulated after the board had taken its decision on the plan.
Dr Mathur: Was it after the decision? I'm not sure. Okay. This was during an in camera session.
Mr Conway: Which is to say what?
The Chair: I have no idea what you're saying. What does that mean?
Dr Mathur: This was towards the end of the meeting. It was in the in camera session.
The Chair: So you had taken your decision on the plan at that point and then you went in camera. Is that right?
Dr Mathur: I don't -- yes, that is right.
The Chair: At that point, after the decision had been taken, you then received the minister's letter and you gave it some in camera discussion?
Dr Mathur: Yes.
The Chair: Dr Mathur, I want to thank you very much for coming down from the home of Huron College and that other place across the road. I thank you for your generosity of testimony. I hope that if there are further questions the committee has of you, you will be prepared to attend upon the committee.
Dr Mathur: Certainly.
The Chair: Thank you so very much. You are excused.
Mrs Johns: Mr Chair, I could well have followed improper procedures because I don't actually know what the procedures for the select committee are. About a week and a half ago, after a number of testimonies, I wrote to Ontario Hydro and cc'd you on those requirements I had from Ontario Hydro, asking for the response to be back by the end of the week. If I didn't do it the way maybe I should have, then I apologize for that, but I have not received any information back from Ontario Hydro yet. I was wondering if we have some ability to be able to get that information back from them.
The Chair: Let me check to make sure we're very clear it has not come in through other circles. Let me ask the clerk: Have we received a response to Ms Johns's inquiry.
Clerk of the Committee (Ms Donna Bryce): I do recall a response being circulated from Ontario Hydro. It did refer to your name in it. I'm not sure when, but I do recall it.
The Chair: Mrs Johns, it is important. The clerk indicates there has been some response. We will doublecheck it tonight, if you would do the same. Tomorrow, if you have not found a response that is either adequate or indeed deals with your inquiry, if you will raise that for me, you have my undertaking that we will pursue that vigorously.
Mrs Johns: I appreciate it. I certainly hope I didn't miss it because I try very hard to read all of this documentation that's flooding through.
The Chair: It is my pleasure to be the servant of the committee.
Mr Conway: If anybody is here from Hydro, make a note of that. Johns is the name, don't fool around.
The Chair: May I also remind the committee that we are meeting tomorrow morning, for the benefit of Mr Conway I'll say at 8:30 am, that's 0830 for those who speak metric. We will be meeting in closed session from 8:30 until 9, and then we go into open session at 9 am. We will be meeting in room 151, which is the Amethyst Room. I would recommend you wear blue shirts, Dr Galt.
Mrs Fisher: Will all proceedings take place in 151 tomorrow?
The Chair: It is my understanding we will be there for the entire day. That means you had better take all your documents with you this evening when you go.
Mrs Johns: I'm sorry about bothering you and keeping you so long. The optimization sheets that we have from Ontario Hydro with respect to all of the plans, is that public information?
The Chair: My understanding is anything that's sent to this committee is public information.
Mrs Johns: Someone has asked me if they could have a copy of it. Am I at liberty to pass that out?
The Chair: My understanding is it has been filed. I know of no document that has crossed my desk that has said "top secret" or whatever.
Mr Conway: That is so sweet and so innocent. The nuns taught you so well.
The Chair: Please understand, in that response, Mrs Johns, when the staff circulate items to the committee members, it may be confidential and it is marked so, and I do ask you to respect that very carefully, but that's from our staff.
Any other business? If not, then this committee will stand adjourned until 0830 in room 151 tomorrow morning.
The committee adjourned at 1802.