Tuesday 28 October 1997
Mr Rick Machon
Mr Pat McNeil
Ms Malen Ng
Mr Marc Eliesen
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)
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 0950 in room 151, following a closed session.
The Chair (Mr Derwyn Shea): The committee will now rise into public session. We have completed almost an hour of in-camera meetings and briefings on the financial affairs of Ontario Hydro. We will now take it upon ourselves to receive a briefing by Ontario Hydro, if the witnesses would make their way to the table. I'd appreciate that to expedite matters. Be prepared to identify yourselves for the purposes of Hansard when we begin.
Information for the committee while we're waiting for witnesses to get to the table: Ms Clitheroe, whom we had asked to be present, is out of the province and will be returning about the noon hour. I have asked that she make herself available to attend upon this committee this afternoon. They will let us know if that is possible for her. I'll report out to the committee early this afternoon on her availability.
There are several other items of business. The most important one, if I may deal with it first, is a matter of a point of order that was raised by Mr Laughren yesterday concerning a letter he had written to Ontario Hydro seeking information, and his response to Mr Farlinger's reply, which disturbed him.
While it is not a point of order, it is certainly an issue that is worth our attention. We will recall that Mr Laughren had early on asked this committee to support his request for some information from Ontario Hydro. That was not forthcoming, but Mr Laughren, as any member of this committee may do, wrote directly to Ontario Hydro seeking that information and tabled his letter with us, so we have a copy of the request he was making. The reply we heard yesterday was to indicate that in the fullness of time there may be a response.
As I indicated yesterday in my immediate response, I have no direct authority over replies to members of this committee. I share the concern that the response was not as forthcoming as it might have been. While I could take it upon myself to send a letter to Mr Farlinger, another way would well be for the committee to decide itself if it would like to now enjoin itself in seeking that information in a more formal fashion. While I say, with regret, there is no point of order there, Mr Laughren, I do understand the issue you raise.
Mr Doug Galt (Northumberland): Mr Laughren yesterday made reference to the motion that was put on the floor requesting the white paper. This committee in the democratic process did not accept that particular motion, but there has been no other motion put on the floor and no indication from this committee that we would not write letters or request information from various bodies. That was sort of hinted at yesterday when in fact I don't know when this committee has refused to obtain information.
We have legal counsel and our consultant with us. In an informal sort of way any member can talk to them and reach out for information, and I would certainly encourage that. I think our legal counsel and our consultant have been very helpful in obtaining all kinds of information for us. If the information that various members of this committee require is partisan in nature, then I would encourage them to write on their own rather than coming before the committee or going to legal counsel, but certainly the informal channel is there and I would encourage that or, failing that, bring it before the committee as a motion and I'm sure the committee members individually will address it and it will go forth in a democratic process.
The Chair: Can I take it from your reply, then, that you are generally in agreement with the seeking of information, and either the consultants or I would just pursue that to make sure it's followed through?
Mr Galt: Absolutely.
The Chair: I'll execute that suggestion immediately, Mr Laughren. I'll see if I can get that information for you as quickly as possible. If you will make sure we draft the appropriate letter to the chairman of Ontario Hydro, we'll proceed. Thank you, Dr Galt, very much. I think that resolves the matter very quickly.
Let's proceed with the matter before us today. We are at the very heart of the hearings for this committee now. The committee proposes -- I'm saying this for the purpose of the witnesses -- to take significant time in its questioning and this may well not be completed in the first block of time. We may well continue, just to put you on alert in that regard.
We've agreed to deal with this in three sections, which I think you've been made aware of. That concerns the nuclear asset optimization plan, the Genco implications of the plan recommendations and then the corporate financial implications and issues. We're doing that in three parts. What I will do is you will make your presentations part by part and then we will pause and have questioning on each of those sections. Then, concluding all of that, there will be general questions that will allow the committee to revisit any part of the presentations. Is that understood?
Mr Rick Machon: Yes.
Mrs Barbara Fisher (Bruce): Just one short question: While we're doing this, before we start into the three parts, I would just like clarification whether this is the presentation that was made to the board of directors on August 12 or is it an updated version? As a starting point, I would like to --
The Chair: I understand your question. That underlines some of the issues we had raised with Ms Clitheroe as well, so let me ask the question. The question being put to you is, is this in fact a reasonable echo of the presentation that was made to the board of directors of Ontario Hydro?
Mr Machon: Yes, it's a conglomerate of the presentation that was made to the board on the 12th, as well as an update that was made on September 9.
Mrs Fisher: Is it going to be obvious when we get into the updated material, separated from what was presented to the board, or is it meshed together now?
Mr Machon: It's actually meshed together. I can try to point it out as I go through.
Mrs Fisher: I think that would be very valid.
The Chair: All right, the request is that you do that as we proceed. Dr Galt, anything else?
Mr Galt: That was my point, that it's imperative we know the difference.
The Chair: Just to make sure we're very clear what the ground rules are as we start.
Mr Machon: If I don't say anything, it is the material that was presented. I'll try to index myself into anything that's been updated.
The Chair: Thank you. For the purposes of Hansard, would you identify yourself and your colleagues, anyone who will be witnessing, both in terms of your name and your title, and then we're in your hands for the presentation.
Mr Pat McNeil: Good morning. My name is Pat McNeil. I'm vice-president of corporate planning.
Mr Machon: My name is Rick Machon. I'm the nuclear chief operating officer.
Ms Malen Ng: My name is Malen Ng. I'm the vice-president of corporate finance.
Mr Machon: I am a member of the nuclear performance advisory group that arrived in late January with Carl. I participated in the IIPA, the safety system function inspections and the development of the nuclear asset optimization plan that was presented to the board on the 12th. I am presently accountable to Carl for the operation of the three sites in the managed system function for Ontario Hydro Nuclear.
I believe you have in front of you a copy of the presentation I'm going to walk through. I understand I have about 30 minutes on that presentation, followed by question and answer. If I revert to using acronyms, please stop me and make me say the words. It's a tendency we all have, I'm afraid.
If you turn to the first page, in an effort to gain some insight into the recent past performance of Ontario Hydro and in particular the nuclear units, we first got --
The Chair: Which document are you using first? We've got two documents here.
Mr Machon: I'm sorry, the development of the nuclear asset optimization plan.
The Chair: Development and recommendations?
Mr Machon: Yes.
When we first got here, in an effort to understand the past performance of the nuclear assets, we created a composite nuclear utility, about the same size in North America and about the same age, to take a look at how they had performed. We also picked ones that were strong performers both from the sense of competitiveness, ie bus bar costs, and credibility, how they were viewed by their stakeholders.
The graph you have in front of you is a representation of capacity factor versus time. Does everybody know what capacity factor is?
The Chair: Why don't you just pause and give a very quick definition.
Mr Machon: A simple statement is that each power plant has a rated output. If it ran 365 days a year at that rated output, it would be a 100% capacity factor. So anything less than that, outages etc, will decrease your capacity factor.
The top line represents the performance of that benchmark utility. We don't have to go through any conversion here from Canadian to United States; this is per cent.
The bottom line represents the actual performance over that same time frame of the Ontario Hydro nuclear facilities. You can see there's a marked difference between that benchmark utility and Ontario Hydro. In fact, had Ontario Hydro operated, had we operated at that level during that same time frame, we could have produced the same energy without the Bruce A units and a couple of the Pickering units over this same time frame.
As an aside, we believe that the Candu design, properly managed and maintained, ought to achieve capacity factors in the range of 86% to 90%, just basically due to its online fuelling design and the ability to do maintenance on line. This represents the past, but what were the expectations at this same time for the future?
If you turn the page, the next two graphs, the next two pages depict the business plan budget and the business plan generation numbers respectively, that being the top line on these graphs. Based on the present trend, these expectations do not represent reality. The facts would indicate that the performance would be better represented by the line indicated as the business as usual or do nothing case, which in one case is a higher budget and lower generation.
The increased spending and energy shortfalls when compared to the expectations in the approved business plan were certain in the future regardless of any actions that were going to be taken at this point in time.
This provides a backdrop for the effort that was undertaken, and I'd like to spend the next few minutes on the IIPA and safety system functional inspection process -- I'll probably revert to SSFI as I move through this -- as it obviously represented a key input into the recommendations developed through the nuclear asset optimization plan.
If you turn to page 5, the objectives of this process were to diagnose and baseline the performance of key OHN departments and functions, and by that I mean, traditionally, operations, maintenance, engineering, rad protection etc; to evaluate the ability of selected safety systems and programs to function as required or as designed; to provide recommendations for problem resolution and the transition into an accountable managerial system so that we could monitor performance and develop plans in accordance with that.
The last two I just mentioned are unique to a typical process that's carried out this way. Typically, a consultant or an assessor will come in, find your problems, leave you with the problems and walk away. The uniqueness here is that we came in, found the problems, had to develop plans for those problems and move forward with the implementation of those, not just leave with the problems on the table but provide solutions to those problems, and in fact in the long term assure that performance did not slip and could be sustained as we moved forward.
The subobjective was to test and validate the completeness, accuracy and effectiveness of the current OHN nuclear recovery plan that was on the books and to develop a framework so that this could become a perennial process and we could go back and look at how we were improving over time as we moved forward.
The next page is a graphical representation of those two processes. I'm not going to go through this in a lot of detail. Suffice it to say that the IIPA -- traditionally that process will take a horizontal cut across functions. With the SSFI it will take a deep vertical cut all the way to the floor through the specific procedures that are utilized to implement or cause that system to function as designed.
In addition, we looked at two problematic areas using the SSFI technique. That would be equipment qualification and fire protection. I believe you had a discussion on fire protection yesterday.
Mr Galt: On a point of privilege, Mr Chair: SSFI, an acronym.
Mr Machon: Safety system functional inspection.
The Chair: That's actually a point of order.
Mr Galt: A point of order, whatever.
Mr Machon: The marriage of the two processes together gives you both a sense of the breadth of the issues as well as the depth of the issues as you begin to develop the implementation plans. I can probably spend an hour talking about this one page, but I think you get a sense of the techniques we used to find the issues we needed to deal with.
The next page, page 7, represents the time line associated with this process.
On March 4 we got the detailed assessment plan approved and on the 15th we had the teams assembled. I think it's important to note that these teams were about equally split between Ontario Hydro folks and outside folks/consultants. Within the consultant ranks we used a combination of folks from the United States as well as Canadian experts. So we had a pretty good mix of people. To keep the independence part of it, somebody from Bruce could not look at Bruce. We may take the engineering manager from Bruce and use him on a team at Pickering, say, or at Darlington.
I believe you all have copies of the IIPA and SSFI specific reports in your hands.
On April 17 the phase 1 report was issued to the chief nuclear officer. This was fundamentally just a review of the documented word, what was already on the record: If you were just reading the paper, what would it tell you? That was a fairly extensive effort. There were a number of binders that kept all the history together. They were sent out to the team members and everybody submitted what they believed they were reading in the written document.
In early June we completed the verification and validation. So in the interim, we were taking the written word as a focus point, going out into the field, visiting the plants, spending normally three weeks with teams of up to 20 and 30 people, moving through the plants, looking at the systems, as well as looking at the programs that were in place.
By mid-June we had started to form the recommendations. This is where the transition into the NAOP begins to occur as we start to lay out the plans, look at the alternatives etc in that process.
On June 16 the final report was issued to Carl, the chief nuclear officer.
On July 22 to 24 -- and I'll be going into a little bit of detail on this -- we had the senior management strategic planning sessions where we finalized and drove out a lot of the details associated with this plan leading up to the August 12 board meeting. That was followed by the September 9 finance and audit committee follow-up meeting with regard to some more detail they wanted to see at that point in time.
This page was not part of the board presentation. Obviously there are events that have occurred since then, but the presentation to the board was included.
I'd like to spend a little time on the next page, if I could. I know it looks a little complicated or confusing, but basically it proceeds from the left-hand side to the right-hand side and back down to the middle again.
We mention the IIPA reports. That's the top block on the left-hand side. The recommendations were available by the 14th. As you undoubtedly know, there were a lot of improvement programs that were already documented and in place within Ontario Hydro. We took all those reports together and looked at the plans that were existing and in place and how they either complemented, contradicted or could be used as part of the recommendation for the IIPA reports.
The capital program, interestingly enough, was in pretty good shape from the sense of understanding the scope of -- this tends to be physical work, condenser retube, those sorts of things. They were in fairly good shape and provided an integral input into the material condition issues that needed to be addressed.
There was the nuclear-line-of-business business plan which I referenced at the beginning.
There were station life-cycle studies that had been done over the last couple of years, looking at both destiny issues and near-term material condition issues, the generation forecasts, obviously, and the decommissioning studies.
We took all of these and put preliminary business cases together for each of the issues we found, disaggregated the capital program into the specific capital projects and tried to keep track of ourselves with an issues matrix so that if something was in this plan, it was captured here so we could bring some convergence, if you will, to the nuclear asset optimization plan or the scope of work that we were trying to implement. That constituted a package.
We had done some initial financial analysis on the cost side. I will speak mostly to costs, the cost of the recovery; the financial aspects I'll leave to Malen and Eleanor to deal with.
In some staffing analysis studies that we had done, we had Tim Martin come in and take a look. Tim Martin's an industry consultant who keeps a large database on benchmarking staffing levels within the nuclear industry and what the better performers look like. We had a point of reference there versus the staffing levels we had in our own experience in coming through that. We then sequestered ourselves for three days at Orangeville. In that meeting were not only the NPAG members, the seven of us, including Carl, who was in and out during that meeting, but we also had the site vice-presidents, the manager of operations, the manager of engineering and the manager of maintenance from each of the sites, in addition to the direct reports to Carl for the support functions in corporate.
In excruciating detail we went through each one of these plans. As you would expect, we found some overlap because operations would look at conduct of operations in a certain way and would flesh out a procedure upgrade program, and you'd see that repeated in a number of efforts, so we could begin to collapse those together and really fine-tune the program as well as begin to integrate the activities into the sequence that things had to happen. It was a very good meeting in the sense that there was a lot of pushing and shoving against each other, healthy tension I'll call it, within the room as we drove to some of the solutions that were needed.
The output of that was a list of threats, some contingencies we needed to put in place. The base case for recommendation on the options has been provided to you. More importantly, I think we achieved some substantiation of the plans we had as well as buy-in from the line organizations and ourselves and how we were going to move forward and begin to implement this. At the same time, we finalized the Basis for Continued Operation. There were a number of questions that came up with regard to should we continue to operate given some of the things that we knew and didn't know and given some of the problems we had seen.
Do you have a copy of the Basis for Continued Operation, the document that was provided?
The Chair: Which document is that again?
Mr Machon: Basis for Continued Operation, BCO.
The Chair: I don't recall it offhand. Have we got it? All right.
Mr Machon: It outlines some very specific actions to mitigate some of the issues that were identified as shortfalls that we felt were out there that needed immediate attention in that time frame. That led to the nuclear asset optimization plan. Parallel with all of this, we were putting together a very detailed business planning process, recognizing the nuclear generation business is about generating electricity safely, reliably and economically. We're not into market studies in the business plan; we're into understanding the work we have to do in developing the plans and the improvement initiatives that feed into that.
The intention here is to sunset all these previous efforts into one consolidated business plan with a set of milestones, actions, budgets, goals, performance measures that we can now manage ourselves to into the future. Normally we're shooting for a five-year business plan in this effort. I have a copy of the process here if anybody's interested in that. It's complete with performance monitoring and the major elements that are needed.
The options we looked at and talked about in this meeting -- obviously when you have 19 operating units, you could have normally 19 factorial combinations you could come up with, I believe, but we tended to look at options:
(1) Business as usual, do nothing; that'll be case 1. As I go through these, these will be the cases that were in that document.
(2) The simultaneous recovery of all 19 units, recognizing that Bruce 1 is coming out of service in late 1999 anyhow, so you could call this really an 18-unit scenario.
(3) The lay-up of the Bruce A units only, leaving Pickering running. In that one we need to recognize that the Pickering A units are going to be out of service, regardless of what we do, for the majority in 1998 anyhow due to the commitment to get the shutdown system installed.
(4) Lay-up of the Pickering A units; ie leaving the Bruce A units running. Recent, since the board meeting, is the discovery of the problems we're having with the integrity of the steam generators up there. The material condition is a lot worse than we thought at Bruce A.
(5) Lay-up of the A units temporarily with the sequential bringing back into service, which is the one we landed on as the most flexible and viable recommendation. I'll go through some of the rationale for that as we move forward.
(6) Lastly, the lay-up of the A units permanently with no intention to bring them back.
The key influencing factors in the decision process are listed on page 10. The first two involve timeliness and availability of resources. I'm going to come back to them in a little bit of detail. I'd like to talk about the last four.
The complexity and manageability of the scope: As you would expect, this is a very integrated approach. Unlike some of the programs of the past that tended to be just discrete tasks, the interrelationships between all these tasks are well defined. In implementing this, we need to make sure that the infrastructure's in place so once it is in fact implemented, we can sustain it. That requires a lot of standardization, process improvement or re-engineering -- depending or how you want to look at it -- and technology deployment required to undo what has been essentially done since the decentralization in 1993 in the creation of, in effect, three little nuclear business companies out there setting their own standards and building their own systems.
Of interest, the complexity does not change with regard to the number of units you attempt to recover; the complexity's going to be the same. How much you stress the system within that is directly proportional to the number of units that are attempted to be recovered or turned around. If you look in the States, you'll see that most turnarounds only involve two-unit sites. There are only three three-unit sites in the United States: Oconee, Browns Ferry where I came from before I was up here, and Palo Verde. Of those, only two are what I'd call of the same complexity, a lot of shared systems between the units. Palo Verde is a three standalone; it really could be three one-unit sites as opposed to one three-unit site.
General material condition issues from an existing standpoint: We continue to see challenges with regard to degraded piping, valve functionality, pumps and motors etc. Today there are only, I believe, 11 units running. Three of those are running at 50% at Darlington. We just got permission to go to high power level with those. That was because an analysis wasn't available for establishing a safe operating envelope. That needed to be considered in the fact that the preventive maintenance program and what we were seeing in missed call-ups was extremely high. We needed to get back into doing the preventive maintenance so we could get the reliability up to where we needed it.
The destiny material condition issues -- the steam generators, the condition of those, and the pressure tubes, condensers and some unknowns with regard to the environmental qualification of the cabling at Pickering, as well as the ongoing seismic analysis, which play into what we call the destiny material condition issues: As you look at the options, which are your most viable to get back first?
The second to last category, licensing, design and configuration issues: The nuclear industry in particular requires that you be able to pull the thread, if you will, back through your design documents, your calculations, your set points, through the codes and standards to the licensing bases. That gets translated into the procedures you hand to the operators and maintainers to go out and do work in the plant. You have to be able to show the continuity between those documents and the work that's being done in the field. The condition of those needs significant upgrade. One of the major efforts here deals with configuration management.
The last one is a set of uniform standards and expectations: You can't have one site operating to one standard and another site operating to another. The standards have to be the standards and they have to be across the system. That is one thing we learned in the States, that the standards have to be there and they have to be high and they have to be well articulated, which would discount the ability of trying to run one of the units to a different set of standards than another unit while you were trying to recover. You have to apply them equally across the units.
Returning to timeliness, with regard to the timeliness issue -- there have been comments made on this -- there have been numerous improvement initiatives tried over the last four to five years. My characterization would be they've been long on planning and short on execution. They tended to be, as I've mentioned, discrete tasks. There was very little integration in them. We did not achieve short-term, let alone sustainable, results as a result of those programs. In fact, our missed commitment rate to the AECB alone is in excess of 40% and we've seen shrinking terms of the operating licence. This would all beg for some sense of urgency in getting on with getting the improvement up and delivering, and getting reliability and performance to a level that should be expected and can be achieved.
Need to arrest the decline and show incremental improvement within a relatively reasonable period of time: I think that's about a year.
Need to put the processes in place to deal with the most certain discovery issues: I think Carl mentioned, "I don't think we've hit the bottom yet." I know that disturbs a lot of folks, but as we start to go out and try to verify, for example, that the right valve is in the right location in accordance with the design that's in place, and we walk up to it and we know we're going to find some differences, it's going to challenge operability.
If I can't show that the system is in fact operable, then I am left with some options: shutting down the plant, reducing power, taking some other mitigating actions as a result of that discovery until it gets resolved. We're going to start looking in earnest for those things, beyond the SSFI process, in the next year. I think we're going to see some significant challenges to operations, engineering and maintenance to maintain the reliability of these units.
We need to show steady progress towards the top quartile as we move. We're presently in the bottom quartile. We need to show sustained performance within, normally, a three- to four-year time frame. This again is achievable. The better plants that have accomplished a turnaround or recovery or whatever we want to call it normally take three to four years to do it. Recent examples of that would be the Brunswick facility and the South Texas project in getting there. All of this has to be accomplished, as I mentioned, while keeping the units running safely and dealing with the challenges that are most certainly going to face us.
Page 12: I'll talk about the availability of qualified resources. The work that's been identified is extremely labour intensive. Normally about 70% of a budget is associated with labour; the other 30% is material and services. The backbone of achieving sustainability and getting your expectations out there is your training program. Our training programs require a significant upgrade in the sense of managerial training, maintenance training, technical training and operator training. I don't think there's much else left.
Once the training programs are upgraded we need to put the people through them. By that I mean whether it be a new hire, somebody who previously worked for Ontario Hydro who we're bringing back, or existing staff. It's quite time-consuming. We are estimating that it will be about 240 hours a year for probably two to three years that we're going to need to factor into our resource planning to accommodate the increased training we need.
Lack of accountability-based managed systems: By that I mean the simple act of laying out a plan, defining the deliverables, monitoring performance against that plan, establishing the expectation that the deliverable is going to occur, and developing the corrective action program once the deliverable doesn't occur, or getting the early warning signals that you're getting in trouble before you're in trouble. Those all need to be upgraded and, in some cases, put in place.
I want to re-emphasize that all this needs to be done while we're keeping the operating units running safely. Remember, we're talking in the recommendation about 12 units.
These pages with this explanation were verbally discussed with the board but weren't part of the handout. As I went through the rationale, I discussed these in the sense of the options that were considered.
When we talk about the availability of qualified resources, it's not only the issue of are there enough full-time equivalents to do the work; it's also an issue of is there the correct skill mix to do the work. Our present skill mix represents an organization that still has a heavy focus on engineering and construction versus operations and maintenance. Engineering, construction, startup and test is a fun world. Operations and maintenance tend to become one of continual refinement, process improvement; it can get boring to some folks in doing that. But the skill mix issue needs to be addressed.
To give you a sense of that, I've taken the four major categories, and when we considered the skill mix deficit for simultaneous recovery, what I've tried to show here is that when I say managerial, we have a 100% skill mix problem. If I had 100 managers, I really need 200. That's what I'm trying to represent here. You can see that we basically have a deficit in each of the areas.
The low number in operations, even though you may say that's good, remember it takes normally four years, on a good day, to get an operator to the point where he's qualified and can stand watch in a control room. Even though that number is low, it has the longest lead time for getting somebody who can effectively do the work you want him to do. This created a shortfall of about 4,000 folks in that skill mix issue. This is the simultaneous recovery. It would be the 19, but like I said, it really is 18 by the year 1999 because Bruce 1 is out of service.
Versus the recommendation that we made, which still has some significant challenge with regard to getting the right skills in here, you can see, however, they are substantially lower: 50% managerial, 20% technical, 9% operations and 10% maintenance. In maintenance they are primarily in the control, tech and mechanical maintenance function. We have plenty of civil maintainers, in fact a surplus of civil maintainers.
This is still a challenge, to get the folks in to do this. Even though the overall numbers would show that we have just about the right number of people to accomplish it, when you factor in the skill mix, there's about a 700-person shortfall. In other words, there are 700 with the wrong skills for what we need to do and 700 that we need to find. This is mainly focused at the OM&A and the improvement projects. This does not focus at the capital projects or the traditional building trade efforts; retubing the condenser, you'd bring the EPSCA trades in to run that project for you. These numbers do not include that.
That led to our recommendation based on these inputs. One was to focus OHN's managerial, technical and trades resources on resolving the identified issues and improving performance on the B units and Darlington, and at the same time establishing the managerial and technical infrastructure to sustain that expected level of performance. Based on that performance, substantiated business cases and longer term Ontario Hydro desired generation mix, begin to recover the A units starting in the year 2000.
We chose Pickering A as the first units to come back because they have already been retubed and the work would not be extensive. It's still significant, but it wouldn't be as extensive as trying to bring the Bruce A units back. There are steam generator issues. As you know, unit 2 is already shut down and we believe that, as we put that business case together, it would make more sense, assuming we bring those back, that you bring them back with the pressure tubes redone and the steam generators replaced, for the long-term life of the plant. Of course there's a lot of work to be done on the business case and a lot of information to be pulled in in that same time frame in putting that case together.
The next page, which I believe is 15, is a representation of the cash flow. For the major efforts we've broken this up to show the 12-unit scenario: what would incrementally be spent on the Bruce units and the Pickering units in that time frame, both to get them into a lay-up state and also starting to come out the Pickering units at the end of this into the recovery.
As a reference point, the solid line is the existing business plan, so you can see the impact on the business plan. On the bottom is the yearly variance and the cumulative variance between the years 1997 and 2001.
Mr Laughren: Could you spend a little more time on that chart? I guess you are familiar with it, but I haven't absorbed this. I can't absorb it. Could you describe it, please?
The Chair: I was assuming he was doing exactly what he had done for the board of directors, but I think that's fair enough; let's pause. Please, go ahead.
Mr Sean G. Conway (Renfrew North): With perhaps the same results.
Mr Machon: That same question led to the next slide at the September 9 meeting. I'll explain this briefly and then I'll show you where the money is allocated in the task.
The lighter area on the bottom of the graph would be the combination of OM&A and capital, ie, the total expenditures as a result of this program that would be spent on the 12 units -- the two B units and Darlington -- over this time frame. You notice it rises if we just look at it as the improvement initiatives are implemented, and then falls down to a sustaining base number in the year 2001. Normally, with the recovery done, you could straight-line that across or start some significant process improvements on it.
Mr Laughren: Are these billions?
Mr Machon: Millions.
Mr Laughren: But a thousand million is a billion.
Mr Machon: Yes, it's half a billion, one billion, 1.5 billion.
Mr Laughren: We're talking the same currency. Not Hong Kong dollars.
Mr Machon: No, Canadian dollars.
The darker line right above that is the cash that would be associated with the Bruce A activities over this same time frame, with the assumption you're bringing the Bruce A units back. So in 1998 you notice it decreases as we move it into a laid-up state; in 1999 it's being maintained in a laid-up state. A little bit of activity is starting in the year 2000, assuming the business case got approved, and by 2001 we're starting into the recovery of Bruce A.
On top of that, the last bar is Pickering A, again going into the lay-up and then coming out first with some expenditures starting in 1999, in accordance with an approved business case presented to the board. There are significant expenditures in the year 2000, and then it settles down into a normal base activity from that point forward. It is just meant to be how it is being spent on the units.
Mr Laughren: That's helpful. And the variances?
Mr Machon: In the variances, the solid line is the existing approved business plan on record. So this is the variance from the existing business plan or the impact on Ontario Hydro from a sense of what was in the business plan in 1997 to what we're projecting is going to happen through the out years.
Mr Laughren: But --
The Chair: I'd like him just to complete it. Otherwise everybody wants to get in. I really do understand, Mr Laughren, why you want to deal with it right now, but otherwise everybody wants to raise a number of questions. I'd rather get back in the cycle, if you don't mind. I know it's difficult.
Mr Machon: If you turn to the next page, over the same time frame from 1997 -- this presentation was not made to the board, this page. This was made subsequently at the September 9 finance and audit committee meeting. This represents where the total expenditures over that time frame are going. I tried to arrange it in a sense of the way work is done in a power plant.
The upper right-hand corner: You heard me talk about the design bases, the calculations, vendor manuals etc that are required to support the worker in the regulatory requirements. There's about $1.1 billion that is going to be spent in this effort, reconstituting all the activities associated with that block.
In the upper left-hand corner are the managerial systems, the accountability, getting the organization's structure in place and the training program upgraded. About $268 million is presently allocated to go into that activity.
As I mentioned, the capital projects were in fairly reasonable shape with regard to major material condition issues. About $2 billion in capital improvements were going to be made. There's a sustaining number you would come out with at the end of this. It would normally be in the order of $10 million to $15 million per unit per year that you would have in sustaining capital: wear and tear, obsolescence, equipment upgrades, those sorts of things.
There's about $5 billion in this time frame that's associated with sustaining OM&A, what you would be spending anyhow regardless of any of these efforts. This gives you a sense of where all that money is being focused as part of this effort.
In summary, page 17, I believe the NAOP provides for the most probable success path. It's still a significant challenge. I believe this is the largest undertaking of this size in North America today. A close second might be Commonwealth Edison from a nuclear standpoint, with their 12 units. We all know their past performance in trying to solve this problem.
We believe it provides for controlled decision-making regarding expenditures for older units; ie, there are milestones established in business cases that must be provided prior to bringing back the A units, to show that they are in fact economical and that they are considered against other options -- an extreme amount of flexibility in bringing that back.
It arrests and improves the declining value of the newer nuclear assets. Left on the present course, I believe they would continue to degrade.
Lastly, they are the most realistic costs when compared to business as usual or the do nothing case.
That concludes the formal presentation.
The Chair: That brings us to the end of section 1 of three sections. What I propose to do is go to questioning in rotation by caucus. We will begin the questioning this morning with Mr Laughren.
Mr Laughren: I have a couple of questions that are unrelated but jumped at me as you went through your presentation.
One was, right near the beginning you talked about capacity factor on your slides -- the very first slide as a matter of fact. That only goes from 1992 to 1997. If you were to back up further, what would it show?
Mr Machon: I have some of the original data here. In the early years, it was flipped. The Candu design was outperforming any benchmark you had. That's why I say, if they were well-maintained and managed, I believe you should be seeing 86% to 90% consistently with these designs.
Mr Laughren: So it was when they started to deteriorate -- these are my words, not yours, but others have used this term. When preventive maintenance occurred properly, if it ever did, the capacity factor was much improved.
Mr Machon: Or in fact the plant was new so there was less to break because it hadn't had its wear and tear, yes.
Mr Laughren: Fair enough.
You also say that the work is labour-intensive. I've heard this before from folks. I'm trying to get a handle on, given the enormity of the expenditures being proposed here, how could it all be labour? I would have thought, as a layperson in this area, that the capital costs would be what drove it to these astronomical levels, but you're telling us that it's labour-intensive. What are these people going to be doing to spend these billions? Can you give us an example of what they actually do? It's huge money.
Mr Machon: Let me think about a couple of activities and try to take you through the process. That's probably the best way to do it.
When these plants were designed, there were obviously thousands, probably millions, of calculations that were done to support a pipe run or a cable run, a cable loading. Those all have to be revisited. We have a recent example at Pickering right now, where with the inability to retrieve a stress calculation and the fact that a modification was made which didn't integrate the additional loading associated with that modification into the stress calculation, we essentially have violated code out there.
The stress limit should only go to 50% of allowable. In this case when we redid the calculation it turned out to be up over 80% of allowable. That doesn't mean it's going to break, but it means you're setting yourself up for a problem later on, and we've laid out the fix we need to do that. That's an indication that of all the modifications that have been made, we need to go back and verify that those calculations have been updated and that what's physically in the plan is represented by what's in the paper, the paper being the design documents, the calculations that support the design documents, the set points that are a result of all of that. All of that is intensive engineering labour work. It's not bricks and mortar per se; it's calculations, it's paper.
Mr Laughren: If I could just jump ahead now, and it reinforces that question I just asked you, on page 16, the smallest number on that page is the one that jumped off at me. You're talking about managerial systems, accountability, structure, training, human resources, labour relations that support the worker; not $1 million, not $2 million, not $6 million, but $268 million for something that is basically, as I understand it, internal organization to make the system work. Am I right?
Mr Machon: And the training programs. The majority of that is what's associated with the training programs, bringing those up to the level they need to be and bringing the people through them.
Mr Laughren: I'm just having trouble getting my mind around these numbers.
Mr Machon: You're talking about training up to 10,000 folks.
Mr Laughren: I'm just a country boy from the north so I have trouble with the size of these numbers, you understand.
Mr Machon: I'm just a country boy from the south.
Mr Laughren: When this report was presented to the board on August 12, did you get a lot of piercing questions?
Mr Machon: Through the whole presentation we did, yes. I'm trying to remember. I think it was in the order of three to four hours long. I briefly took you through the overview of the process, but we spent more time in the process, a lot of time in the findings area and then time through this portion of the presentation. Yes, there were a lot of questions similar to what you're asking: Why only this year? Why that year? What is the scope of the work?
I have actual lists of the capital projects, lists of the initiatives and the estimates that were done for them. That led to coming back to September 9 to the audit and finance committee with another level of detail in the presentation.
Mr Laughren: Were you part of the presentation that day on the 12th?
Mr Machon: Yes, I did this portion of the presentation.
Mr Laughren: Some of us have trouble envisioning this meeting taking place in one day and coming to the decisions that were made on that one day. I still can't get that through my head, that you accomplished that, unless the fix was in before the meeting started. I'm wondering to what extent there was pressure on you or others to make this happen that day, to get a decision that day.
Mr Machon: There wasn't any. We provided all the backup material about a week before and went through the presentation. We didn't apply any pressure to reach a decision, nor was any pressure applied to us to force a decision.
Mr Laughren: Were you surprised at the speed with which this major proposal was accepted by the board?
Mr Machon: I think the direction is sound so I wasn't surprised by it. As I said, the plan is flexible and what we were essentially released to do was to move forward over the remainder of 1997 and drive this into the business planning process. That, the business plan, is what's going to be presented normally in December.
Mr Laughren: But it was only flexible in terms of it being a nuclear option. It was not flexible in terms of other options, was it?
Mr Machon: Our charge was to come up with a recommendation for the nuclear asset, which is what we did. From a generation standpoint, I go back. Don't forget that the Pickering A units were going to be out of service for the majority of 1998 anyhow, and those are the first ones we bring back. From a generation impact, number one, we believe we had mitigated what was going to happen regardless of the decision; number two, we purposely held the Bruce A units on through the first quarter to get through the winter peak, to help alleviate that portion, allowing the fossil units to get themselves refurbished and to be able to pick up some of the base load in the future. From that standpoint, we factored some of that in, but this information was obviously shared with the generation folks as well.
Mr Laughren: It's always easy to second-guess. I appreciate that; I wasn't there. But I would like to think that if I'd been on the Hydro board, which is highly unlikely, I would have said to you and your cohorts: "Wait a minute. What are the other options we could be looking at here as opposed to this one?" Did that question come up?
Mr Machon: As I walked through the options, and I think I did here, there are actually any combination of the 19 units that you could come up with for options.
Mr Laughren: No.
Mr Machon: You're talking outside of nuclear?
Mr Laughren: Yes.
Mr Machon: They weren't asked of me because I was dealing with the recommendation as it pertained to nuclear only.
Mr Laughren: It seems to me that's the question the broader public is going to be asking, not which of the units and so forth, because they'll stand back and say, "You folks know which units should be shut down and which should not and which need to be retubed and so on, what training is required and so forth." I can see the world out there, the owners of Hydro, saying, "You know best that way, but do you know best in terms of what the real options should be, and should we be looking only at one option?" That's what's bothering me as a shareholder in Ontario Hydro. I just don't know the answer.
Mr Machon: Again, our charge was to come up with a recommendation for the nuclear asset.
Mr Galt: I notice the schedule you people went through. As I recall, we've had board members here saying this was dropped on them on the Thursday, I believe, prior to the August 12 meeting. Were you keeping this secret, or when did you provide any information for the board? It's hard for me to believe you had a retreat to Orangeville on the 22nd or 24th without the board being aware of it. I'm surprised some of the board members are telling us they knew nothing until the Thursday prior to the board meeting.
Mr Machon: You'll need to confirm this with Carl, but I believe Carl was briefing the board as part of the routine on where we were in the process, and I also believe he was briefing the executive committee. But you need to ask Carl that question. I didn't do any of that with the board.
Mr Galt: From your comments, I believe I do remember him hinting to that but I don't remember any particular time frame, but that isn't what I recall from board members when they presented to us. We'll pursue that later.
Mr Machon: The briefing could have been just on nuclear performance as well, how the units were doing.
Mr Galt: Rather than the complete.
I'm concerned on the whole area of management and the rest of my questions will be in that general area. On what I'm hearing from you this morning, I'm rather disappointed. We're talking about the old status quo. The pre-Strong era is basically what I heard you telling us you would like to go to. I'm not hearing real accountability and I'm rather disappointed there.
We're told, and it's repeated over and over again in the IIPA report, that we have a management problem; 80%, I think it says in there, relates to management. We've had various chairs of Ontario Hydro talk about nuclear culture and cults and all the rest of the nasty things, but very little in here is talking about turning this around. The problem starts at the top. I'm wondering how many vice-presidents and executive vice-presidents are planned to be laid off because of this problem.
Mr Machon: I can't go back to the past, but I know that everybody surrounding me up there, save one or two, is new since I came here. I believe those actions have already been taken within nuclear.
Mr Galt: When did you come here?
Mr Machon: January.
Mr Galt: You're from the States?
Mr Machon: Yes.
Mr Galt: Do you have a work permit to be working here?
Mr Machon: Yes, I do.
Mr Galt: Do all the other Americans working here have work permits?
Mr Machon: I can only speak to the ones who went back to get the work permit with me.
Mr Conway: They're all illegal aliens.
Mr Galt: Some were working here, I'm hearing you say, and then had to go back and get work permits?
Mr Machon: No, we came in with work permits.
Mr Galt: Okay. Thank you.
Management being the problem -- we've been told this over and over again -- what kind of training programs are you going to put in place to upgrade management so we don't have this problem in the future?
Mr Machon: That's in the block on the upper left-hand side. As I talked through this, I talked a lot about accountable managerial systems. Getting those in place is a key to sustaining performance. I believe it is addressed in the plan. Specifically, we are moving aggressively forward with the requisite organization principles and the training associated with that, which is highly focused towards accountability: the who? by what? by when? concept. The fact that we have created integrated plans with deliverables, with milestones, with names, with accountabilities is key to the success of this overall program. I believe it's integral to this; it's covered in it.
Mr Galt: I'm following that, but there seemed to be in the past a total commitment to the program. Andognini talked about, "It would improve by an authoritative management style." As I read the report, the problem is it's too authoritative. That's a message I'm getting loud and clear. You can't get messages coming up through. That's an authoritative management style that's stopping those messages. They're scared to take the message up because the messenger may get injured rather than the real problem. How do we turn that around in these programs?
Mr Machon: One of the keys to any turnaround program -- I've been involved in a couple -- is exactly what you're talking about. You don't shoot the messenger. You can have both: We're authoritative or we want to be authoritative in the sense that we move to the decision-making process probably a little quicker maybe than folks are used to, with some buy-in. However, the reward is actually for identifying the problem. The problem identification of corrective action systems that are being put in place encourages self-identification. It is only through self-identification that you get to the precursors before you have something significant happen at the lower levels.
That's a reason to think, when you look at performance indicators, one of the classic performance indicators is, how many corrective action documents do you have outstanding at any point in time? The number is not important. In fact there are some cases that would say the higher the number the better, because more people are out there identifying problems: procedures that aren't working, equipment that's leaking.
As I raise the threshold for an expectation of an operator taking a tour, for example, an operator today may walk right by a small drip coming out of an oil system. It's not a big deal; we wipe it off with a rag and he'll move forward. That's not my expectation; that's not the expectation and standard we need to have. What we need to have is, not only does he wipe it off but he enters that leak into the corrective action program, so it becomes part of the work system to fix it. That's what we're encouraging. That's an attitude.
Mr Galt: We've been told, I think by Andognini, that we're overengineered and undermanaged. How many engineers will you be getting rid of?
Mr Machon: How many engineers would we get focused on doing the right thing?
Mr Galt: No. He said we're overengineered, we had too many. How many are we getting rid of?
Mr Machon: "Engineered" and "engineers" are two different things. We need engineers in the sense of, who else is going to do the calculation? Who else is going to do the verification that the vendor manual reflects the pieces and parts you have out in the plant? That's an engineer. The overengineered means that I have created too many options for the operator in the sense of the systems and I continually try to modify it.
Things only break for three reasons in a power plant: I'm not operating it right; I'm not maintaining it right; or it never could have in the first place, ie it wasn't engineered right.
Mr Galt: The people representing engineers, the society, were here the other day telling us the status quo was great and full steam ahead. I didn't get any indication that they had any idea of something new and different. At least the Power Workers did bring in a suggestion that was different. But the society was, "The status quo is just great." The status quo is not satisfactory.
Changing direction a wee bit, private companies have downsized. They found they had to. They've flat-lined management to handle competition. What's Ontario Hydro going to do in a similar vein to be ready for competition to head into that? It's happening all over the world, not just in Ontario or Canada. It's certainly happening in the US. What are we doing about flat-lining this management problem we have at Ontario Hydro?
Mr Machon: The first thing you need to do is get the performance to where it should be.
Mr Galt: That isn't how private industry did it. They flat-lined it and then got the performance.
Mr Machon: What kind of performance are we talking about here?
Mr Galt: Bottom line.
Mr Machon: I'm talking nuclear safety.
Mr Galt: We're talking safety, too, and bottom line.
Mr Machon: I understand because I took an organization from 1,600 people to 1,200 people over a two-and-a-half-year time frame. Performance went up at the same time. But I started with an asset that was reliable. We need to get the asset reliable first. Even when you look at these costs on the asset, the Candu design is extremely competitive today. It's in the top quartile. Some of that may be accounting magic and how much we capitalize and how much we put in OM&A, but it is in the top quartile. Competitiveness is not the issue with the Candu design. Getting the performance back up will make it more competitive. I believe the numbers will bear that out.
That's why I alluded to some of the process. We have a lot of processes -- how I process a work order -- that are very convoluted. They require a lot of folks to do it. As a priority, we're attacking and simplifying them at the same time. In the end, as the asset value comes up and the performance comes up, you overlay that with the process improvements. You'll settle out at a lower base than you would have had you just kept moving forward.
Mr Galt: Many other jurisdictions have gone to outsourcing. Your page 17, I think it was, had significant numbers of increased, or lack of numbers of personnel. For example, GM and a lot of other organizations have gone to outsourcing. Have you considered this? If so, by how much? How will you implement that rather than everything in-house? That's been one of the problems in the past at Ontario Hydro.
Mr Machon: Yes. This plan does not assume everything's in-house. In the period between August 12 and now, what we've been doing is beginning to package some of this work as best we can to put it out for competitive bid to allow companies to bid on the work. What that requires is that we need to understand the deliverable, we need to understand the time frame for all of that -- scope fundamentally -- and then put the packages out for competitive bid, outsource it, whether it be Canatom or GE or whoever, to bid on these packages for us.
Mr Monte Kwinter (Wilson Heights): I want to talk about the options, not the options that are non-nuclear, just within the nuclear option. It seems to me you have stated that traditionally Ontario Hydro Nuclear has been long on planning and short on execution. You've also identified that there's a mismatch in skills. You also said they're not operating right, they're not maintaining it right, but that the Candu technology is and can be very competitive. It seems that what we're talking about is a people issue, which is your number one problem. Is that a fair representation?
Mr Machon: It's the majority. We can talk about 75-25, we can talk about 80-20, but it's certainly greater than 50-50.
Mr Kwinter: My point is this: When you shut down the reactors, that period of time is going to be used to improve the facility, the hardware, which is relatively minor compared to the other issues, which are your personnel, training, maintenance, management, all of those areas. First of all, we've been told that the facilities are safe, that if they continue in their poor maintenance and poor management, they may become unsafe. But at the present time, everyone who has appeared before us, who is in a position to say, says it's a safe facility. The productivity is not great compared to what it could be, but it's turning out power. Right now we haven't had any brownouts; it's functioning.
It would seem to me that if you are going the nuclear option, one of the things you could do is say: "We've identified the problem. Our team has come in. We've now got a handle on what the problem is. Our number one goal is, let's get the right match of skills, let's get the training up, let's get the management up and then as we get that and we have people who we know at least can operate the function in a very highly productive way, then let's work out some phasing process to upgrade the hardware."
It seems, as an outsider and as someone who has some involvement in business, that a lot of the money that is being directed to this problem is going for replacement energy, when to me I don't understand why you need that replacement energy when you've got the capability now. It's safe -- it's not productive but it is safe -- and your major problem is training maintenance personnel. It seems you would concentrate your efforts on that while still maintaining the facility and then gradually work it out and do your refitting, whatever it takes over a period of time, which would save you a pile of money, which would not create all of the other problems that you have with replacement energy and what it does to the environment, and which would address the major concern everybody has identified: There's lousy management, lousy maintenance and no one seems to care about it. Do you have any reaction to that?
Mr Machon: Is that a statement or a question?
Mr Kwinter: It was a statement, but I'm asking you the question: Is that not true?
Mr Machon: If you go back to the first slide I put up, even if we stabilized for a while and undertook some of these programs right now -- we have been operating without Bruce A. If we get the units up to where they should be, which I believe on the B units we can in a relatively quick period of time, then you will have the same amount of generation we have had even with all 19 units trying to operate. Since over the summer period, I honestly am having a hard time remembering when we had more than 12 units operation anyhow, at any one point in time.
What I would offer is, in the present condition of the plants it would be extremely difficult to achieve the generation; ie, the generation deficit is going to be there in some order of magnitude regardless of whether we try to do 12 or 19. I think your best, most realistic shot at getting that performance restored and getting the generation up to where it should be will come out of the 12 units. They also happen to be the bigger units. You're talking 900 megawatts and 800 megawatts versus the 500-megawatt units at Pickering, nominally.
Mr Conway: Mr Machon, I want to come back to the table that Mr Laughren was discussing with you earlier and that's the table on page 15, "Phased Cost Forecast." I found your responses to Mr Laughren earlier quite helpful. There was just one item I was not clear about, and I'd like you to explain the two bottom lines: yearly variance and BP cumulative variance. First of all, what is BP cumulative variance? What does that mean?
Mr Machon: Business plan. We needed an anchor somewhere when we were doing the analysis and we chose to anchor ourselves in the existing, approved Ontario Hydro Nuclear business plan.
Mr Conway: Thank you. Now if I look at those vertical lines, I think I certainly understood what you were saying to Mr Laughren. So let's now take the year 1998, just so that I'm clear I understand what the bottom lines are: The yearly variance, $338 million, correct?
Mr Machon: Correct.
Mr Conway: What do I understand that yearly variance to mean? Is that going to mean that under the NAOP you will expend $338 million beyond what the business plan had called for?
Mr Machon: Correct.
Mr Conway: Now, what's the $529 million?
Mr Machon: It's $328 million plus $191 million. It's just a cumulative total.
Mr Conway: It's cumulative. All right. So when we get to the year 2001, the $414 million is the in-year variance and the bottom $1,710 million is the rolling total.
Mr Machon: Correct.
Mr Conway: Thank you very much. Now I want to go to questions around personnel because I was quite struck by -- and now I would be looking at page 13 -- what you said earlier about earlier plans, that the intentions were good but the Ontario Hydro Nuclear plans for recovery and improvement were long on planning, short on implementation. You said, and your charts on page 13 make pretty plain, that it's going to be a labour-intensive initiative, this latest recovery plan.
What I want to get some understanding from you on has to do with the collective agreement. I think I understand what you want to do here in terms of deploying your resources to those areas that are going to require them. I thought it was particularly helpful that you talked about, for example, the operators are not the largest number but they have the longest training time. What I'm trying to understand is: How are you going to move people around, bring people in, upgrade people in this three-, four-, five-year period and deal with what must be constraints in the collective agreement and related aspects?
Am I right in saying there are some challenges there, and to the extent there might be, how do you intend to deal with them since you've got a major manpower problem, or challenge, here, and you've made some assumptions about your ability to deal with it in a relatively short period of time. That's assuming you're not going to find a lot of surprises along the way?
Mr Machon: A very astute observation. That is, if not number 1, then 1A in the issues that need to be dealt with right up front. I think you've hit the issues. I thought we were going to have an overhead, but I'll try to talk from what's in front of me. The present situation we have obviously has skill mix issues that we have to deal with. It has geographical location issues. Part of the reason for putting a plant into lay-up is to create the additional resource I can move to the other facilities -- in some cases operators that can do rounds; they can't necessarily operate the unit, but they can go out and walk around the plant and know what they're looking at -- to move them, say, from the Bruce site to the Darlington or Pickering site.
We have an aging workforce too. The average age is well up into the 40s. If you look out past the near future, you'll see some folks hitting the rule of 85 and 90 pretty quickly, which causes the attrition rate to move just beyond normal but we have some retirements coming in.
That leaves us to deal with issues in the terms of the contract, around surplusing, around relocation, around retraining, which you mentioned, and the use of contractors, ie the PSA portion of the contract. We have put together a project that is working under nuclear human resources at this point, but also working with corporate, to specifically address and try to work and come up with some solutions to this problem so that we can get the right skills at the right locations, which is paramount in doing this, and get the training pipeline established.
When I say pipeline, I don't mean just for the immediate needs. If I look at retirement and attrition beyond a normal three- to four-year time frame and I look five or six years out, I've got to start filling my operations training pipeline right now and my apprentice program pipeline right now, to provide that resource available out in the future.
Mr Conway: But on that point, Ernst and Young was asked to do an assessment of, by and large, the financial aspects, but in their assessment, which the committee received in recent days, they themselves have raised a concern about some of the assumptions on the critical question of labour issues. We now realize, I think at least I do, that some very well-intended policies initiated three, four, five years ago had some very serious unintended consequences on the labour front. What I need from you is a more specific response around how you intend to manage in light of some significant challenges that I understand you face with the collective agreement and related issues.
Mr Machon: As I said, there has been a project set up. I'm not privy to the output of that project right now.
Mr Conway: How confident are you that project is going to deliver the results you need to meet these targets?
The Chair: Very briefly, please. We're well over.
Mr Machon: The needs are understood. We're waiting for the results of what they're coming up with for the recommended actions. It is tenuous. We need to get on with it. You're correct.
The Chair: We're going around a number of times. We're not stopping the first time, so keep your thoughts going, Mr Conway.
Mr Laughren: What puzzled me when I read the NAOP was not so much the options contained therein but why thinking so big was necessary; in other words, shutting down all those units, the seven units. This may be a question that may not sound like it's got much sense to it, coming to someone who is an expert in the field, but what would have happened if you had shut down one unit at a time -- fixed up one unit, fixed up another unit, did another unit? Is it because it wasn't so much a physical problem as other problems associated with it?
Mr Machon: There are a number of issues that focus on that. Obviously one was creating the resource to be able to deal with the issues we had. Thinking about taking a four-pack, if you will, out at a time was one of the key options we looked at.
Also, we need to understand that the economies of scale that are offered by the Candu design are such that if it takes, for example, 100% of the people to run one unit, when I put the second unit in service, it only takes another 70% to do it. So instead of having 200%, I have 170% of the resource. As I add the third and fourth units, it's normally about 40% of the resource on top of that. As you think about saying, "I want to keep one unit running," in a four-pack, for example, it's not just a quarter of the resources now that I need to run that; it's more than a quarter of the resources.
Also, the shared systems that are shared between units, the more I keep them in service, the more I cause an interaction between the two units I have to manage as I'm trying to recover the other unit; an additional level of challenge, if you will, to the effort.
Playing heavily was the material condition of the Bruce A units and the fact that the Pickering units were going to be down for the majority of 1998 anyhow because of a commitment that was made to the AECB to install the other safe shutdown system. Those are the main factors, trying to get on, and the timeliness.
Mr Laughren: The heavy water plant is shut down now, isn't it?
Mr Machon: Correct.
Mr Laughren: Is there any intention to reopen it?
Mr Machon: Not to my knowledge.
Mr Laughren: So that's a done deal.
Mr Machon: Right.
Mr Laughren: When the Power Workers' Union came forward and indicated that they wanted to take some precautionary measures to save the heavy water plant, because of the temperature dropping and so forth, I didn't have my wits about me that day to ask them why. Why would we want to save the heavy water plant? Is there a reason?
Mr Machon: No, we can't come up with one. (1) We have all the heavy water we need now through the life of the plants. (2) The contract that was in place, we have enough heavy water stored that if they want to exercise the deliverable, we could deliver it today. (3) It has resource that we can use other places in some of these efforts.
(4) The technology, fundamentally, has passed by what we have in the heavy water plant out there today. Those were the key elements in deciding to shut it down.
Mr Laughren: What happens to that plant now? Does it have to be decommissioned?
Mr Machon: Yes. It will be disassembled. You'll be out there tomorrow, I believe. Aren't you going to Bruce tomorrow?
Mr Laughren: Correct.
Mr Machon: You'll notice there are a couple of empty slots in between. There have already been a couple of them that have been taken down.
Mr Laughren: Actually dismantled?
Mr Machon: I believe there used to be three or four -- four towers out there. I think there are two now, one of which is operational or was operational.
Mrs Helen Johns (Huron): I'd just like to go through some of your slides again, if we might. The first slide I'd like to direct your attention to is the capacity factor slide, page 2. On this sheet, when we look at the benchmark, we see that only in 1994 on the benchmarks was there ever 86% reached. One of the criticisms of the Ernst and Young study is that you have ascertained that you're going to move from a capacity factor of 65% up to 86% and they're not sure about the logic or the accuracy of that forecast. When I look at this capacity factor of where we've been when the equipment was substantially younger than it is today, I see that in only one out of the last six years have you been able to reach that factor, if I'm reading this correctly. How did you ever come up with 86% capacity factor?
Mr Machon: First, there's a point of clarification. The top line is not us; the top line is the benchmark.
Mrs Johns: So that's the ability of the industry to be able to come up with that number. Is that correct?
Mr Machon: A composite utility of the same size. For example, I grabbed the Oconee plants, three under one roof, old; I grabbed Catawba and McGuire, newer plants; I grabbed Byron, Braidwood. I just took a sample of plants and built a utility up normally to the same size, going through bumps and grinds, which is why they were up and down during that time frame.
The rationale is twofold in achieving that. One is that we get into a discipline of planned outages on a regular basis. In other words, every two years you take the unit out for a maintenance outage -- religiously. You do it normally for -- we call it a long one and a short one. You start out at a 50-day, then you go to a 35-day, then you do a 50-day and you do a 35-day. You need a well-planned, well-executed -- it's based on equipment failure history rate as you go through it. So you're now beginning to understand fix and plan around an outage schedule, just like you would take any production facility down in the summer.
The second major metric in that is something called operating capacity factor. Operating capacity factor is a measure of how well I run between outages, from the time I close the breakers from the preceding outage until I open the breakers in my next outage. How well do I run the plant in that interim? We started in the recovery plan here looking at an 85% operating capacity factor. So throw the outages out for a minute and think of in between. In the better plants, the plant I came from, my goal was 95%, in other words a 5% forced outage rate, and we achieved it: 93% to 95%. So you're increasing expectations over time as you move that. You can do the math by taking the number of days out of the year and dividing by the days of the year and you can figure out where you end up for capacity factor.
The third key element and one of the top 10 issues we're on right now is what I'll call the work management schedule or the rolling 13-week schedule. You divide the year up into four, and again religiously, in a given week, a system, a set of components, is scheduled to be taken out and worked on. You load the base of that plan with your preventive maintenance program and your safety surveillances, the tests you do, and you leave a cushion in there for corrective maintenance and priority work that's going to come in. While you're taking care of the unit while it's on line, which brings your operating capacity factor up, you set up and you manage your outages the way they should be managed. It's not an event. An outage is nothing but a plant condition. I don't change the way I do work. I may work at double shifts, but I don't change the way I do work, and I do it with discipline all the way through.
My goals in a cycle were set in the high 80s, and we achieved them three years running. Those three elements combined and working together -- and it takes time. We don't all of a sudden just step to that level in this plan that we've got; it works up to that level in the end.
Mrs Johns: When was the last time that Darlington, Bruce B or Pickering B ran at 86% capacity?
Mr Machon: What I have in front of me, I don't have a year by year, but we could certainly get that for you to give you those answers.
Mrs Johns: Okay, I'd like to see that.
Mr Machon: The rolling average, for example, for Darlington, 1994 through 1997, was 81%.
Mrs Johns: The last question I want to ask you about this is that when I read the Ernst and Young report, it doesn't look to me that there's a gradual increase in that number from whatever we're at now -- 65 or 70 -- up to 86. It looks like in 1997 we're working with 86% capacity; 1998 we're working with that; and 1999. Did I miss that? Tell me the graduation you have worked into this plan.
Mr Machon: I can give you the details of that, but fundamentally it's starting with laying in the realistic outages with the work that we know we have to go through for the recovery, then progressively over a five-year time frame shortening the outages as we're building up the rolling 12-week schedule; starting at an 85% operating capacity factor and increasing normally 1% per year for I think the first two years, and then 2% in the last two years, to bring it up to a reasonable level for operating capacity factor. So it is a gradual increase on operating capacity factor and it is a gradual decrease in outage durations.
Mrs Johns: Can I just rephrase what I think I heard you say?
Mr Machon: No problem.
Mrs Johns: You're starting at 85% capacity factor and moving up by 1% per year, and then in the last couple of years you're going up by 2%?
Mr Machon: No. Starting with an 85% operating capacity.
Mrs Johns: Operating capacity, okay.
Mr Machon: How I perform in between outages. It's a combination of how I perform in between outages and how well I manage my outage. That's what gives me the overall capacity factor.
Mrs Johns: I'll probably have more questions as I read through your answers. I'll get back to you on that one. That's complex for me.
I think you're saying in page 8, when you're going through the detailed planning base, that you did all of this work on the left-hand side. One of the things we're very interested in in this committee is the decommissioning studies. What did you find when you did that work on the decommissioning studies?
Mr Machon: The good news is there were decommissioning studies.
Mrs Johns: There were some available?
Mr Machon: Yes.
Mrs Johns: For Ontario situations?
Mr Machon: There are decommissioning studies.
Mrs Johns: Okay. Let's hear about them.
Mr Machon: In the decision-making process, if you notice even in the base report, because of the time frame we didn't -- that's a financial implication as opposed to a cost implication on where we're moving over this time frame. If you notice, if we choose to early on make a decision to not recover the units, then you're going to have to consider decommissioning costs. If we did it tomorrow -- say I don't want to bring Bruce A back -- then I've got to factor in the decommissioning because I've made the decision, or as part of the final decision-making process with regard to recovery it will have to be factored into the decision,
Mrs Johns: Let me ask you this question then: How did you evaluate case number 6, which is the lay-up of A units permanently, if you don't know the decommissioning costs or if the financial numbers for the decommissioning costs aren't available?
Mr Machon: By making that exact statement.
Mrs Johns: That's frightening.
Mr Machon: I believe it's in there. By looking at the costs associated with it, the statement in there said the costs do not include decommissioning nor the write-off of these assets from the balance sheet. These costs are substantial. This results in -- walk through the analysis in getting there. Without those costs in, it's the least-cost option, I believe, when you look at it.
Mrs Johns: When you had this little board meeting in Orangeville on the 22nd to the 24th when you were deciding on strategic planning sessions, when you were deciding where you were going --
Mr Machon: It wasn't a board meeting.
Mrs Johns: I'm sorry, a three-day meeting of the minds.
Mr Machon: In nuclear.
Mrs Johns: In nuclear. Any financial data at that meeting?
Mr Machon: The costs associated with the alternatives that have been developed, yes, if you call that financial data, for each of the projects, each of the interrelationships, the labour costs, material costs and service costs.
Mrs Johns: But obviously there were some gaping holes in these financial data when we've just gone through number 6 and we didn't have the decommissioning costs and we're figuring out the costs of permanently laying up the units.
Mr Machon: Understand our charter.
Mrs Johns: I am -- to make a good decision for the taxpayers of Ontario.
Mr Machon: With regard to the nuclear option, correct.
Mrs Johns: Let me just say, laying up permanently unit A is a nuclear decision.
Mr Machon: Yes, and it hasn't been made.
Mrs Johns: Okay. You've just answered my question about the options on number 9. Except for the decommissioning costs, you felt you had all the costs to be able to make the decisions between case 1 and case 5.
Mr Machon: Correct.
Mrs Johns: Do you have those costs with you today?
Mr Machon: They're in the report that I believe you have, which is the basis.
Mrs Johns: I'd like to see them broken down more substantially, I guess, by specific case. I don't think I've seen them to a level that appeases me that things have been considered.
Mr Machon: We can provide them to you.
Mrs Johns: Humour me on that and send that to me, if you can.
The Chair: Thank you, Mrs Johns.
Mrs Johns: Oh. I have one more question.
The Chair: I'll let you do one more question. I think that would be reasonable.
Mr Conway: Humour Mrs Johns.
The Chair: I will follow the Conway model. Otherwise I know --
Mr Machon: She's on a roll.
Mr Conway: I'd like to humour Mrs Johns.
The Chair: This is coming out of Mr Conway's time.
Mrs Johns: He'll want something later, I know.
On page 11 you said, and this was very frightening to me, "I don't think Ontario Hydro has hit the bottom yet," and that was a quote from you. Could you explain to me, hit the bottom of capacity, reliability, debt to the taxpayer? What bottom haven't we hit yet?
Mr Machon: Discovery. I think we're going to find more issues that we're going to have to deal with as we go through reconstituting all the programs.
Mrs Johns: Is that going to cost the taxpayers more money?
Mr Machon: If you tell me what I'm going to discover. I believe, based on our experience -- a team that was brought up here has been through a number of these. We believe the way we have put this together, which again makes it different from some of the previous plans, is that we'll be able to walk ourselves through these issues. We have put some of the processes in place today that, should we discover something, we can deal with it while it's there.
Our main concern is operability; ie safety: Will that component, will that system, function in its intended manner when it's called upon to serve? If we find something that rings no, we're going to have to take some actions. We put the process in place to do that.
From a sense of a challenge to the generation, that's why I chose 85% operating capacity factor as opposed to saying, "It ought to be able to do 90%." We built some margin in to be able to do that. But there are certainly going to be additional discovery issues. I think even Carl said it when he was here before you. We're going to find some more things over the near term, particularly if you go looking hard for them.
The Chair: It would be reasonable to assume that would also then presuppose additional costs.
Mr Machon: Not necessarily.
The Chair: I see.
Mr Machon: Maybe a little overtime here and there, but no, it's potentially --
Mrs Johns: That's cost.
Mr Machon: I believe we have accommodated for what is a nominal amount in the planning we've done.
The Chair: Picking up on the questions by Ms Johns, will you ensure that you speak with our consultants and ensure that we have the decommissioning studies, we have the cost estimate and everything that is before us? Make sure we have all of that, will you, please? You'll check with Ms Johns to make sure it's done on the details we particularly want.
Mr Machon: I can do that.
Mr Conway: It's amazing how Ms Johns anticipates what's going on in my mind because, Mr Machon, I had a note to myself quoting you as, "I don't think we've hit the bottom yet." I thank Helen for raising that.
Mr John O'Toole (Durham East): Great minds think alike.
Mr Conway: Great minds do think alike. You're right, John.
The Chair: Shall we recess?
Mr Conway: Not just yet.
It struck me that you went out of your way to tell us that, and one of the difficulties I think the committee has had, particularly some of us who have been around this debate, is that Ontario Hydro Nuclear is not like Holiday Inn; there are always more surprises than these proponents ever seem to want to admit. I wish it were not so. I will take what you said very carefully about not hitting the bottom yet.
I think one of the surprises we're going to find is the labour problem. I am not at all confident on the basis of what I think was a fiasco in 1993, 1994 and 1995. I keep meeting people at Ontario Hydro Nuclear who tell me that you would have to have been an idiot not to have taken the exit package that was offered. It was indiscriminately offered. Many of the wrong people appear to have left. I want to come back to that question.
You tell me there is a project under way, but it's now almost November 1997 and the nuclear asset optimization plan is really a five-year plan from 1997 to 2001, as I read the documents. So we're heading into it.
Mr Machon: Hopefully it's a business planning process that just keeps going.
Mr Conway: I agree, but the front end of it is that five-year period that your data speak to. Tell me more about this project, because I am not yet at any kind of a sufficient comfort level knowing that you're going to have the flexibility to move the right people where you need them at the right time and bring the right people in to put them in the right place at the right time.
Mr Machon: At this point in time, I don't have that level of comfort either to give you the specifics of that. I know it's in progress.
Mr Conway: Who's in charge of it?
Mr Machon: Jim Crist for nuclear, human relations.
Mr Conway: What are the reporting times? When do you expect to hear back from those people as to the design?
Mr Machon: I want to say mid next month.
Mr Conway: We're talking about hundreds or thousands of people. I also noted that you said the increased training package you've talked about is going to be 240 hours per person for over a two- or three-year period.
Mr Machon: Yes.
Mr Conway: We've got a lot of work to do with a lot of people.
Mr Machon: Yes. Key to supporting that is getting the details of the workforce plan done, which is an integral part of the business plan, and getting the specifics about who is going where or who needs to go where or who can go where etc, what this whole resource profile looks like. That's being developed by the sites and the line consistent with the strategy that's being developed by human resources. We're working together in getting that whole profile laid out.
Mr Conway: You said something in your earlier testimony that I wanted to pick up and it had to do with the decentralization plan that was developed a few years ago. It now looks, in retrospect, that that really, while well intended, probably caused as many problems as it solved.
Mr Machon: It appears that way. To me one of the great advantages that we have, not only from an organizational standpoint but from a design standpoint, is the economies of scale and the ability to share lessons learned from site to site, to set up standard ways of doing business focused around the best and leverage that into the other sites, into the other organizations. I think that opportunity was missed. During that time frame there was very little of that going on.
Mr Conway: From a management point of view, since the management culture seems to be such a fundamental problem, what are you going to have to do to undo the problems that have arisen over the last two, three or four years in that particular area?
Mr Machon: Some activities are already under way. One is a strong central function, if you will, with the standards and expectations and policies coming out of that function. We have taken those existing procedures -- for example, an alarm response procedure in a control room. I'm sitting on watch in a control room and the alarm comes in. What are my expectations on how I'm going to respond to that alarm? How do I move through it? What does that procedure look like that I open up to respond to that alarm? Today, or within a couple of weeks -- that would have existed as four different procedures, all telling you to do the same thing in different ways. What we're doing now is developing one standard, one set of expectations that will replace all four of those. We're setting up a hierarchy or a managed system to do that.
Mr Conway: On the personnel issue: One of the concerns I still have is you yourself said a while ago that this was a company, Ontario Hydro Nuclear, that was substantially an engineering and design outfit, that with the completion of Darlington wasn't designing any new projects, and now we're at a situation where OM&A is the real challenge in this corporation. What measures have you taken or do you intend to take to make sure that you don't have, in critical locations, people with a very definite engineering and design outlook trying to manage OM&A issues that are foreign to the culture from which they came and in which they've worked for a decade or two?
Mr Machon: Part of this goes back to the training issue. Let me deal with a specific around that area. In an operating environment, the engineer who leads the charge, if you will, is called a system responsible engineer. He actually is more involved in the performance of the system as opposed to the design, that aspect. That function was woefully understaffed, and in some cases non-existent. It has been created. It has been sanctioned, if you will, in staff, and people are being moved into that function. There will be training required as we move them into that function. A lot of those folks will come from the design organization.
Mr Conway: Are you confident you're going to be redeploying people who are going to be amenable to this new scheme of things?
Mr Machon: Some will and some won't.
Mr Conway: How are you going to deal with the "some won't" problem?
Mr Machon: Some that won't enjoy doing it will leave by themselves because the accountabilities and the deliverables will be well specified and you'll deal with it through the performance system.
Mr Conway: You're confident that will happen.
Mr Machon: Yes.
Mr Conway: Some of the things you report to this committee of laypersons are, at one level, just incredible. I find it absolutely astonishing that some of these targets and policies and programs that were advertised just never took root for a whole series of interesting and complex reasons.
Mr Machon: I believe there is simply one reason: They need to be continually reinforced.
Mr Conway: Back to page 16: Mr Laughren was talking about the category in the upper left-hand corner, the $268 million on managerial systems, accountabilities, structure, training etc. You said the bulk of that spending envelope is going to be training. I think I heard you say that.
I want to go to the upper right-hand corner, $1.125 billion. This is part of the recovery plan: the "regulatory and technical basis that defines and reflects the plant and the work process that utilize that basis to operate, maintain and engineer the plant." I'm still not clear what that $1.125 billion is going to be spent on.
Mr Machon: I wish we had an overhead set up here.
Mr Conway: Well, we don't and we have limited time.
Mr Machon: Let me take you through this brick by brick. This is the licensing basis -- code, standards, regulations -- tied through procedures and programs. Preventive maintenance program is in this box; the air-operated valve program is in this box; the motor-operated valve program is in this box; vibration monitoring is in this box. The calculations that support the size of the valve, the setting on the spring pack, the size of the motor on top of the operating, the size of the pump.
Mr Conway: That's helpful. That's more helpful than the original go and that's probably my fault and not yours.
Mr Laughren: Have you had a chance to read the Ernst and Young report?
Mr Machon: I saw a smaller version of it, yes.
Mr Laughren: It's quite an interesting and in some ways disturbing report. They're talking about the NAOP. On the range of options being considered -- I'm somewhat preoccupied with the range of options because I'm really concerned that they weren't explored adequately -- they say:
"Evidence supporting the examination of a comprehensive range of options with respect to the nuclear program was not available. Potential options were not documented in a manner that adequately supports the selection of the NAOP option presented to the board."
I can see your position in that you're the nuclear guy, right? That's your thing, and it's Carl Andognini's thing too. What I don't understand, and perhaps you can help me here, is when you came up here, there must have been some framework within which you were to operate;ie, "Don't worry about other options" -- these are my words. "Your job is to go and develop a nuclear option." That to me remains a puzzle, why that would be the approach by Hydro. Can you help me there?
Mr Machon: Fundamentally, that was it: What do I have to do to turn the nuclear program around? Getting the assessment and getting to understand the size of it, and then, what are your recommendations around nuclear based on those issues?
With regard to the Ernst and Young findings specifically, in the board presentation we walked through those options in slide format, much like I did here, and that comment is what resulted in the preparation of the basis for recommendation. We documented it and went through the discussion we had, so we had a piece of paper that somebody could read and rationalize their way through it. But clearly, our charter when we came up was to arrest the decline and find out what's going on with nuclear and make recommendations around that to recover the program.
Mr Laughren: You give me the impression of being, if I may be personal for a moment, a thoughtful person who's trying to do the best you can for a public institution.
Mr Machon: Thank you.
Mr Laughren: I would give you that, gratuitously perhaps but I would give you that. What I'm wondering is whether it ever went through your head: "Wait a minute now. Look at these numbers. Am I really providing responsible advice by sticking to the nuclear option?" Did that occur to you or your colleagues that --
Mr Machon: You mean the throw-it-all-away option?
Mr Laughren: That's a very good way of putting it. You tinker with the possibility of not reopening the A units, right?
Mr Machon: Yes. I think our intention, with regard to those business cases, when they brought forward both the Pickering units and the Bruce units, is that they will have to stand the test against gas, cogen, coal, nuclear.
Mr Laughren: But they don't.
Mr Machon: No, the decision has not been made. The direction has been agreed upon. Part of this plan is to bring forward at the appropriate time the business case to support the recovery of the A units, given some alternatives that I assume Pat is going to bring forward and will have to be able to stand the test. If we don't stand the test, then they'll move into the decommissioning area, I would believe. That's the way the plan was laid out: Focus the energy on the 12, and based on substantiated business cases which will consider other options, bring the A units back.
Mr McNeil: During the course of my presentation I'll touch on the options we reviewed and our process for reviewing the options for the longer term as well, which I think will bring you the clarity you wish to see.
Mr Laughren: I appreciate that.
Mr Machon: It isn't that Pat and I weren't talking during this process either.
Mr Laughren: No, I would never imply that. There's a section in the Ernst and Young report that deals with labour issues and in it they talk about assumptions that you make dealing with labour issues that may or may not be appropriate. It has to do with bumping rights with workers under their collective agreement. It says, "There has been no analysis or sensitivity to provide for the following potential labour responses to the plan." One has to do with the bumping provisions. The other has the unions requiring guarantees with respect to potential job losses as a result of plant closures, and the unions possibly rejecting the significant retraining and job reclassification expected to occur during the recovery period.
I don't want to make assumptions on the part of labour here, but what has happened since this report was tabled to sit down with I guess the Power Workers' Union and the society of engineers to talk about going forward now with this plan?
Mr Machon: I think that's along the same vein as the question Mr Conway asked. What we've done is pull the project together and get the human resources and the workforce plan assembled to the point where we can start to deal constructively with the represented folks.
Mr Laughren: But at this point in time. This didn't happen before obviously when you were doing your assumptions.
Mr Machon: No.
Mr Laughren: I think that's what's bothering Ernst and Young and bothering me.
Mr Machon: It was also flagged in the presentation to the board as a major threat, and this is what we were doing about it. To get to this point with this level of detail in the time frame we did was relatively aggressive, so we kind of move in real time with each other through this process and a recognition of that was to leave it to the fourth quarter of this year to flesh out the detailed plans and get a better handle on it.
Mr Laughren: The Power Workers' Union was critical of the fact that Mr Andognini's group, of which you were part, didn't talk to them during the whole exercise leading up to the alternatives.
Mr Machon: Not regarding the alternatives. I believe the majority of that is a management decision on the direction you want to go in. However, with regard to moving through the process, I had a couple of meetings with John and showed him where we were going with the business plan and the overall intention and the performance indicators we were putting in place, at least a couple of times during the process.
Mr Laughren: And with the society as well?
Mr Machon: Yes, at least one with the society that I think I remember.
Mr O'Toole: Thank you very much for a very technical presentation. I appreciate it. I think I followed most of it, at least your explanation of it. I don't really know where to start, but I'm just going to go through sort of page by page because as you were making your presentation, I made a few comments.
I'm looking at the capacity factor. Ms Johns mentioned it. I really have a question there. I used to hear the expression that there was excess capacity at Ontario Hydro, that demand was the problem, not the capacity. Is there any substance to that?
Mr McNeil: I'll be speaking in the presentation I'm about to give if time --
Mr O'Toole: Oh, okay.
The Chair: There's lots of time.
Mr McNeil: Good. Then I'm available.
The Chair: So are we.
Mr O'Toole: One of the underlying factors in the economic model is to make full utilization of assets. So there are some underlying accounting functions that I have some problems with as well, not particularly in this presentation but in the overall optimization plan. What is your confidence in being able to operate at the 85 percentile range, scheduled outages and all that stuff? What's your confidence?
Mr Machon: Operating capacity factor or overall capacity factor?
Mr O'Toole: The operating capacity factor of 85%, that's your goal. Is that attainable?
Mr Machon: For the B units and Darlington I believe it's attainable.
Mr O'Toole: Very definitely attainable. That's very good.
Mrs Johns: For the Bs and Darlington?
Mr O'Toole: The Bs and Darlington, right. The As, when they come back up with all the money spent on them and all the maintenance, will be probably in the same range?
Mr Machon: We'll start it and then using the same techniques, starting earlier on at the 85 and then ramping it up over time to the higher levels.
Mr O'Toole: I guess you've explained it for me, but I want to verify it for my own understanding: It's my understanding when we listened to the AECB and others, and in fact Mr Andognini made mention that you really took everything that had been studied and reviewed, whether it's peer reviews or whatever, and those were the kinds of baseline documents. This is what you're telling me on page 7, that you took what was known and organized it.
Mr Machon: Correct. That would be --
Mr O'Toole: Did you do any other R and D type of overview, architecturally or technically, with respect to their recovery plans? We've heard from AECB that the first generational failure was between 1985 and 1995 at Bruce. They had a real serious identification of a problem. They said, "We need 10 years to recover on this." They never met that goal. They haven't met any goal actually. But all of those observations of systems failure or aging were all part of the documents in the background. You just organized and put a technical framework around that.
Mr Machon: A framework around it, correct.
Mr O'Toole: I think you've done a very good job of explaining, I guess, what was known and put it into some kind of deliverables.
Mr Machon: Correct.
Mr O'Toole: That's very good. I still like the overall plan, but on your page 8 you had one thing there that I'm still uncomfortable with. You said there were decommissioning studies on the left-hand margin. The last report group you looked at was decommissioning studies. These of course would have factored into the non-nuclear alternative. What if you knocked out a whole site? Have you got something like a number?
Say you just closed Bruce. Let's say we've got too much capacity operating ineffectively. Is the decommission greenfield? One of the presenters told us that when you're decommissioning a nuclear site, you just cut it up into little bits. That's actually what the guy from British Energy said. Dr Jeffrey said you just cut it up into little bits and put ceramic around it and bury it. What's the cost of decommissioning a site? Is it $5 billion? Is it $100 billion? Is it $50 million? Any idea? Numbers are pretty liberal at Ontario Hydro. Maybe you could just to the closest billion -- or $10 billion for that matter. What's the difference really?
Mr Machon: The present 1996 estimates for Pickering A, we have $689 million, and for Bruce A, $875 million.
Mr O'Toole: That's a permanent closure, walk away, everything, you can grow corn and wheat on the property. I hear the number's like $50 billion per se. I mean decommissioned. I mean decontaminated. I mean contained. I don't expect the answer now, because you've got a lot of big books there. But in my view there's no strategic plan for decommissioning a site that I've heard of, not from British Energy and not from any of the other people, including AECB. We've got high-level storage, we've got medium-level and we've ponds or swimming pools. The actual technology of nuclear is evolving as fast as you can keep up to it, in my view. Is this not a reasonable layperson's confidence interval?
Mr Machon: Without talking directly to the numbers, there are two plants where I have a little bit of knowledge about what they're doing in the decommissioning stage. One is Trojan. I used to be the plant manager there just prior to the shutdown of Trojan. They are in the process of disassembling that plant and bearing it up to Hanford. They didn't grind it up in little pieces. They took the major components out and kind of loaded them inside each other and filled them full of cement and what not and they're going up to Hanford and being buried.
Mrs Johns: Going where?
Mr Machon: Hanford, Washington. They clearly have the intent of returning that site to greenfield over the time frame. I've lost track of what the estimates are to do that at that plant, but it's a work in progress.
Mr O'Toole: Yes, a work in progress.
Mr Machon: We're going through that there and we're going through it at Yankee in Rowe, which is a very small plant in western --
Mr O'Toole: Environmental hearings and relocation and all that kind of stuff. I appreciate that.
I liked your analogy when it came to page 10, "Key Influencing Factors," the way you described why we're spending $5 billion in the personnel area as part of this recovery strategy. You compared it to pulling a string through a very complex maze and at the end of that string you've got a procedure manual that tells you how to fix every pump and every valve in every building in every bay in every plant. Is that right?
Mr Machon: Correct.
Mr O'Toole: That's a lot of work.
Mr Machon: Correct.
Mr O'Toole: Wouldn't somebody who designed and sold you that Candu reactor, AECL, have some of these base documents? I know there's site engineering or -- how would you say? -- facilitizing and design to a site. I know there would be onsite documents that are engineering, reinforcing, all this kind of thing. You're telling me some of those documents aren't around?
Mr Machon: Potentially some are not around, but very few of them have been kept up to date in regard to changes. It's going back and revisiting, revising, updating, getting in touch with vendors. Some of the vendors have gone out of business and in fact that component may have been replaced with another component like in kind, form, fit and function.
Mr O'Toole: You have to redesign it all. The procedurals at the sites in Ontario Hydro Nuclear have been neglected for the last decade. This is what you're saying in a kind of summary statement.
Mr Machon: True.
Mr O'Toole: I'm going to ask about another issue. It's basically the same. It's talking about past management practices. We had Mr Strong here, whom I've had the greatest admiration for -- the United Nations and a lot of world recognition. Far be it for me to say anything even slightly critical. However, I've heard some contradictory -- Mr Andognini told us that one of the poorest decisions he has seen was setting up the three sites as competitive business units. You've also made the same assumption here. You suggest there should be common systems, common documentation and common procedurals or recoveries. When you broke this down, I understood, even some of the documentation between sites for safety or fire or routine maintenance varies according to site.
Mr Machon: Correct.
Mr O'Toole: That's a fairly risky situation when you'd like to have a central office here on University Avenue saying, "Here's the fix for that particular problem."
The Chair: Thank you, Mr O'Toole.
Mr O'Toole: I've got three more questions.
The Chair: Not right now, but thank you very much. Do table them. I'm moving on. Time goes by very quickly, doesn't it?
Mr Kwinter: Mr Machon, in your presentation you talked about the deterioration of the facility. What I'd like to know is, is that due to aging or is it due to the poor maintenance and poor management of the system?
Mr Machon: Yes, yes and yes, I guess.
Mr Kwinter: If you had to rank them, would number one be the management and maintenance and number two the aging, or on an equal basis?
Mr Machon: The equipment is going to age and we need to recognize that. The effects of aging will show up, like an elastomer that gets hard that I need to replace every five years. If I leave it in there for five years it's going to get hard. The translation of that into the maintenance program would be a callup that comes up normally before five years and says, "Go out and replace the O ring or the diaphragm in that valve prior to it aging." If I don't do that, then aging is what gets me, but it was the lack of the maintenance program that set me up to be had. Does that make sense? Then it's the management of the maintenance function to recognize that program has to be in place to make that occur. It's a bundling of the three pieces together.
That can deal with what I traditionally would call a consumable material; we know it has a given life and I have to deal with it. There are erosion, corrosion, pipe -- if I just push a lot of flow through pipe a lot of time, eventually it'll get thin-walled and I'll have to replace it. There are inspection programs I can put in place to monitor how that erosion is progressing and take proactive action; rather than let it get me, I get it before it gets so thin that it's showing through-wall leakage in those areas. It's a combination of the three. You need all three in concert to make it work for you.
Mr Kwinter: Conventional planning gives a useful life to these reactors of 40 years?
Mr Machon: I believe the design life is 40 years. We're seeing some indication that the boilers may require work before that and the pressure tubes may require work before hitting the 40 years, but the 40 years is the design life of the plant.
Mr Kwinter: Given the fact that we haven't lived 40 years in that cycle, as you go through it, have you found that is a realistic assumption or is it actually, because of your real experience, less than that?
Mr Machon: What we're seeing right now is that steam generators or the boilers are showing some accelerated aging now that will probably require them to be replaced prior to reaching the 40 years, and for the pressure tubes, the inspection program there is indicating there will be some work required prior to reaching the 40 years.
Although those are two of the major components, there are a number of other things out there that you have to look at from a sense of can the condensate pumps, circ water pumps, travelling screens -- all that's pretty conventional technology we have in fossil plants today which will run the 40-year time frame. We're learning as we move forward on the major components.
Mr Kwinter: My concern is that a lot of the financial assumptions are being made on a 40-year useful lifespan when, from what you've told me and what the indications are, this may not be a valid benchmark to use from a financial planning point of view.
Mr Machon: I can't speak to that. I know that at least in the utilities I've come from, and this is United States design as well, the generally accepted life of a plant is 40 years. That's traditionally what I've seen done.
Mr Conway: Just one last question: You mentioned in passing, Mr Machon, and it didn't seem to me to be quite a positive passing remark, about the troubles at Con Edison --
Mr Machon: Commonwealth.
Mr Conway: I'm sorry, Commonwealth. Do you want to just elaborate because I would be interested to maybe put the problems of Ontario Hydro Nuclear in some other North American context. Do you want to just talk a little bit about Commonwealth.
Mr Machon: The reason I chose Commonwealth is they basically have 12 reactors. They're spread over more sites. They're basically in pairs. They're about 1,000 to 1,100 megawatts apiece. They started with a very old one, a Dresden design, which was in the 1970s, and moved forward to Byron and Braidwood, which are the new ones. Commonwealth Edison's plants have been on and off the watch list. If the AECB had created a list of troubled plants it was increasing inspection on -- the NRC, the Nuclear Regulatory Commission, calls that the watch list in the States; in other words, they are watching you a lot more. They have had plants on and off the watch list for many years and have had repeated attempts at trying to bring performance up on all the units, unsuccessfully, over those years, and still struggle with it as we speak today. They have not demonstrated the ability to get there and sustain it.
Mr Conway: Similar to Ontario Hydro Nuclear?
Mr Machon: A lot of the same issues. Where I came from, Tennessee Valley Authority, Browns Ferry plant, we were the charter member on the watch list and it was only until we got the second unit recovered and brought back into service and performing over that same time frame, like we talked about, that we were removed from the watch list, the whole site. That's a three-unit site down there, a 3,300-megawatt site. They struggle with it. My old boss just took a job with Commonwealth Edison from TVA to try to get that squared away. It would be an interesting parallel study.
Mr Conway: That's why I was interested in that. We might pursue that.
The Chair: Just to finish off for my information, a question Mr Kwinter had raised: Going back to the 40-year lifespan, in terms of the design life, you indicated in response to him that this nevertheless precludes boilers and pressure tubes and so forth; your experience is showing they're breaking down.
Mr Machon: Correct.
The Chair: I think your point was accelerating aging.
Mr Machon: Right.
The Chair: How accelerated?
Mr Machon: Part of the ability to quantify that is to have a sample size big enough to be statistically meaningful. We just completed a 100% inspection on the Bruce 3 and 4 boilers and we're having to plug tubes and pull tubes up there that are showing through-all degradation circumferentially to the point where continued operation could cause the tube to part in the boiler. I believe presently they were projecting about 10 more years. We're doing the analysis now based on the results we're getting in to see where that would come out.
Unfortunately, on some of the other units, the remaining units, the inspection program has not been sufficiently large enough to get some meaningful data. Part of the NAOP in the business plan is that as we take subsequent units out for planned outages, we're going to do substantial inspection and probing of the boilers with the eddy current testing to get meaningful data to be able to answer that question more specifically, rather than just sit here and say it has degradation. It is not degradation we expected to see at this time. It appears to be shortening the life. How much I can't tell you yet. You need subsequent probes in there to do a growth rate.
The Chair: All right. Boiler and tube replacement is a reasonably expensive task?
Mr Machon: Correct. That is factored into one of the options here.
The Chair: They are factored in.
Mr Machon: For Bruce A, yes.
The Chair: In that sense, then, there is significant give in your estimates.
Mr Machon: Help me understand that.
The Chair: The figures you've quoted today -- I'm going back to a question I raised earlier -- would it be reasonable to assume that all of your costs that have been projected so far are upset prices?
Mr Machon: No.
The Chair: I see. That's what I feared. Thank you.
We're going to stop the questioning in this round. We'll stop at this juncture because of the hour, it now being 12:05, and we will ask you to come back, please, at 2 pm. Yes, please, all witnesses to come back at 2 pm and we will continue this round. We'll begin with Mr Laughren again and we'll pick up from that. Then it will be Mrs Fisher who will go on, and then one more round here. Then we'll move into part 2 of the presentation and we'll continue around again. Are we clear on that?
I'm going to ask the members of the subcommittee to please stay for a brief meeting. The committee will then adjourn until 1400 hours.
The committee recessed from 1205 to 1403.
The Chair: We will start the proceedings of the select committee on Ontario Hydro nuclear affairs.
For the next hour we are very pleased to welcome Marc Eliesen, former chairman of Ontario Hydro. We are pleased to have you with us. I know you are very familiar with the process. What we will do is obviously ask you to identify yourself for the purposes of Hansard, and then we're in your hands for a deputation and questioning rounds by caucus for the hour.
Before I get into that, just a couple of pieces of information: A report of the subcommittee meeting we held at 12 o'clock is out. That is tabled before you.
You will note, for purposes of the public, that the committee has recommended that on Monday, November 3, we hold public hearings here in this meeting room. We have approximately 15 deputations identified at this point. If there are any other names to be added by 5 pm today, please do so. At that point the list will be closed. We will use Tuesday, November 4, for expert witnesses. That may include Ms Clitheroe, that may include others our counsel and consultants recommend. We'll take that day for those hearings.
On Wednesday we will adjourn to a site tour of the Pickering facility. That evening hearings will be held for people who wish to deputize, both from the Pickering and the Darlington sites. We need names by 5 pm tomorrow to formalize the list. At that point the list will be closed. On Thursday we will adjourn to Darlington. That will take care of all our three sites.
That will be the agenda for next week. That is the recommendation of the subcommittee, and it is so moved by Mr Galt.
All in favour? Opposed? Carried. Thank you so much. That's approved.
Mr Kwinter: Mr Chair, just for clarification, is it my understanding that deputants from Darlington and Pickering will all meet at the same place?
The Chair: Yes, at the same place, one night. That is on Wednesday evening. That will allow us to have some economy of moving all the staff and all the infrastructure necessary. That will give us some cost-effectiveness there.
If I can also just remind members, following up on the comments earlier about our visit to Kincardine -- I'm sorry Ms Fisher's not here yet -- we had picked up on her suggestion we find an alternative site. The schools are closed, unfortunately, so we will not be able to use the school facilities. The Royal Canadian Legion hall has been booked for that evening. The Davidson community centre has been booked for that evening. The Kincardine town hall is available. It only has enough audience seating for 30 people, so it would seem appropriate to stay with the arrangements the clerk has currently made, since it is 1,800 square feet and presumably would seat more than 30 people.
Mr Galt: I thought they would have been cancelled for these hearings, when we came into town.
The Chair: There are local elections that are very important, as you know, Dr Galt, so I think it's a matter of making some tough choices. People may want to move from one meeting to the other as the evening progresses. We'll certainly welcome them as we go by. But we'll have to continue with the plans as we had indicated earlier today.
The Chair: Mr Eliesen, I apologize. We had to do a little bit of business before we started. Now we are in your hands. We'd be pleased with any opening comments you'd like to make. We're so pleased you're here.
Mr Marc Eliesen: Mr Chairman, ladies and gentlemen, my name is Marc Eliesen, from Vancouver, British Columbia.
As most of you are aware, I was the chairman and CEO of Ontario Hydro in 1991-92. I'm now president of my own company, the International Power Development Group. I've been asked by your select committee to participate in these hearings and I'm pleased to be able to do so.
I have some brief general opening remarks that I hope can contribute to the matter at hand. After, I'd be very happy to respond to any questions you may have.
For those who may not be aware of my professional background, I've had a lengthy career in senior executive positions both in the energy and utility business and in public service. In the last 25 years, I've been the chief executive officer of a number of crown corporations, private joint ventures and departments of government.
When I was at Ontario Hydro, my central priorities in that 18-month period dealt with the Darlington nuclear station and its fiscal impact on the rate base, a senior management reorganization, improving the labour-management relationship, implementing a corporate cost control program, and formulating a new demand-supply program with emphasis on demand management and imposing at that time a moratorium on new nuclear plant construction.
Since I've been involved in energy and power development in the Asia-Pacific area over the last three to four years, your clerk, Donna Bryce, has kindly sent me the documents which are the subject of your investigation and analysis, particularly the report prepared by the nuclear performance advisory group, which is known as the IIPA report, as well as the submission of the Ontario Hydro board of directors on the nuclear asset optimization strategy of August 12.
I have not had a lot of time to review these documents in detail, but it is my preliminary judgement that this report, the IIPA, does a disservice to the history of the corporation and the dedicated professional service provided by the men and women of Ontario Hydro. Over many decades, they have provided competitive, low electricity prices in a reliable way to the Ontario consumer. I believe the report and public statements I've seen subsequent by the current chairman and acting CEO of Hydro undermine public confidence in an institution which has provided an underlying basis of Ontario's economic growth and prosperity for decades.
There is no question there are serious and have been serious ongoing problems and challenges in operating Ontario Hydro's nuclear plants in a safe and cost-competitive manner. In an historical context, these relate to difficulties not fully anticipated by AECL and Hydro's design of the Candu nuclear plant. Further, a totally self-defeating human resource policy has contributed both to lower nuclear operational performance and the concerns expressed by the federal regulator and the Atomic Energy Control Board, the AECB. But the IIPA report analysis and language is deliberately excessive and there is a lack of context and balance in presentation.
The general deficiency, from my perspective, in the evaluation of the Ontario Hydro nuclear system by the nuclear performance advisory group lies in the application of United States criteria and methodology to the Canadian landscape. This methodology is directly transferable neither to Canadian nuclear technology nor to the different Canadian structure and characteristics in electricity generation, in the transmission and in the distribution.
While there has been some limited experience in the United States for one- or two-unit plants, there is no experience anywhere in the world available applying this methodology for an integrated -- and I stress this, it is integrated -- generation and transmission electrical system involving some 19 nuclear units which are operational.
I'll briefly mention a few of what I regard to be deficiencies in the report.
The definition and terms on performing ratings are American and foreign to the Canadian electricity sector. The subjective assessments of "minimally acceptable or below standard" have no comparable interpretation for Canadian nuclear plants. The authors suggest that their combined safety and cost criteria of minimally acceptable would result in all of these plants being placed on a "watch list" by the US Nuclear Regulatory Commission.
From a safety point of view, this is misleading. From their table, the summary of IIPA results at a glance, on page 6, it suggests that all the nuclear units at Darlington, Pickering and Bruce should be under a Canadian nuclear regulatory board "watch list."
The AECB standards have been recognized as world leaders and second to none in applying safety and environmental factors. Further, as Dr Bishop I believe has told you in her response to questions at this hearing, the AECB does not make rating comparisons between plants because they are different. "It's very difficult to compare one plant to another or to compare a 21-unit with a one-unit."
Finally, as Dr Bishop has stated, the AECB staff review of the IIPA has concluded that no issues require immediate regulatory action.
The report also states, "Over several decades, Ontario Hydro has not maintained a consistent long-term vision of how its nuclear assets should be maintained and operated."
I personally do not understand that observation, when for nearly 20 years nuclear plant performance at Ontario Hydro was among the highest in the world. There is no reference in the report to the tremendous problems caused, not by nuclear managers but by the then provincial government's decision to build the Darlington nuclear plant in the late 1970s, its ping-pong, stop-go construction schedule during the 1980s and the many challenges in bringing the station into operation at a time when demand for electrical power had bottomed out.
It's also worth mentioning that the government of the day decided to build Darlington despite evidence and warnings from members of a committee of this Legislature that the power would not be then needed. When Darlington came on stream, it turned out these predictions were correct.
Nor is there any reference or discussion in the report on the recent significant downsizing or restructuring undertaken at Ontario Hydro and its immense impact on morale, productivity and uncertainty in decision-making. To blame Ontario Hydro nuclear managers is unfair and simplistic at best and it is not prudent nor productive to denigrate workers by referring to them as a "nuclear cult" and at the same time request their cooperation in jointly working together to implement effective solutions to these many problems.
As an aside, I can tell members of this committee that during the time I was at Ontario Hydro I did not observe people running around in Nike running shoes wearing purple togas and chanting "Nuclear Forever." So I reject quite emphatically the description being applied to the many thousands of men and women at the nuclear plants who have served Ontario exceptionally well.
The commentary in the report on labour relations again reflects a lack of understanding of federal and provincial labour history, legislation and labour-management collective bargaining. As opposed to certain US states where right-to-work legislation is in place, the principles and benefits associated over the years in free collective bargaining have been accepted by all past governments of Canada and Ontario.
The suggestion that employees should not have the right to strike because of "the critical and essential nature of electricity" ignores Canadian utility practices where electricity workers in most provinces have had the right to strike and labour disputes have been minimal. On the other hand, if we look at Hydro-Québec and the province of Quebec, where legislation has been in place forbidding strikes, there have been many more disruptions over time in electrical service to the Quebec public than those provinces allowing the right to strike in the electricity sector.
My own experience at Manitoba Hydro, at Ontario Hydro and also at BC Hydro is that a cooperative, non-adversarial relationship between management and labour is the most effective and, as well, the least costly way to manage the generation and transmission of electricity.
In conclusion, I believe it would be fiscally prudent to analyse and review carefully the proposed recovery plan. This plan is unprecedented in its impact on Ontario Hydro's integrated generation and transmission system, on the residential and industrial rate structure, and on the various communities and regions of the province that are economically dependent on the activities of Ontario Hydro. I do not believe that an expenditure of this scale, of about $8 billion, which has been described as ballpark by Mr Andognini, should be undertaken until there is a full and comprehensive and independent public review, perhaps by the Ontario Energy Board.
There are many serious problems and challenges facing the Ontario nuclear system, and any proposed recovery plan requires more time and a prudent and thorough analysis and evaluation.
Thank you very much, and I'd be more than pleased to answer any questions.
The Chair: Thank you very much, Mr Eliesen. We appreciate your deputation. We will begin the questioning by the caucus and we'll start with Mr Kwinter.
Mr Kwinter: Mr Eliesen, during your tenure as the chairman of Hydro, were you aware of the concerns AECB had about Pickering in particular, and that once Darlington came on line they reported that some of the maintenance problems, even though it was a brand-new facility and was only months old, were falling into the same patterns that had been detected at both Pickering and Bruce?
Mr Eliesen: Yes, Mr Kwinter, I was aware of that. You may recall, I was appointed Deputy Minister of Energy by Premier Peterson and worked for the Honourable Lyn McLeod when she was Minister of Energy. I've been knowledgeable about some of the difficulties -- not in detail but some of the difficulties -- that the nuclear plants had at that time.
When the government changed and Premier Rae asked me to go over to Hydro, in fact it was one of my first priorities to establish contact with the Atomic Energy Control Board. I had requested a meeting with the then president, Mr Lévesque. Due to a number of reasons, and I was informed there were health reasons involved, we did not get together until early October in Ottawa. I had Elgin Horton, who was responsible for the nuclear division, with me at that time. So I was aware and was attempting to attend to the areas of concern the AECB had reported.
Mr Kwinter: The AECB has told us that it has, since 1989 at least, maybe even earlier, indicated certain shortcomings in the maintenance and management applications at these facilities. Notwithstanding that, only about 40% of their recommendations had really been followed up and some of them are outstanding for as long as about seven years. Do you have any feel as to why there was that almost malaise or a lack of concern about the concerns raised by AECB that seemed to permeate the whole nuclear division?
Mr Eliesen: I think it's not fully appreciated, and I guess this is one of my criticisms of the IIPA report, that Ontario Hydro was going through an incredible period of trying to deal with problems no one had anticipated as a result of some of its design changes that had taken place, both by AECL as well as by Ontario Hydro. Equipment that was supposed to last, let us say, for 30 years was now going to have to be changed, and I'm thinking now of the tubing system, in 15 years. We're talking now primarily of the A plants.
Furthermore, AECB, starting around the mid-1980s, was insisting on certain standards that I believed at the time people neither at Ontario Hydro nor at AECL at that time had fully appreciated. When you toss in the difficulties associated with bringing on Darlington, a station, in my judgement, which should never have been built, and the kind of stop-go construction schedule, of which the capitalization only added on to the further cost, I think that gives you perhaps in an historical context the environment in which people were operating.
When I came on to the scene, I had been cognizant or aware of some of the difficulties, but I think during the latter years, when Mr Franklin was chairman as well as CEO, there had been some significant improvement from the concerns AECB had been mentioning. There had been I think somewhere in the order of 1,000 new personnel hired to assist in these, and at the meeting I had with Mr Lévesque at that time, he was pointing out, notwithstanding the list and the difficulties particularly with Darlington which was a new station, that there had been some improvement over the last year or year and a half compared to previously.
My answer basically is that one had to appreciate the historical context of what was taking place at that time.
Mr Kwinter: When Mr Kupcis engaged the so-called Andognini group, he admitted that the problems were well known. They were well known to him, they were well known to you, they were well known to Bob Franklin, but he wanted to quantify the problem. He wanted to know exactly the extent of it so they could address it.
As a result of that review, the IIPA study, decisions were taken. You just said in your opening remarks that safety was not a problem and that the AECB wasn't totally satisfied but wasn't concerned with the safety aspects of that facility and that these facilities were functioning. Is that correct?
Mr Eliesen: That is correct.
Mr Kwinter: What I'm trying to find out and ask you as a former chairman is that we have heard that the week before August 12, board members received this report. It was designated as an information item only, and when they came to the board meeting on August 12, it was changed from an information item to a decision item and that decision was taken on that day. In your experience as a chairman of Hydro, do you find that unusual or is that normal practice?
Mr Eliesen: No, sir, I find that quite unusual. In fact I've headed up about half a dozen crown corporations, including Manitoba Hydro, and BC Hydro for that matter, and a decision of that magnitude obviously requires some careful and prudent analysis, particularly if you're involving an $8-billion expenditure. In my judgement, the fiduciary responsibility of the directors is such that this would cause quite a major impact on the rate base and normally would require a very thorough evaluation by any board of directors.
Mr Kwinter: Normally when you had an information item only -- and I have raised this issue before because I sit on a couple of public boards and when I get an information item, it's for information. I assume that there is going to be ongoing information and that eventually there will be a basis on which to make a decision. Was that the normal practice at Hydro?
Mr Eliesen: That was my experience at all the hydros I've been associated with, and particularly it's not that an item under other business couldn't be discussed where it wasn't on the agenda, but certainly not in terms of an $8-billion impact.
Mr Kwinter: Have you had a chance to take a look at the Ernst and Young report that was commissioned by the board after they took their decision?
Mr Eliesen: No, the only documents I was sent were the IIPA and the recovery proposal to the board of directors.
Mr Kwinter: Just for your information, we have a copy of this report that was provided to us by Hydro in which Ernst and Young took a look at all the aspects of the recovery plan and pointed out -- we're going to be discussing this later on with the representatives of Hydro -- what they thought were some of the shortcomings in the process that led up to this decision. Again with your experience as a chairman of Ontario Hydro, would you not expect that under normal circumstances that kind of report or reports similar to it would be done before the decision was taken as opposed to after the decision was taken?
Mr Eliesen: Mr Kwinter, I would agree with your observations. The implications of, for example, taking seven reactors out of operation and the impact on system planning -- this isn't something you simply put into a computer model and in the next three or four minutes you have the results. This has grave consequences for the entire system, the integrated system. You take out the nuclear units and you put in, for example, the coal units which are in the southern part of the province, away from the Bruce and certainly remote from Pickering, and as well, if I recall, Lambton, which is an oil-generated station which is up north, there's an incredible analysis that goes into the whole transmission and integration of that system to ensure there are no bottlenecks, because you know where the power is being consumed and basically you've got to get it from where it's being generated to the source of consumption. That's not something you can do in a quick period of time.
That kind of analysis certainly takes a lot of time and it would have to be undertaken before any decision for expenditure.
Mr Laughren: Welcome back to Ontario. If the Hydro folks felt there was a serious problem in the nuclear division, which they did, if they didn't go to Mr Andognini, is there anybody of his comparable background in Canada who could have done that study that you know of?
Mr Eliesen: There are many people, Mr Laughren, I'm aware of who could have undertaken a study. The only question I ask is, from my knowledge, the problems have been well documented in internal Ontario Hydro reports. Quite a number of them have been made public over the years. The AECB publicly releases its information. All of the main problems and areas, people have known for some time. If it's a question of doing further study, then there are many Canadian consultants who could have undertaken that, but in my understanding in this case the very same consultants who have done this study are also running the system. The only question I would ask is: Why don't they simply run and improve the system as opposed to summarizing what has taken place in the past?
Mr Laughren: I think the feeling that they had, that they expressed, was that -- members will correct me if my memory is wrong -- they didn't want it to be a hit-and-run kind of thing, that the people who made the recommendations for change would also be here to make sure they happened, as opposed to just sending a consultant in to make recommendations and then leave town. I think that was the thinking behind it.
You made reference to a self-defeating human relations policy, and I didn't know what you meant. Did you mean now?
Mr Eliesen: No. I meant specifically, and you don't have to be a rocket scientist to figure it out, because we have seen the same kind of experiences in the private sector. When you downsize, restructure, eliminate in a very short period of time such a significant amount of the human capital of any organization, be it private or public, you are going to have serious problems. You are going to have problems of morale. You are going to have problems in productivity, work performance, and more specifically, decision-making.
In this case, in Ontario Hydro, it wasn't one kind of hit; it was a kind of constant elimination of people. I know very specifically, because I hired some of them when I was at BC Hydro. They were competent, able people who were provided with attractive buyout packages and decided to take them. In addition, they decided to come out to the west coast, maybe for other reasons as well. That kind of policy, over the long run, is self-defeating. That's what I referred to.
Mr Laughren: You see, I can recall when that restructuring started and the downsizing started, and it was my understanding, my impression at that time that that was because there was a moratorium on nuclear development, no new plants would be built, and therefore Hydro didn't need this very substantial construction division and that's where the numbers would come from. I don't have in my files a letter that tells me that, but that was the sense I got, and that it would not impact on the nuclear division. That was my sense when that restructuring was begun.
Mr Eliesen: The design and construction area, which is an area I had started to move in, in the latter months, because we weren't going to build any more nuclear plants, clearly was an area where people were going to be reallocated to other jurisdictions within Ontario Hydro, but if there is no overall corporate focus or standards and you're basically decentralizing, then the left hand doesn't know from the right hand what is taking place.
I can recall specifically following the meeting with Mr Lévesque -- I'm now refreshing my memory after seeing the note that was tabled with you and it took place on November 4; our board meeting took place on November 11 and if you haven't been supplied, I'm sure it's there in the minutes from Ontario Hydro -- we had a special discussion, because I reported my results with Mr Lévesque to the board.
We had a new reorganization with Mr Holt, who was the chief operating officer. We had Mr Niitenberg, who was the senior vice-president responsible for operations, and we had Mr Elgin Horton, who was responsible for nuclear, with his brother, who was the vice-president responsible for human resources. It was important that there be a collectivity of the centre involved providing the kind of support the nuclear people could operate under. What has taken place, I believe, is not only did a large chunk of the central core people disappear, but also some of the people that were in the line operations and some of the tradespeople who had been involved in the running of the nuclear plants as well.
Mr Laughren: You made reference to the meeting with Mr Lévesque. That was your first meeting with the AECB, in October?
Mr Eliesen: That is correct, October 7.
Mr Laughren: Did he give you some bad news?
Mr Eliesen: As I referred to earlier, he gave me good news and bad news. He tabled with me a staff report on what had taken place the previous period, and as I mentioned earlier there had been some modest improvement, on which he wanted to congratulate Ontario Hydro, but he still felt very strongly, and so did his staff, that there were just too many deficiencies. What was troubling him was that not only some of the older plants but Darlington was starting to exhibit some of the same characteristics the A plants had. That was a major concern to him.
Mr Laughren: Is that more or less what you reported to the Hydro board?
Mr Eliesen: Yes, I did. I attempted to correct or to continue basically the improvement that had taken place over the previous two years. We added somewhere in the order of over 500 more nuclear workers to assist in preventive maintenance and in terms of the operation. The reason I remember those figures is because we had to go each year, particularly when there were rate increases, to the Ontario Energy Board. Every intervenor there, including the OEB as well as OEB staff, criticized us extensively for increasing the staff at the nuclear division at that time, but we felt it important to ensure there wasn't a lack of human resources available to work on the problems identified by the AECB.
Mr O'Toole: Thank you very much for your presentation. Just picking up on a few things that have been said, you expressed some discomfort with downsizing a crown corporation and you made a comparison to the private sector. Under what kind of motives do you think any organization should examine alternative ways of achieving the same goal?
Mr Eliesen: The primary motivation relates obviously to the economics of the time -- I think we are talking here of what people in Canada and particularly people in Ontario went through, which was probably the worst downturn since the Depression -- and was to cut and to cut significantly. The kind of cutting that took place impacts not only the problems of perhaps trying to grow in the future, but also dealing with the customer base you have at the time.
While I appreciate, and in fact as I identified in my opening remarks, it's not that my board and myself were not involved in cost control, because everyone was involved in cost control, it is important to identify that eliminating human capital is self-defeating over the longer term. I think the experience of many, many private sector firms, as well as those in the public, reflect the reality today.
Mr O'Toole: I guess that's a point of view.
Mr Eliesen: Indeed.
Mr O'Toole: I don't particularly support that, but I think you either survive or you meet your demise, so we have different opinions. You would have some disagreement then, I guess, with Mr Strong's approach. As Mr Laughren has said, the expectation I'm sure of the board and others was that they were going to really go out of the design-build mode to the operate-maintain mode. He had a significant downsizing, some 8,000 to 10,000 people. Do you think he did the right thing the right way, or was that clearly a mandate? As you shook hands leaving, was that kind of process starting?
Mr Eliesen: No, sir. The only thing I had started on, and actually had been complimented on by the Ontario Energy Board, was removing some of the overheads and identifying those areas within Ontario Hydro. I mentioned the design and engineering, where we were not going to build new plants. We started the elimination of positions in that area. No, in terms of running the entire system and the comparisons I have seen in running a nuclear system in Canada compared to other jurisdictions, as well as the thermal and hydro, we were cost-competitive and the human resources were required to operate the system.
The bottom line for me was, when I travelled in the United States or in Europe or in Japan, electricity prices there were two, three, four, five times as high as they were in Ontario. Even though you paid, let's say, four or five times as much, those jurisdictions were experiencing brownouts and blackouts, which has not been the pattern one saw in Ontario. I thought Ontario Hydro had been doing a good job.
Mr O'Toole: It could be argued they had excess supply to start with, I suppose, but I want to get on to another question. In your view, who controls Ontario Hydro? Is it the board? Is it AECB? Is it OEB? Is it the minister? All I see is it's just like blowing up a huge balloon. A point of maximizing return, I suppose: The debt exceeds by double the asset base. There's a huge problem here. I know we need to be safe and all these various things. They're right up on the goals and objectives of the board of directors, I'm sure. But you said cost-effective, sustainable, those kinds of things. Who runs Ontario Hydro? How do we get where we are?
I, as a citizen, a taxpayer, know -- you do too, better than I do -- that somebody's going to pick up a bill here for about $15 billion. That's the problem. We can talk here for a hundred years. It's about $12 billion. Just read their annual report. I'd say it's an organization out of control personally. I know it's nuclear and you should never say it, but my view is it's been very poorly managed for decades. Who runs it? Who is really responsible, you or the board of directors? I heard them say they make $8-billion decisions in an afternoon.
I'm uncomfortable as a taxpayer. I really am. I think the Macdonald report looked at, how do you get this octopus in control here? Does AECB have a role? Can the Ontario Energy Board set rates? Who has control? Nobody, right?
Mr Eliesen: I'm trying to understand the specific question: Who has control? The Power Corporation Act sets out the specific responsibilities. The responsible government appoints the chairman and CEO, as well as the board of directors who are given the fiduciary responsibility under the power act. Other players you have mentioned are involved in Ontario Hydro's activities to the degree that, if there's a rate increase, then there's an independent process under which that proposed rate increase is reviewed in a public forum, and another body of appointed people, upon having public input, decide whether the request put forward by Hydro is acceptable or rejected or whatnot. The government is always there as a last resort. In my experience, any expenditure, for example, of $1 billion would have to receive the concurrence of the government of the day. Certainly that's been my experience.
There are a number of public bodies and agencies which impact on Ontario Hydro's activities, but I go back to the bottom line: Ontario Hydro has served this province exceptionally well. If you want to pay the electricity prices they do in New York or Los Angeles or Tokyo or Paris, then you can pay two or three or four times as much. I've been travelling in the last four years in the Asia-Pacific countries, which are experiencing tremendous brownouts and blackouts. There they pay for electricity far more than we do here in Ontario.
I take a look at the comparative performance for a province which has not had indigenous, natural resources like falling water found in Quebec or Manitoba or BC. I believe the people who started Ontario Hydro did a good job for the citizens of Ontario and still continue that today. I'm a firm believer in public power.
Mr O'Toole: Yes, that's clear. Ms Johns had a question.
Mrs Johns: You were there from September 1991 till --
Mr Eliesen: No, I became chairman in May-June of 1991 until the end of October 1992, for about 18 months.
Mrs Johns: I have done a clip search of your illustrious career at Hydro. I start out with "Rae's Choice to Run Hydro Asks $400,000," which met some outrage from the Energy Probe group; "Tories slam NDP Hydro Coverup," and I guess that was when Holt was fired; "Fired Hydro Pres Ready to Tell All." The next one is, "Is Ontario Hydro in a Death Spiral?"
One of the things we've been looking at over the time frame is that it seems in most cases the chairmanship has turned over fairly quickly. It's my understanding that they had nine chairpeople in 20 years, when most businesses with strategic long-term planning might have -- for example, GE has had the same chairman for 20 years, with some strategic planning. You had a five-year contract. Can you tell us why you left after a year and a half?
Mr Eliesen: If you did your search on your newspaper clippings, the answer would have been provided. At the time I left Ontario Hydro, I left for personal reasons. I had been offered, and there's a public statement to that effect, an opportunity to be the chief executive officer of British Columbia Hydro. I had lived and worked on the coast and this provided an opportunity for me to return. It was a personal decision on my behalf to leave at that time. I was quite proud then, and I'm still proud now, of the accomplishments in the 18-month period I was associated with Ontario Hydro.
Mrs Johns: When you left, the next person in was Maurice Strong. In a clipping I have from March 1993, which is not very long after you left in October 1992, he says, "'The new Ontario Hydro must be on the leading edge of change and not simply caught up in its backwash as it's been presently.' His tough actions were greeted by applause from Premier Bob Rae's NDP government, both opposition parties and traditional critics of Hydro." That implies to me they didn't think you had maybe pushed hard enough to get Ontario Hydro on the leading edge.
I know you've said you don't agree with what they're doing today, but do you think Hydro was pushing on the leading edge from 1991 to 1992? We had cost overruns. We had a president who got turfed when he was in Spain, I guess. Are we trying here to try and get control of an organization that's out of control?
Mr Laughren: It wouldn't have mattered where he was.
Mrs Johns: Obviously not.
Mr Eliesen: I'm sorry, I may have to ask you to repeat your question.
Mrs Johns: The question is, I think the organization was out of control when you were there too. Try and convince me it wasn't.
Mr Eliesen: I can easily refer to one source which may give you a little bit of comfort. That's the Ontario Energy Board. The Ontario Energy Board does a very detailed review of Ontario Hydro, particularly when a rate application is made. I have one of the massive documents in front of me now. If you read the transcript of all the interventions by Energy Probe, by AMPCO, by the MEA and others, plus the participation by the staff, you will get an appreciation of all the areas where Ontario Hydro has been thoroughly analysed and evaluated.
Clearly that's an adversarial forum and Hydro responds and then there is a judgement expressed by the regulators. The observations that were made, certainly during my term, were quite positive. They applauded my efforts on eliminating the adversarial confrontation between labour and management which resulted in a very successful two-year contract with rate increases of 1% in wages in the first year and 2% in the second year. They applauded my efforts on the cost control and they acknowledged that most of the rate increase that was coming in was a direct result of the operation of the Darlington nuclear station. In summary, notwithstanding I was only there for 18 months, I'm quite satisfied with the work I was able to do during that period of time.
Mr Kwinter: Notwithstanding that you feel the IIPA report does a disservice to the people of the Hydro community, undermines the citizens' view of Hydro, I don't think anyone has come forward and disagreed with the basic thrust of the IIPA. This has been confirmed by AECB and others. Would you agree with that?
Mr Eliesen: Yes, except that my whole point is, what's new? I was trying to fully understand. If problems are already known and identified, then what is the purpose at a certain, particular time to come out with a report which, in my judgement, is American in terms of methodology, which does not have a direct application to Ontario Hydro in terms of its integrated electrical system?
The IIPA follows the American methodology in that it only lists the deficiencies. It doesn't provide a historical context. It doesn't provide any context. It doesn't say what's positive or what's happening at various of the stations, some good, some bad, some terrible. It only lists the deficiencies, and the question I ask, which again I ask, is why does this report come out at this particular time? The only answer is that I believe there were other agendas that are operating.
Mr Kwinter: You've anticipated my question.
Mr Eliesen: Okay.
Mr Kwinter: The reason I was asking is that the problems were identified over a period of years. Kupcis brought in Andognini to quantify the problems. We get the problem, and my feeling is that there was no real reason to precipitate a crisis. There's no question the problems had to be addressed. What do you think this other agenda is or other agendas are?
Mr Eliesen: First of all, I would agree with your observations. I don't believe I'm letting the cat out of the bag, but I believe the other agenda is quite frankly related to the privatization of Ontario Hydro. I think the previous two chairmen had an agenda with regard to their view that Ontario Hydro should no longer be a public institution. I believe it was inappropriate for both Mr Farlinger, whom I do not know, and Mr Strong, whom I do know and I have a large amount of respect for what he's done in the international environment area, but I disagree quite strongly with their privatization efforts. If both these gentlemen wanted to pursue this, they should leave the position which they've been given in trust as a public institution.
Mr Laughren: I find it strange that the most spirited defence of this public institution in Ontario comes from a British Columbia resident because there's no doubt, Mr Eliesen, that there is an agenda here, absolutely.
About a year or so ago, if people will correct me on my timing, the government tried to dump some members of the Hydro board. They fired them before the term was up and the courts overruled that and said no, there was not cause and they had to stay on, and Mr Farlinger was appointed the chair of course. I don't think there's any question that there's an agenda here and it really is "get Hydro" time in Ontario. There's absolutely no doubt about that. Deputant after deputant has come before this committee and made that clear. Now, they've got a lot of material supporting them and this is what makes it difficult for those of us who believe in public power at cost, which you don't get in the private sector.
What's bothering me --
Mr Laughren: The cheap shots can come later when I'm finished. What's bothering me is that all of the material that's coming forward substantiates the need for reform at Ontario Hydro Nuclear. Everything seems to point to the fact that it hasn't been handled well and that they'd better get their act together. For the AECB to come within an eyelash of closing down Pickering, it seems to me, is serious and we do have to get it on track.
At this point in history, what would you do differently than what Hydro is doing now, including the Andognini report and so forth? The public needs to be reassured about the nuclear division at Hydro and I think they have a right to be reassured. You'd like to think that both Andognini and what he recommends to the board will go partway to reassuring the public that we're getting back on track with Hydro, but I'm nervous that the exact opposite could be the case, the way people are coming before this committee.
The Chair: Thank you, Mr Laughren.
Mr Laughren: I just wanted a quick response from Mr Eliesen.
The Chair: Very quickly then, please.
Mr Eliesen: The only quick response I can give you is that many of the people who were let go during that period of time are obviously the trained, qualified people who should be returning to assist in improving the nuclear system.
Mrs Fisher: You were there from 1991 to 1992. My understanding is Darlington was commissioned during that period of time.
Mr Eliesen: Commissioned to be in operation?
Mrs Fisher: Yes.
Mr Eliesen: It was thought to come into operation in the late 1980s, and 1988.
Mrs Fisher: When did it come on is what I'm asking.
Mr Eliesen: It came in, yes, during 1991-92.
Mrs Fisher: When you were there?
Mr Eliesen: That's correct.
Mrs Fisher: I find it amazing that today you have all the answers because I started following Ontario Hydro very closely in the mid-1980s and followed the history of what was happening at the same time. Let me ask you this question. How many OEB rate hearings did you go through when you were chair?
Mr Eliesen: There were two.
Mrs Fisher: Two during the course of your tenure?
Mr Eliesen: That's correct.
Mrs Fisher: How many recommendations were made to you as chair of the board from the OEB at that time?
Mr Eliesen: I haven't counted the number, but there were quite a number of recommendations in each annual report and there is a response from Hydro at the time, and many of the recommendations were followed.
Mrs Fisher: How many weren't? Because it seems to be a trait, and it seems to be that the recorded trait is that those who come before us now not only did a good job, had all the answers, but also are now recommending to this panel that OEB be the respondent.
Earlier in your deliberations you talked about perhaps the OEB should be the external party to review this thing. I find that rare because in your position the OEB was the unbiased party that was making recommendations to Hydro and I would be very curious and I would like to see on record, please, during this tenure how many recommendations were made. I know we have that record somewhere because I asked for it previously. I just don't have it available because I can't carry everything around any more. But I know that there were a number of recommendations made and I'd like to see the success in terms of implementation.
Mr Laughren: You have to go back a lot further than that.
Mrs Fisher: I agree. We do have it on record from a number of years back.
I want to ask one more question. The crux of the IIPA report right now is the human resource issue. I heard you defend, and somewhat rightly so, I guess, the past practices of the staff, certainly in that situation, but some poor management decision-making, and I believe management starts on the 19th floor over there. It certainly has in my 20 years of observing Hydro. Let me ask you this: If the commissioning of Darlington came on in 1991, which was in your tenure, how many of those construction engineering staff did you lay off and how many of the new breed that we needed for operating status did you hire?
Mr Eliesen: Well, Ms Fisher, it's all in the OEB report.
Mrs Fisher: I'm asking you.
Mr Eliesen: I can give you the actual numbers. On page 86, where it shows the staff changes by branch, the nuclear went up, first of all, from 1991 to 1992 by 414 and that --
Mrs Fisher: Please just concentrate on the engineering side of it.
Mr Eliesen: All right. On the design and construction, which I believe is the area you're concerned about, there were 498 positions that were removed in 1991-92 and 104 in 1992-93.
Mrs Fisher: How many were replaced?
Mr Eliesen: As I mentioned earlier, that relates to the specific fact that Ontario Hydro was no longer going to be in the business of building nuclear stations.
Mrs Fisher: Which I appreciate. If Mr Andognini is right in his analysis that the philosophies or the mentality didn't switch from construction and move over to operating, I guess what he's also telling us then is nor did the skills of those people doing the jobs. What I was trying to hone in on was, you're saying that in 1991-92 and 1992-93 about 602 people were laid off in terms of engineering staff, or were they transferred into operations?
Mr Eliesen: They were transferred. I don't believe there were any specific layoffs. We eliminated positions in those areas.
Mrs Fisher: Would you agree that today that might be part of the problem?
Mr Eliesen: Oh, absolutely. I guess that's been the thrust or one of my main points. When I referred to a self-defeating human resource policy, the removal of so many people over quite a number of years contributed to the low working performance, to the low productivity, to the morale and to the decision-making process that was taking place within Hydro, absolutely.
Mrs Fisher: If I could just make one fast point?
The Chair: Only if you do it very quickly. I've already allowed you some extra time.
Mrs Fisher: I would think this might be the turning point as to when the philosophy change didn't turn because if Mr Andognini is right, in fact, in going from construction to an operating maintenance mode, that is the time that should have been taken care of, and I think we're paying the price today.
The Chair: That concludes that part of the questioning, Mrs Fisher.
I want to ask the members of the committee: We are pleased that Mr Eliesen has attended upon the committee from a distance, and it may be appropriate if members of the committee would like to continue for another round. I'm at your disposal. Another round of questioning, or would you wish to bring it to a conclusion now? Are we satisfied? We are satisfied. All right.
I just have two small questions, Mr Eliesen, before you leave the witness stand, if you don't mind. I am bemused in a very strange way by evidence that has been given to this committee by a number of former chairmen. You'll forgive me because I'm just a simple fellow trying to figure out where the truth lies and who sees what and where. Mr Strong, in his evidence, thinks not very highly of all the chairmen who have gone before. You have given the impression that perhaps Mr Strong needs to hie himself to a nunnery, or some other equivalency, for some personal reflection as well.
You will understand that there is a concern I have in, where does the truth lie? Each of you is kind of pointing the finger at the other, not nastily, not unkindly, but both saying, "I think you've really made a mistake there," and he's saying, "You made a mistake." Can you shed any thoughts on it that might be as unbiased as you could possibly make them?
Mr Eliesen: Clearly we're all human beings and we reflect different points of view, and that's quite healthy in a democracy, I'm told.
The Chair: Except the taxpayers wind up paying, so I'm concerned about it --
Mr Eliesen: Let me try to address your question. In general, Mr Franklin, who I followed, I have a lot of respect and admiration for what he did during that period of time. I think there's a lack of appreciation of the impact a manager is asked to bring in the public sector in the provision not only of electricity, but also to act as a responsible public citizen to the region, to the community and to the province as a whole. Ontario Hydro has played that role and has played it admirably over the years.
When people criticized Darlington -- and I was one of the ones, because I'm not in favour of nuclear power. I've always promoted energy conservation because it is the cheapest method of generating electricity; notwithstanding, the fact is you've got a nuclear system. The idea is to make it run as well as possible. These people worked exceptionally hard and worked quite diligently in the interests of the people of Ontario.
I would ask committee members to remember the bottom line, and the bottom line is, is it broke? Are electricity prices such in Ontario today that it's two or three or five or 10 times more than in other places and really affects the competitiveness of people here, and are you experiencing serious brownouts and blackouts such that the whole reliability and stability of the electricity system is in dire straits? I would argue with you that is not the case.
I believe Ontario Hydro is not getting the kind of defence it should be getting as a result of these hearings. I think there has been a deliberate effort to undermine public confidence in the public institution. If I'm expressing myself a little bit more passionately than perhaps those who have preceded me here, it's because I believe quite positively that Ontario Hydro has served the people of Ontario quite well.
The Chair: The $32 billion then, the debt itself, is not a cause of undue concern for you.
Mr Eliesen: No, sir, it is a cause of concern.
The Chair: All right.
Mr Eliesen: But let me answer your question comprehensively. People always have a tendency to look at the debt side; they never look at the asset side. Probably Niagara Falls is listed on book; that is, the book value of Niagara Falls and the generating station is probably $100,000. You try to replace Niagara Falls. The replacement costs would run into billions of dollars. If anyone did a proper accounting of the assets and liabilities of Ontario Hydro, you will find the assets far exceed the debts of Ontario Hydro. Ontario Hydro is not going to go broke. The assets are worth more than the debts.
The Chair: You are really of that opinion.
Mr Eliesen: Well, sir, I've seen studies --
The Chair: You are of the opinion that the assets far exceed the liabilities?
Mr Eliesen: Absolutely.
The Chair: Based upon what information?
Mr Eliesen: During my tenure I saw studies done internally on replacement value of the Hydro facilities in particular, which were worth five or six or seven times more than the value on their books, and that could only be enhanced in value as time goes on. These things depreciate over 50 or 60 years. They last 100 years. The opportunity costs of trying to develop another alternative -- for example, a hydro station -- in this generation becomes far more valuable as time goes on. That's rarely taken into account in the analysis of the balance sheet.
The Chair: A final question, because you've wandered into an area that's of more than a little interest to me, the area, for example, of stranded assets. Do you want to respond to that?
Mr Eliesen: "Stranded assets" is a term that only became relevant --
The Chair: I'm sorry, stranded debt.
Mr Eliesen: Okay. There are stranded debts and stranded assets.
The Chair: That's right, and I've decided to choose debt instead.
Mr Eliesen: "Stranded debt" only became a focus when people started to talk about deregulation. When you had a public monopoly, or a private monopoly for that matter, which was regulated and served the people, there wasn't a question of whether it was stranded or not; it was going to continue to serve the people of Ontario. Once you started talking about a new scenario in the future where private people are going to be allowed to participate, then obviously the question of stranded debt becomes relative, but no more, no less than what you hear in the United States because they are private companies, not public. Private companies have the same kind of --
The Chair: Is it not true that in whatever cheery picture you paint of assets and liabilities, in fact in the final analysis the health of Ontario Hydro depends upon the government of Ontario?
Mr Eliesen: There's no question. Darlington would never have been built if the government of Ontario had not made the decision to build Darlington.
The Chair: Okay. Thank you very much.
Mr Galt: On a point of order, Mr Chair: With the delegate leaving, I'm very concerned about one figure that came out suggesting that the Niagara Falls project is only worth $100,000 on the books. I think we need, through our counsel, to chase that down and get some real figures on what the value of Ontario Hydro's properties really is. As to $100,000, I can't even believe it was worth that little bit back at the turn of the century.
The Chair: Let me just ask our consultant.
Mr Rick Campbell: Subsequent to Mr Eliesen's tenure, Mr Strong did an evaluation of the assets on Hydro's books. I think part of his testimony was some appreciation in the value of hydro-electric and other assets, what in fact offsets the depreciation of the nuclear assets as you approach a competitive market. I think there would be in Hydro's annual reports, or studies available anyway, that which indicates the true value in the marketplace of some of the hydro-electric assets.
Mr Galt: We need some figures, what a willing buyer would purchase from a willing seller, and get those on the books because I can't believe that would be $100,000.
Mrs Johns: He's talking about market. It's a very different thing from a willing buyer.
The Chair: Yes. As opposed to the willing buyer. That's right. Thank you very much. We'll make a note of that and we'll deal with that. Any other comments before we close off?. No other caucus with any comments. Mr Eliesen, thank you so much for your presentation. We appreciate your long journey and we hope your return back to British Columbia is safe and uneventful.
Mr Eliesen: Thank you very much, Mr Chairman, and ladies and gentlemen.
ONTARIO HYDRO (CONTINUED)
The Chair: We are going to return to the agenda of this morning. When I resume the questioning it will begin with Mr Laughren, if the Ontario Hydro witnesses would please resume the stand. As we are preparing, let me remind the committee that we have one more round of questioning, beginning with Mr Laughren, and that will then conclude section 1. We'll then move into section 2.
I will ask us to be very disciplined in terms of our questioning on 2 and 3 so we can try to keep on schedule for the day. Welcome back to the committee. I'll begin with Mr Laughren.
Mr Laughren: We've just had the remarkable experience of having a former chairman of Hydro give a spirited defence of an institution built by Tories and run by Tories for most of this century. It was quite a remarkable performance, although he did question the building of Darlington, I must say.
I want to return to the Ernst and Young report. I believe you've seen a summary of that, I think you indicated this morning.
Mr Machon: Yes.
Mr Laughren: It seems to me that Ernst and Young had more time and more expertise, with all due respect to the Hydro board, to look at the proposals of Andognini and you than did the Hydro board. The Hydro board, who I would assume are people who understand their own capacities or lack thereof, just in one afternoon approved this massive restructuring plan or recovery plan for the nuclear division -- truly remarkable.
Ernst and Young, who took more time and, as I say, I'm sure were able to have some expertise -- don't forget, Mr Farlinger came from there; they must be a good company, right? Well, those are my words. It seems to me that some of us are very sceptical of what's gone on here, particularly surrounding that board meeting. When I look at the executive summary -- well, it's not just an executive summary, but they've put it --
Mr Machon: That's the report that was presented at the September 9 meeting.
Mr Laughren: No, this is Ernst and Young's analysis of the nuclear asset optimization plan.
Mr Machon: What's the date on that?
Mr Laughren: It's dated September 7.
Mr Machon: Yes. That was after the board meeting and presented at the September 9 meeting.
Mr Laughren: Correct; sorry. It was certainly done after the August 12 meeting. Yes, you're absolutely correct.
What's bothering me a lot is that the Hydro board approved what you folks brought to them without a lot of angst, it seems to me, although there were some questions. When Ernst and Young look at it, they raise a myriad of questions, much more than the Hydro board did. I'm wondering how you feel about the Ernst and Young report and its very critical analysis of your recovery plan.
Mr Machon: I'm going to keep my focus on the nuclear case as we go through it.
Mr Laughren: That's all right. So am I.
Mr Machon: As we translate it, the action that came out to us was the need to formally document the bases we went through when we considered the nuclear options in the generation of the plan, beyond the presentation that we made to the board, which we did. That was presented at the September 9 meeting, as well as some more clarification around the work. I believe that was the main emphasis with regard to the nuclear plan. There were some comments in there about conversion rates that were used. I'm trying to remember now the exact findings in there as we looked at some benchmarking activities versus what we saw.
Fundamentally, nuclear had provided the responses to that relatively quickly. The review they did was from a financial aspect, from costing, basis of the cost, reasonableness and the moneys used. There was little challenge, if you will, on the technical bases of the nuclear recommendations in that plan, and we responded to all of those in the September 9 meeting.
Mr Laughren: You've responded to all of Ernst and Young's concerns?
Mr Machon: I believe there were six and I believe, if I remember -- I'm going from memory and the summary page -- we had fundamentally to provide a bases document, which we did, for the decision-making process between the cases, and I believe you have a copy of that, and to do some correction with regard to conversion rates, which we did.
Mr Laughren: This is what's bothering me: "Corporate and Genco's" -- that's the generating division of Hydro, right? -- "response to the recovery plan," the NAOP, "requires a more rigorous financial analysis of supply options, particularly in respect of uncertainties associated with the A units not returning to service at the scheduled time." How did you respond to that?
Mr Machon: I believe Pat will be responding to that when it comes up.
Mr Laughren: Okay. Do you want to wait until --
Mr Machon: Yes. That's out into the future, if you will, the 1999-2000 time frame.
Mr Laughren: One of the other issues is the lack of consistency in the assumptions that were used. They've used that term more than once in their report. It's too technical for me so I need some help on it. They say: "There were inconsistent assumptions used throughout the option analysis and there was limited documentation. Where inconsistent assumptions were discovered, they did not appear to materially affect the financial estimates; however, they may reduce the perceived credibility of management's analysis."
Mr Machon: I think that inconsistency was the bridge across from some of the nuclear bases into the Genco bases, and I believe that was cleaned up, if you will, between the time. I don't think there was anything material that would change the materiality of the recommendation in that process.
Mrs Fisher: I don't even know where to start, to be honest with you. I've waited about a month now to get to this point of moving forward with this report. I'll start by saying that I am the member for the riding of Bruce. I think that clears up some things as to what I might be coming at here. Some will say that I should be more general, but general questions, as far as I'm concerned, have been well handled by others here.
I don't even know where to start. I'll start with this: Coming back to what Mr Laughren was just talking about, the Ernst and Young report, I know there has been a copy provided to the executive office at least, and probably the board, since it's been written. Out of the executive summary -- I can't take the time to do what I need to do here perfectly, but I'll do my very best -- there are comments like this: "Potential options were not documented in a manner that adequately supports the selection of the NAOP option"; "substantiation of key financial planning assumptions were not sufficiently documented"; "inconsistent assumptions used throughout the NAOP option analysis"; "NAOP is based on key assumptions around labour issues, productivity improvements"; "general weakness in the integration of information."
I worry a little bit about the time it took Ernst and Young to do it as well, since it went from August 27 to September 5, which doesn't sound very long to me given the magnitude of the issue.
Then we get into, "The NPAG made several key assumptions that resulted in selection of NAOP options over the possible alternatives," which I personally don't feel are varied enough yet. It includes, "The inability to train personnel, uniform best-practice performance, lack of internal human resources."
However, it then goes on to say, "There were several key assumptions impacting that decision: fossil units, which can meet required production levels; management of emissions; external regulatory requirements; and alternate fuel availability." That isn't even taken into consideration if you look at the long-term lay-up of the two As if that were to happen. I know some of that will come from finance.
I'm just setting the stage for where I want to get to with this. Having said that, those have been my concerns, without having the Ernst report before me, since August 29 when I wrote Mr Andognini myself as a result of the August 13 report.
I want to go back to something we left with Mr Eliesen, who was just here, and it goes back to this issue of human resource planning. I personally believe, and I haven't heard anybody dispute, that there are qualified people sitting in Ontario today who would like to become nuclear operators, nuclear control techs and nuclear maintainers again who were inappropriately bought out in the 1993 year. I think we should be chasing that market first. I was presented with an ad from the Toronto Star, but circulated in the States as well over the past week. I think we are not paying enough attention to that issue.
I'm making these points because I don't know how else to get the question out in the end.
When I was an employee of Ontario Hydro, I was very familiar with engineering change rules, proposed changes, external work orders, deficiency reports, and everything that still exists there today. It seemed me in those days, anyway, that there was adequate engineering staff on. In 1993 we were told that the ratio of tradespersons on the floor, if you will, to those of engineering staff was inappropriate and that there needed to be some levelling out of that engineering thing. I'm hearing now "more engineers and not enough staff." I don't get the picture.
Mr Machon: Let me try to work it backwards and see if we can get there. The issue with regard to the increased need for engineers at this point focuses primarily around reconstitution of the design basis and the configuration, going out and getting the drawings to reflect the plant, and the other issues I've mentioned which have been neglected -- there are drawings being utilized right now that don't physically represent the plant -- and that is a combination of engineering work: going out and walking down systems, taking critical dimensions, translating them back into the drawings. Once that effort is complete, you won't need all those engineers who were called out as part of the improvement initiative.
Mrs Fisher: Can I ask a question on that?
Mr Machon: Sure.
Mrs Fisher: I'm not so sure it takes an engineer to walk out and identify a valve and the serial number on it etc.
Mr Machon: No. But it does take an engineer to walk out and get critical dimensions or to analyse those critical dimensions when they come back.
Mrs Fisher: I won't disagree with you. I know it's too detailed. We're micro-talking here and maybe we shouldn't be. But somebody out there in this public has to understand the complexity of the problem, and I'm sure many do.
My concern is this: It's almost like a start-over scenario, and I don't personally believe we're in that situation today. I believe we're in a used car vehicle status and we are doing no differently from that. We're observing things -- fractures, stress fractures, retube of reactor core issues -- that were anticipated in some cases and in some cases not, that are fixable. I don't think it takes all the engineering staff you're talking about to do that. I think we're totally inadequately supplied with the hands-on staff, and even some of the construction forces, by the way, who were there in the past, who built it and were able to bring it up.
I want to talk a little bit about other impacts and options that, from my perspective, weren't considered.
Mr Machon: Could I go back to one of your issues there?
Mrs Fisher: Sure, as long as the Chair allows me the question.
Mr Machon: I think there's a question in there somehow and I'll try to answer it. We identified additionally -- it's not just engineers. We have deficiencies in both control and mechanical maintenance techs as well. It's not just engineering. We're talking about bringing in control and maintenance techs as well.
You remember, as I went through that chart, I said that capital work, the work that is traditionally run by the building trades or the EPSCA trades, was not included in that number. If I were going to retube a condenser and it is not included in those numbers, I would bring in, under proj and lodge, the EPSCA trades to go ahead and do that task. So there is a need across the board.
Mrs Fisher: I agree with that, but on the operating side, as far as I'm concerned, there was a bad buyout. There are hundreds of millions of dollars invested in trained people sitting in Ontario today who I know would come back. If Hydro can't do the search, why don't they let somebody else do it for them? I am sure we can find those bodies for you, as opposed to going outside first. I take offence to having additional staff from outside come in when I think we have some in our backyard. I don't want to belabour this because --
Mr Machon: I agree with you, and that's our intention.
Mrs Fisher: We haven't been doing that. In the meantime, we're shutting down plants, including those in my backyard. We're not doing it. This announcement was made August 13. We're now at the end of October. We're shutting down as we speak. I don't see any initiative to reinstigate what I've talked about for the past month and a half.
The second point I'll make is this: Zero economic impact was considered in the Bruce community when the decision was made as an option to shut us down. I think that's totally inappropriate. I guess tomorrow, while we travel to Bruce, it's unfortunate that you're not on the panel and that those people who are doing the questions are different tomorrow. I think it would be very interesting to hear the considerations that weren't made there. I just note that as a highlight.
One other thing I'd like to talk about is this, and it has to do with the opportunities for options. I don't see where they're here. First of all, I applaud Mr Andognini's report in that it's assessed. I'm not technically expert enough to say whether it's perfect or not, but it seems to be an appropriate assessment of the situation today and I applaud the efforts that are being made. It's a significant change that's going to take place.
I do not agree for one second that appropriate options have been put before the board of directors of Ontario Hydro to make the reasonable decision it should be making. I do not agree with displacing units that, by AECB's confirmation here to us already, meet the approval process to continue operating with some remedial work that's able to be done. I understand there's a boiler tube problem at the Bruce site, for example, that's one third completed. One third at $600 million per unit is a significant amount of money, and it's already there but it's not being talked about.
I also know there was an option put forward to introduce private equity into the refurbishing of the whole of the Bruce site. That wasn't, as best I can find in any literature I've been given so far, considered. I ask you if you think it would be appropriate for the panel to initiate action to provide adequate information for the board to make another decision.
Mr Machon: With regard to the whole generation picture?
Mrs Fisher: I'll speak for Pickering as well. People think I'm just here because of Bruce, but I've been attached to Hydro for 25 years and it started at Pickering. I think the whole picture. AECB was ready to bring up unit 4 at Pickering in December of this year. Instead, we're putting scrubbers into fossil fuel burns to accommodate the shortage of generation. We sat on 3,500 unused meg continuously for a number of years and all of a sudden we're in a short flow. I don't believe it's to that point. I think we should be able to manage the refurbishing forward of those plants that are able to run by AECB regulatory requirements.
AECB sat in the same seat you're sitting in and indicated to us that they were in a safe operating manner -- maybe minimal standard, and maybe we need to do something on the human resource side to bring that up, as opposed to displacing the whole mess. I have yet to see those options, and I'm looking very, very hard for them, by the way. I'm not pretending to be the technical expert here, but nobody has provided me with enough understanding to help me agree with you that in fact the proposal you put forward is right. I personally don't believe it is.
Mr Machon: I guess we disagree.
Mr Kwinter: I'd like to pursue some of the areas that Mrs Fisher was just talking about. Prior to the August 12 meeting, where the IIPA report was received and the recovery plan was received and approved, the day before, the minister sent a letter to the chairman. In it he said, among other things, "You can appreciate that the government expects all options will be thoroughly evaluated and assessed by the board before decisions on a full recovery strategy are taken."
My reading of that is, "all options" is all options. I queried a couple of members of the board about what their interpretation was. They said that no, their interpretation was that all the options that were put forward in the recovery plan should be considered. That was their only charge, to take a look at the six options and make sure the recommendation, number 5 or possibly number 6, was the right one. That was their interpretation.
Earlier today I heard you say, as you go through and develop this recovery strategy, and you're still plumbing the depths of a problem, that there will be opportunities for you to look at some of these other options. Is that true?
Mr Machon: That's true. When you say "other options," do you mean a pair of units versus a four-pack or moving it up faster or any combination thereof?
Mr Kwinter: I thought I heard you say today that you might look at fossil fuels, you might look at gas generation, you might look at some of these other -- these are other options that were there.
Mr Machon: Yes. Any nuclear option that we bring forward, whether it be to bring Pickering A back or Bruce A back, will have to stand on its own two feet next to another option, which could be combined-cycle gas, yes, with the business case.
Mr Kwinter: I have an executive summary of the meeting that took place on August 12. In it, it says that at its August 12, 1997, meeting, Ontario Hydro's board of directors received the IIPA report from the NPAG and related NAOP and approved a number of actions intended to allow the nuclear program to restore its performance to levels expected by Ontario Hydro. So the board has approved the nuclear option. There is a caveat with that, and we'll talk about it later on. Because questions were raised at the board of what the financial implications are, they want to know what these things are. But I haven't seen anywhere that they have mandated through the board that these other options can be explored.
It seems to me that given the fact that they have approved the recovery report, which doesn't mention anything other than the nuclear options, there is no other provision -- and I assume you're talking about allocating substantial amounts of money to putting forward this recovery plan. Surely you're not going to get partway down the line and say: "You know what? This recovery plan doesn't make any sense. We're going to have to take a look at whether it should be gas-generated energy, whether it be fossil fuels, buying fuel from somewhere else." I don't see where you have that flexibility under the direction you were given by the board.
Mr Machon: The plan we provided them with has key milestones in it as well to come forward with the business cases for bringing back the A units, if you will, that need to stand on their own two feet when we bring it forward. They're slotted in at appropriate times to bring them to the board, at which point there will be another decision made regarding whether it's going to be the units at Pickering A or Bruce A versus another alternative to purchase, build, whatever the alternatives are at that point in time that will need to be considered as part of that business case. That's inherent within the plan.
Mr Kwinter: Does that mean no action is going to be taken until all this is developed?
Mr Machon: Correct. With regard to the recovery, we're going to lay them up, keep them in condition to be recoverable, and as we start to move down the path and performance improves, bring the business cases forward for the recovery.
Mr Kwinter: But the minute you start laying them up, you're going to have to get some alternative energy sources.
Mr McNeil: I'll talk to that, sir.
Mr Machon: Pat will talk about those.
Mr Kwinter: That is the point I'm making. It isn't as if you're saying: "We have presented this report. It's been approved in principle and now we have to really develop, fine-tune the proposal and nothing will be done until each particular business case is made." I'm saying what I think is happening is that the board has given you approval to proceed with the recovery plan as presented to it at the meeting of August 12. You now have the green light to go ahead, subject to the caveat that was raised by Mr Pollock and Ms Clitheroe that, "We want to see some of the financial impacts of this."
Notwithstanding that, you're going to lay up nine reactors, you're going to have to commit to alternative energy, and there are serious cost implications by doing that. I don't see how, further down the road, you have any flexibility to say: "You know what? Now that we've looked at all this, this isn't the way we should be going. Let's go another route." That's one of the problems that we have.
I took a look at the recovery plan of 1996, which was not that long ago. Here is this recovery plan that must have been developed at Hydro with a lot of input and a lot of cost, and one year later we're saying: "No, that doesn't meet our requirements. We're now going to this other recovery plan that has been brought in by the so-called Andognini group." There is a perception that there really isn't a direction, an overall program that has any sense of where they want to go. You're saying even now, "As we go along and as we develop these things and see the problems, we may have to look at some other alternatives." That may be unfair, but I'd like your comment on it.
Mr Machon: I need to keep the attention here that I'm talking about nuclear options with regard to the assets that are there and as we move forward with that. This effort, the tail end of this, if you will -- like you said, once we got to the point where we could see that there was going to be less energy generated as a result of this option, it needed to be worked through with Genco to see what alternatives we can pursue. We continue and will continue to have that relationship as we move forward to make sure the best alternative is taken. It may not necessarily be the nuclear alternative; it could be something else. Then again, it could be nuclear. We need to continually test that as we're moving forward beyond the 12 units.
Remember the first slide I showed, just bringing the 12 units up to where they should be. We have in effect been accepting operations without having the Bruce A units and a couple of the Pickering units regardless. If we just had them at the benchmark level, those units could have been shut down and the same generation would have been produced over the last years from 1992 to 1997 regardless. So just by bringing those units back up to performance, we'll be getting the same energy we've been getting for the last five or six years.
Mr Kwinter: Mr Machon, I have a little problem with our interchange. I would agree with everything you've said if this material had come forward to the board as an information item only and these various alternatives were going to be explored and decisions were going to be taken as a result of really modelling all these various alternatives and then coming to a decision. I would agree completely with what you've said. But that is not what has happened. The report came forward as an information item. It was changed to a decision item. The decision was taken. The minutes reflect that the board has approved the plan that was presented. I assume that subject to financial information to satisfy the chief financial officer and some of the members of the board, this is going to go ahead, and that is the nuclear option.
Once you make that commitment, there are some very significant aspects of that commitment: You're going to put nine reactors out of service and you're going to have to contract to get alternative supply. You're down that road. I don't see how, after having started down that road, you can suddenly say, "No, there are going to be benchmarks as we go along, and if we feel there's a better alternative, we can change direction." I can't quite comprehend how that works.
Mr Machon: When I'm talking about change in direction, I'm talking about a decision-making process around returning the A units to service, not about getting the 12 units we're talking about focusing on up to the performance levels we expect. That direction won't change. We're going to get those 12 units to where they should be performing. Yes, that one is cast in concrete; that's a mandate; that's a "Do it."
However, the return of the A units is going to be subject to substantiated business cases that are brought forward to the board.
The Chair: That concludes the questioning under section 1, the nuclear asset optimization plan. We are going to turn our attention, then, to section 2.
Mrs Fisher: Chair, before we proceed with that, may I make a request, please? For the good of the committee, I would ask that these three following pieces of information be provided. The first one is with regard to human resources. I would like an analysis of the key positions required to keep the seven units up, as opposed to shutting them down.
I would like for somebody to identify how we could obtain those from the Canadian workforce to start with, and then outside. I understand that the CNA conference indicated to their membership there were 200 available nuclear workers in Britain today as a result of their restructuring. I know we have some here. I'm sure we have Americans and others. I'd like to see that, please -- I don't like to be too unreasonable with this -- obviously as soon as possible because things are happening that are irreversible if we keep going the way we're going. I don't know if tomorrow is possible on that. I know people have been studying staffing, but if it's possible for tomorrow, that's the first request.
The second request: There has been some determination that the 1,725 designated affected staff from the Bruce are going to be for the most part redeployed to Bruce B and Pickering B. I would like to see the comprehensive study showing us that there's some substantiation behind how and why that happened, who is to say that's where they need to be now, that type of thing, and why.
The third thing I would like is, on behalf of the committee, to ask for some type of technical report. There hasn't been a dry lay-up for a Candu system, to my knowledge, in history. I would like to see some type of technically supported document that shows not only the cost differences between that but the technical requirements as a result of that. I think all of those things are of extreme importance to this committee.
The Chair: We've noted your request and we'll ask that it be responded to with dispatch.
Mr Machon: With regard to the latter, you do understand the reason for the dry lay-up at Bruce versus the fuel lay-up at Pickering?
Mrs Fisher: I certainly do, sir, but I understand it's being done unit by unit.
The Chair: Mrs Fisher, you made a point and that's fair enough. I don't think we need to get into any side debates. We'll ask that Ontario Hydro provide that information as quickly as possible. I have no doubt that they will facilitate your request with all dispatch. I'm sure they will.
Let's turn our attention now to section 2, the Genco implications of the NAOP recommendations. There are three sections to that. We'll begin with the presentation.
Mr McNeil: Good afternoon. My name is Pat McNeil. I am vice-president of corporate planning for Ontario Hydro. I was appointed to that position in September this year. Prior to that, I was vice-president of strategic investment planning for the generation business. In that position I was responsible for assessing the impact of NAOP on Ontario Hydro's ability to meet customer demand and for developing an action plan to enable Ontario Hydro to continue to meet the province's electricity needs while maintaining the reliability, the minimization of cost and minimizing the environmental impacts.
What I'll be covering today are the impact that NAOP had on Ontario Hydro's power structure; the options that were identified in assessing and developing the action plan; the assumptions that were used in developing the assessment; the preliminary assessment of the cost and the environmental impacts of the action plan; and what we continue to do to further minimize cost and environmental impacts as we implement the plan.
Copies of my presentation were given out this morning, I believe, or they were given to the clerk this morning.
The Chair: That's this one right here?
Mr McNeil: That's right, sir.
The Chair: The Power System Implications of NAOP. I think we all have a copy of that on our desks.
Mr McNeil: Thank you. It will take me roughly 30 minutes to go through that presentation. I would like to point out that this is not exactly the presentation that was given to the board.
The Chair: How does it differ?
Mr McNeil: The board presentation was in much greater detail and took approximately an hour and a half to deliver. Given the 30-minute time frame, the numbers are the same, the themes are the same and the actions are the same.
The Chair: All right. For the purposes of our record, our presentation will be about 30 minutes. The board received a presentation that lasted an hour and a half?
Mr McNeil: From the time the presentation began till the end, yes.
The Chair: And it was in greater detail, more data and so forth?
Mr McNeil: Yes, sir. But the numbers will be in there, the themes are the same, so you'll have the same view the board had.
The Chair: Fair enough. Carry on, please.
Mr McNeil: First of all, I'd like the committee's indulgence. There are two concepts I would like to make sure there's clarity on before I begin. Again, I apologize if this presentation is at too high a level in this area.
First of all I'm going to use two terms: One is "capacity" and the second is "energy." The capacity requirement is the generation that is required to reliably meet peak customer demand at the high draw point of the year. For instance, in the 1998 winter, we're expecting a peak of roughly 20,000 megawatts. In addition to having that plant for 23,000 megawatts, we also have to plan to have a reserve margin above what the customer draw will be.
The planning reserve margin that we use in Ontario varies from 18% to 22%. On average, it's about 20%. So we have to have 20% additional plant one year away from the time the peak is going to occur. That reserve margin allows us to address three things: One is that the weather is never exactly what it is supposed to be. It's sometimes colder than you expect it to be and sometimes it's warmer. Colder in the winter peak is a situation we try to cover for.
The other thing is whether or not the load growth occurs. Load growth can vary, as we all know, and what we try to do is build some in the reserve margin in case the load grows bigger than what we thought it would grow at.
The third item we try to cover off is whether those resources we have available are actually there to be used the day we need them. When you're planning one year out, plants break down, so we try to make sure there's sufficient reserve margin so that the day we actually have to meet customer demand there are sufficient plants online. That deals with the "capacity" term.
The "energy" term, and I want to bring some clarity to this, is really the capacity that's used through time. It's the amount of energy that is consumed in the province throughout a fixed period of time. I'll be talking to the annual energy, which is the energy that's used in any year. So we have the capacity, which is used to meet peaks, and we have the energy demand, which is the draw 365 days a year on average. I just want to make sure the committee members are familiar with those two terms since I'll be referring to them quite often.
Mr O'Toole: What does TWh mean?
Mr McNeil: Terawatt-hours.
Mr Conway: To the uninitiated, terawatt-hours --
Mr McNeil: Let me go back to your home, sir, if I can. A normal household in Ontario consumes about 1,000 kilowatt-hours of power each month. It goes from kilo- to mega- to giga- to terawatt-hours, so it's about 109 kilowatt-hours.
Mr Conway: There. This is a test item.
Mr McNeil: It's the volume of energy. It's quite a large volume of energy. To give you an example --
Mr Laughren: Ten to the ninth?
Mr McNeil: Ten to the ninth kilowatt-hours. Right. Sorry. It's quite a bit of energy. To give you an analogy, 142 terawatt-hours of electric power is quite a large amount of electricity. The total energy consumed in the city of Toronto in one year is around the order of 10, to give you a volume, a figure for what that size actually is.
In terms of the system capacity implications of NAOP, which I think the committee will be well versed on, which is the removal from service of the Bruce A plants in the spring of next year and the Pickering A units at the end of this year, my task was to look at, given that, what are the implications and what are the responses that would be necessary to ensure that the customers of Ontario continue to have reliable power, which is our key concern, to make sure the lights actually stay on.
I'll just walk the committee through this quite quickly, if I might. In the 1997 business plan we had roughly 30,000 megawatts of capacity available to us; we had 30,000 megawatts of plant in Ontario available to us. The peak demand requirement for that capacity, as I pointed out, was about 26,000, and that included the 18% reserve margin that year, giving us about 3,400 megawatts in surplus. This is what the Ontario power system looked like before the decision to lay up the units came to be taken.
The NAOP impact in 1998 removes about 2,000 megawatts, leaving us with a surplus of about 1,300 megawatts available to us. That's primarily the removal of the Pickering units.
As we go on to remove the available capacity from the Bruce units in the following year, that NAOP impact grows from about 2,000 megawatts up to about 4,400 megawatts, which puts us in a deficit perspective with respect to the reserve margin. Again, it's with respect to the reserve margin, and that reserve margin you don't count on running. You have it available to run. So the deficit with respect to the reserve margin is about 1,300 megawatts.
As you go to the year 2000, you start to see what is currently in our nominal plan. It is not in an approved business plan of the corporation, and I would just like to reinforce that there's been no reinvestment decision made. In our nominal plan we show two of the Pickering units coming back in service as a result of a successful recovery starting in the year 2000; one I believe comes back in June and one in December. That is the going-forward assumption I'm using right now, and I'd like to come back later to show the options I'll be testing that against, but it is in our nominal plan; it's not in the approved plan. The implication of NAOP as the remainder of the Pickering units come back on continues to decline.
If I could just draw the committee's attention to the deficit situation: Basically, if one works with the assumption that the Pickering A units would be coming back on in the year 2000-01, our deficit is roughly 1,300 to 1,500 megawatts with respect to the reserve margin. It would be incumbent upon us to take action to provide that reserve margin back again.
The assessment objectives I carried out were first of all to meet the capacity energy shortfall while maintaining the reliability, minimizing costs and minimizing environmental impacts. Those are the three criteria we put things together with.
We have a whole array of options that were used and discounted due primarily to time. With the removal from service of the Pickering A units and the Bruce units, we're looking at a fairly limited lead time to get plant back on to cover off the reserve margin. The capacity options we look for, and again this is to cover off basically three years of capacity shortfall, in the going-forward plan, assuming that the Pickering A reinvestment is made -- if it isn't, I'm going to come back to that. We have a process in place under way to deal with that as well.
First of all, we looked at returning existing mothballed fossil units to service. You've heard about a capacity surplus we have. That capacity we carry in mothballed units as well as plants that are available for the export market. We had two units available to us at Lennox, units 3 and 4, which have been in mothballs, say, since the early-1990s. We also have four units at Lakeview GS that are in mothballed state available for us to return.
We also have available to us an opportunity to purchase on the capacity. It's a short-term capacity from the interconnected market, and I'd just like to draw the committee's attention to that as an option. In the interconnected markets, you'll have many people tell you that they will sell firm capacity on the interconnected markets. Firm capacity is firm up until the day that the supplier has a problem meeting their own non-interruptible load. For instance this summer, when we were having some difficulty meeting the non-interruptible load in Ontario, we had a firm capacity sale to Michigan under way which we cut. So it's about as firm as you can be until you need it back home. When you're buying from the interconnected marketplace, given the current industry structure -- I can't say what the future industry structure might do -- it is very difficult to buy firm capacity. You can buy it, but you may never get it. From a reliability perspective, it seems like a good thing to do, but you really can't count on it to a large degree.
The other near-term capacity option is to improve the reliability of existing fossil units. The fossil units have operated over the last four years approximately one extra year than planned. Because of the deteriorating nuclear performance, the fossil units have had to be called upon to operate more than what was originally planned for. One of the opportunities that was available to us was to look at the fossil plants and improve how reliable they are, so that when you're counting them into the reserve margin, they are actually countable.
One of the other options we had available to us was to increase purchases from existing NUGs for the short-term time frame. We're not in a situation where we're asking people to commit plant at this point, as in the situation where we had really a two- to three-year time frame that we were trying to deal with, with the removal of service at Pickering A and Bruce A.
We also have an option we have taken which was to issue a request for proposals -- I apologize for the "RFPs" -- from all other suppliers on what they could supply to us over that three-year period. We did in fact issue that RFP a month ago, and that RFP closes in about one hour and two minutes from now. Other people in a position to supply us energy over the next two or three years have had the opportunity, and still have that opportunity over the next hour, to identify what they have to give to us.
We are also issuing an RFP -- and that RFP should probably be issued next week or after the next board meeting, depending on some legal advice -- for energy conservation. Many of our stakeholders told us there were some, and they never sized the amount, low-hanging fruit, if you can pardon the expression, that would be available to us under the energy conservation area. So we are in the process of issuing an RFP to see what we get. We've been working with the Canadian Energy Efficiency Alliance, which represents the stakeholders in that area, to develop the process. They've advised us that there is most likely very little available over that short time frame, but we're continuing to access what is available to us.
The short-term capacity options we have selected are primarily considering reliability to get the reserve margin back in place within a suitable time frame, which is an immediate time frame. Second to that reliability issue was the cost issue. In terms of the capacity to meet the reserve margin, we are in the process of returning units 4 and 3 from Lennox, representing about 1,100 megawatts. Unit 4 is scheduled to return to us on December 30. We have an expectation that it'll actually be here a month earlier now. Unit 3, which has had some of the parts removed to be utilized on units 1 and 2 while they are in the mothballed state, will be back next spring. Bringing those units on to service under reserve margin should provide a sufficient reserve margin basically to get us through.
The other item we're doing is improving the reliability on the fossil plant. We're making a very minimal investment in improving the reliability on the fossil side. We're looking at about $70 million being invested over the next three years to arrest the reliability that was really due to running the fossil system so hard, harder than planned, because of the decreased nuclear performance.
I have very much confined my remarks to short-term, dealing with the assumption that, and again in our nominal plan, there's an opportunity to reinvest in Pickering A. We also have a process under way to investigate all the longer-term options which I think have been under this committee's consideration. How are we getting those other options?
The option we have available to us that we are exploring right now is whether Pickering A and Bruce A are economic to return. We've done some preliminary assessment which we discussed with the board. Our preliminary assessment is that Pickering A looks like it could be economically feasible to return to service.
On the investment, that decision hasn't been made. That decision will have to be made towards the middle of next year in order to meet the year 2000 time frame. There is some slippage opportunity in that date. If you're going to be a year late, you could possibly increase more risk in the reserve margin by focusing your efforts, but you wouldn't want to do it for more than a year or so. You wouldn't want to compound that risk over two or three years. So we're really looking at a decision on Pickering A being made somewhere in the second quarter of next year. In order to make that, there will have to be a business case, and as corporate planner it is my task to identify what those alternate options are from all players.
We are in the process of developing a request for proposal that would be issued, again, in the early part of next year to make sure that all the alternative options to investing in Pickering are available for that decision, be they rets, be they other suppliers, be they the interconnected marketplace. That RFP is in the process of being designed now to be implemented. We are also exploring the installation of combustion turbine-combined cycle units at existing sites in Ontario.
Mr Laughren: That's gas?
Mr McNeil: They are gas-fired plants, sir. Yes, they are. We are also looking at other opportunities of repowering and expanding existing plant, particularly on the fossil side, whether we can repower. Again, repowering is basically no longer firing it on coal; firing it on gas. We call it refuelling. In the industry we call it repowering. There are some opportunities there to expand. On the fossil side, there is a whole range of other issues with which I'm sure this committee is familiar that have to be dealt with.
The other item we are looking at is upgrading the transmission side of those: What improvements would be made? There's been much ballyhoo in the press recently from some of our competitors who would like to build an interconnected transmission system to us. That's one of the options that would be available to us. We'll be having that whole suite of options come forward at the same time as Pickering is coming forward and, once again, for whenever the decision for Bruce A is ready to be made. That deals with the capacity situation.
I'd like to turn the committee's attention to the energy implications. Rick has been covering off some of these energy implications. What I look at is basically, how much energy can I reliably expect to get out of the nuclear side of the business over the next three to four years? The production expectations out of nuclear have decreased substantially since the 1997 business plan. The 1997 business plan, for instance, in 1998 assumed that we were going to get about 90 terrawatt-hours out of the nuclear side. In August we were estimating about 62 terrawatt-hours. I believe two to three terrawatt-hours of movement in either direction can be expected. We're in the process of updating that.
When we gave the presentation to the board, we were looking at about 20 terrawatt-hours of decreased energy production compared to the 1997 plan for next year. Continuing on, throughout the time frame, in 1999 we expect to have about 30 terrawatt-hours of decreased energy production from the nuclear facilities compared to the plan. The decrease starts to get smaller -- that's poor English, probably -- but by the year 2000 we're down to 20 terrawatt-hours. Again, this assumes that the Pickering A units start to come back online. As a result you'll see some of the lost production increase. At the same time, we're also starting to get the benefit of the recovery initiatives on the Pickering B, Bruce B and Darlington plants, so we're getting the benefit of those and the improved performance out of that.
If I again can have the committee's patience for a second, this is basically what the power system looked like on January 18, 1996, in terms of meeting the primary demand. This is an actual shot that shows you that for purchases and NUGs and from hydro-electric and nuclear which predominantly were mostly base-loaded options -- purchases aren't in the base load unless it's a base-load purchase -- the purchases are really just before you get the fossil in terms of margin. You run the hydro-electric units and the nuclear units and then the fossil units. The running occurs that way primarily because of the marginal cost.
Once you've got the money invested in the plant and the staffing, really what you're playing with is the fuelling cost. You try never to run the fossil plants. That is basically the strategy we continue today, to try never to run the fossil plants, because of the fuel cost. You're looking at a large differential in the fuel price if you're into cost minimization.
You'll notice in 1996 the amount of nuclear capacity that was available to meet the demands on that day. I just want to compare that for the committee. What we're expecting in January 1999, after the Bruce A and Pickering A units are laid up, is a substantial increase on the fossil side. It is a very substantial increase. It was one of the items the board was very concerned about in terms of the responses.
In terms of looking at the actions for meeting energy shortfall, again, for energy we primarily looked at what the cost differential is in the fuelling cost. Once you have the capacity, once you have the plants there, what do you run next? What is the next incremental cost the customer has to see? We looked at the decrease in nuclear energy. Given the short lead time options we have and the interim period of this time, the decision was to increase the fossil burn in Ontario. We also explored the option, of course, of increasing the fossil burn outside of Ontario. There are some issues which I'll explore in a section about that. This is energy rather than capacity.
On the decrease in energy production and increase in fossil for primary demand, the committee members may be asking themselves: "How come, if you're decreasing nuclear energy by 28, you're only increasing the fossil by 23? Where's the other five?" The other five is in the interconnected marketplace. Basically our strategy to eliminate our emissions and to obey the acid gas regulations was to decrease the amount of secondary sales we had. We were planning on about 10 terrawatt-hours of secondary sales in each of the next four years.
We've eliminated them to roughly zero, and I say "roughly zero"; I can't say we've eliminated them totally, because in some of the agreements we enter into we swap. But it all comes out in the wash. At the end of the year we made what we bought. We just got it at different times of the year at a cheaper price than we would have by making it ourselves. That's the reason for the gap: the interconnected market that we're not going after to a large degree any more. That decision to increase the fossil energy resulted in a substantial increase in fuel cost to primary demand. If you look at the increased cost in fuel over the period of 1998 to 2001, we're looking at about $2.1 billion in additional fuel relative to meeting the primary demand needs of the province, a very substantial increase, totally a result of the decreased nuclear performance over that period of time.
The lost secondary profit: again, associated with the secondary sales it's not really a cost; it's a revenue that we're not getting. We were expecting to make in the order of about $500 million in profits as a result of secondary sales, which would go to offsetting some of the costs in Ontario Hydro and the rates which our customers pay, giving the total cost of replacement energy -- and you'll hear that term -- relative to primary demand of about $2.7 billion over that period of time. It's a fairly substantial increase. It's really predicated on the increased fossil fuel.
In terms of the other options, we have an RFP out identifying what other options are available to us. Some of the stakeholders that we share have identified that there are those and we're hoping to receive them. If they are cheaper than ours and have less impact, we will be visiting them and trying to sign a contract with them.
In terms of environmental impacts, which we consider to be a fairly serious event, we're moving to advance the installation of low-NOx burners at Nanticoke and Lambton, roughly $30 million worth of expenditures in the 1997-99 period.
Adjustments to the current low sulphur fuel program to achieve additional reductions: Basically the people in charge of the fuel program have entered into the marketplace and are dealing with the suppliers to bring additional low sulphur fuel in place. Trying to put it in context, prior to these adjustments Ontario Hydro's unit sulphur emissions -- that's the grams of sulphur per kilowatt-hour of energy produced -- are roughly 50% of the legal requirements in the year 2000 that the American utilities face. We're about half of where they have to be already in terms of unit emissions.
As a fleet average, on fossil fleet alone our fleet is roughly anywhere from two to five times cleaner than plants in the adjoining American states. The reason I'm bringing that to the committee's attention is that many people felt we could go to the interconnected marketplace and purchase that. Any attempt for us to go on the interconnected marketplace, from an Ontario perspective, would result in increased emissions to the province. That's about the SO2, NOx and the more global concern which is CO2.
We're also installing ignition gas at Nanticoke GS to provide us some fuel flexibility and to be able to burn a lot more lower-sulphur coal at that plant. A lot of the existing fossil plants were not designed in an era where low sulphur coal was expected to be burned. We have made a large amount of adjustments in our fuel program, but we're really stretching how much further we can degrade the fuel that we put through the plants.
We're also converting Lennox units 1 and 2 to permit firing on oil and gas. We expect that firing on natural gas, which will have an environmental benefit, will also reduce the fuel cost that's associated. During the summer months in Ontario, when there's no great demand for natural gas, the gas price tends to drop. If we operate Lennox during that period of time, there's a significant fuel saving to be had versus burning oil during that period of time.
To summarize the environmental impact in terms of our emissions over the next four years, and this is the forecast emissions, the total emissions, not incremental; these are the total emissions we expect out of the fossil side of Ontario Hydro, and I'll also deal with the regulatory limits and the voluntary commitments we have: For SO2, Ontario Hydro lives under the Countdown Acid Rain regulations of the province. We're limited to 175 gigagrams of SO2 emissions in any calendar year. Under that same regulation, we're also regulated for the total amount of acid gas. That's sulphur dioxide and nitrous oxide. The combined total of those two: We are limited 215 gigagrams of acid gas emissions.
You'll note that the fossil system in Ontario Hydro is basically operating at the acid gas emission levels for the next three-year period.
We have sufficient energy-meeting needs within the province just barely, from an energy perspective, to meet energy needs. We will be purchasing in the interconnected marketplace and banking that and watching it very carefully from a cost perspective. Once you're in the interconnected marketplace, cost tends to drift up. We will do this in a very cautious manner to build sufficient margin to guarantee that Ontario Hydro never exceeds the acid gas emission limits struck for it.
We have a strategy in place to develop about five terawatt-hours of purchases on the interconnected market. Again, this is energy, this is not as load-meeting capacity. We'll arrange not to run our plant and to burn coal elsewhere. We'll be managing that very carefully, again, because of the increased emissions when we buy on the interconnected marketplace. This is a balancing act we'll go through.
In terms of our NOx emissions, which are a precursor to smog, we have a voluntary commitment between Ontario Hydro and the Minister of Environment that in the year 2000 we will limit our NOx emissions to 38 gigagrams.
As it currently stands now, with the technology available to us in our plants, we will probably be emitting, in gross emission levels, about 41 gigagrams. We'll be working with the government to identify opportunities in that year where, basically from a societal point of view and from a regional perspective, we don't contribute in excess of the 38 gigagrams to the smog issue in Ontario. That will be primarily through the area of offsets, getting somebody else to reduce their emissions where they have an opportunity to do so.
In terms of carbon dioxide, which is a more global problem but still a serious issue to be dealt with, we'll be increasing our CO2 emissions totally as a result of our increased fossil burn. They'll go up to about 30 gigagrams a year. We have a voluntary agreement that's outlined in our greenhouse gas emission strategy which basically says that by the year 2000, Ontario Hydro will return its emissions to what they were in the 1990 period. In 1990, our actual emissions were 26. Our commitment includes the use of offsets. The commitment, which was outlined in our strategy, is that the net impact of our fossil operations will be 26 gigagrams -- sorry, teragrams -- of CO2. We'll be taking action to live with that commitment. I apologize for the change in number.
Again, just to summarize and not belabour the point, what we're looking at in the near term is increased fuel cost in the fossil system of about $2.1 billion, reduced secondary profit in the order of $500 million, increased OM&A to bring Lennox back on to service again, which is a fairly cheap capacity move but the increased OM&A associated with the additional running -- there's more wear and tear on the fossil system as a result of the increased running, let alone the increased running we've had over the last few years -- and the increased capital expenditures associated with some of the plants.
You look at the capital investment, and while it is a large number to you and me, it is not significant if we were trying to -- many have read in the press, I can't say I've heard it directly, comments that we were basically reinvesting large amounts in the fossil system to prepare ourselves for a more competitive marketplace. This is nowhere near what we would be doing if we wanted to prepare fossil to operate on the interconnected marketplace. This is a made-in-Ontario, for-Ontario plan. It's not a substantial investment compared to what we would do in order to prepare ourselves for a competitive world outside of Ontario. This is what's to get us through the next two or three years until other decisions can be made about the reinvestment in Pickering A or until a decision is made and we see some recovery.
Sir, I've completed my presentation and will be available for questions.
The Chair: Mr McNeil, I thank you very much for a very comprehensive presentation. We will proceed on a round of caucus-by-caucus questioning. We'll begin with the government caucus. I'll remind us that when we complete, we will come back to a couple of other questions on behalf of our counsel. They have some questions for Mr Machon as well, so we'll just stay at the witness table, please. We will begin with the government caucus on this presentation by Mr McNeil.
Mrs Fisher: I think, rather than reading and taking my time to identify the areas in your review -- there are ones with respect to finances as there are with technical overview -- I would ask that Hydro provide us with a report responding to the executive summary, and within the context of the report some comments, and if they are wrong, substantiation as to where you feel they're wrong and how you feel differently.
Mr McNeil: Mrs Fisher, the report you're dealing with is the September 9 one, I believe.
Mrs Fisher: September 7, 1997. This one here.
Mr McNeil: Ernst and Young has been in the process of modifying that report to reflect some of the comments, but I'll make my comments with respect to that report.
Mrs Fisher: Thanks very much. That will help a lot.
I would like to support one of the statements you made earlier on, and it's turning out not to be the way it's going to turn out. One of the comments you made is that it has been the practice of Ontario Hydro not to run the fossil fuel plants because of issues related to the environmental impact, and I think fuel costs, and I happen to agree with that start point. Unfortunately, the diagrams we see before us are going to take us much against its own will if we proceed in the way we're going today. I would like to ask, the additional increase in fuel costs amounts to about $2.1 billion?
Mr McNeil: Yes.
Mrs Fisher: Regardless of whether it's Pickering -- and I guess Bruce has its own special problems with regard to the boiler tubes -- my understanding of the reactor retube at Bruce is around $1.2 million.
Mr McNeil: I'm not sure of the number for the retube of the reactors. Around $1.2 million?
Mrs Fisher: I'm asking.
Mr Machon: Around $1.2 million?
Mrs Fisher: Excuse me, $1.2 billion.
Mr McNeil: Around $1.2 billion. That's correct.
Mrs Fisher: And I correct myself as well: $2.1 billion in increased fuel costs. Sorry.
Mr McNeil: Right.
Mrs Fisher: So it's $1.2 billion, I think.
Mr McNeil: Yes.
Mrs Fisher: And I understand that the pressure tube repair runs to the tune of $600 million per unit --
Mr McNeil: Right.
Mrs Fisher: -- of which, my understanding is, $200 million per unit has already been spent. So my question would be, if you had the human resources in place, it looks to me like you recover that situation and proceed.
Mr McNeil: Can I just comment on that for a second? While the recovery would be under way on Bruce A under that scenario, we would also have to continue to meet the power needs of the province. So while the Bruce A reactors are not available to run, we are going to end up burning that fuel.
Mrs Fisher: I would agree with you if all units were shut down at one time to make that happen. I think if you did it incrementally and you kept 3 and 4 up, more than half your purchase problem would be gone. That's a reconsideration that maybe could be thought of.
Pat, do you work directly under Mr Fox?
Mr McNeil: I used to work under Mr Fox. I currently work for the chairman. When I put this plan together I used to work for Mr Fox.
Mr McNeil: I believe it was.
Mrs Fisher: You're wondering today, are you?
My question is this. My understanding is that there were about $400 million to $500 million in sales made outside of our country to other sources in the past eight to 12 months. Did we try and contract new sales abroad?
Mr McNeil: We have been selling electricity on the interconnected marketplace over the last 18 -- we always sold electricity on the interconnected marketplace. We have been selling.
Mrs Fisher: My understanding is, in reading the papers, that there were new contracts being signed. This was before the IIPA report came out.
Mr McNeil: There have been some contracts we have entered into, with some of the interconnected marketplace, to supply. We've been in a position to negotiate ourselves out of those.
Mrs Fisher: With no penalties?
Mr McNeil: I would like not to go into the commercial aspects, but for the prime contract we'd entered into, which was basically a firm capacity contract in the Michigan area, we were able to negotiate out of that by both parties sitting down at the table, looking at what the needs of both were under the revised set of circumstances we faced. We arranged a situation where we can help them meet their needs and they can help us meet our needs. The people we're dealing with do not have a peak that occurs on the same day that we have. They're a summer-peaking utility, we're a winter-peaking utility, and we were able to strike a deal that they could provide some assistance to us at a very favourable price and we could provide some assistance to them at a very favourable price on par; it was a net.
Mrs Fisher: It was a net?
Mr McNeil: It was a net. There was no incremental cost.
Mrs Fisher: When IPPSO was before us -- I can't remember my days any more. Was it just yesterday or was it last week? It doesn't really matter. They were here before and they indicated to us that the request for proposals was out but they showed some hesitancy to enter into doing anything with those because there's no long-term commitment. My feeling is that Hydro can't have it both ways. You're not changing at all the attitudes of the monopolistic continued operation. If you're looking for displacement of power for other than coal or oil burn, then you're looking at substantial overhead as well, capital injection to put up these pretty ready-made plants, NUGs. They opinionated to us that a three- to four-year commitment wasn't good enough because we weren't really able to displace that electricity requirement problem. How do you feel about that?
Mr McNeil: I do not care to comment on IPPSO and what evidence they may have given to the committee. What I could comment on is the RFP we have out right now, which is to meet the needs that Ontario Hydro and its customers currently have. It's not so much Ontario Hydro wanting it both ways, it's Ontario Hydro trying to meet its customers' demands at the lowest cost.
The ratepayers have a terrific investment, as have the taxpayers of this province, in the assets of Ontario Hydro. The RFP that's out assumes we're going to continue to make use of one of those investments in Pickering A and it's confined to the time frame for the RFP. If the decision is made that we're going to bring the other options on and not reinvest in Pickering A, then I think there will be plenty of opportunity for people to build plant and operate plant.
I agree with their comment. The RFP would not provide sufficient funds to cover the fixed costs of building new plant. Again, if Pickering A comes back on service in the year 2000, the province of Ontario and the ratepayers do not need new capacity until about the year 2003.
Mrs Fisher: I guess that leads to my next question, though. It's kind of like the chicken and the egg, isn't it? If they take the risk as private sector and invest in it and can displace the power, why would you want to restart As, any of the As? It's not a conspiracy thought so much as just practical reasoning. It makes a lot of sense to me if you want to protect that asset we have today that the consumers are paying for, never mind worrying about what else they're going to pay for. Again, I would take the approach that you ought to invest in that asset today instead of watching it walk away.
Mr McNeil: I believe we are making that decision with respect to preserving the investment in Pickering B, Bruce B and Darlington and attempting to reinvest in Bruce A and Pickering A if the business cases are to substantiate it.
Mrs Fisher: The issue with regard to the Bruce Energy Centre hasn't been raised here much, but I understand you're very familiar with it. My question is this. Although it's an attached appendage, if you will, to a nuclear thing, it seems to have ended up in two realms of decision-making over there on that 19th floor, one being the retail, because there's a steam issue and setting a price at that. Electricity should have been negotiated but hasn't.
I want to raise it because it's a very significant backyard issue to us. I think you're familiar with the intent of a diversification program at the Bruce Energy Centre over the past 10 years. There's been a heck of a fight, if you will, by the community to try to convince Ontario Hydro, while it was in a surplus capacity, to sell energy instead of generating it and sell nothing. We were unsuccessful. I was one of the proponents in those days. I'm still one of them, as an elected member trying to represent the community as well. Do you think it's about time Ontario Hydro got out of there?
Mr McNeil: Let me put it this way. Ontario Hydro has a great deal of respect for the customers we have at the Bruce Energy Centre, where they are steam customers to us. We're working with them to resolve an issue that's created because of the removal of service at Bruce A. We had costed steam for them on the basis of marginal steam. Without Bruce A being there, we don't have surplus steam to provide them. As a result, in order for us to deliver the contract, they're exposed to a very healthy increase in the price of steam.
We are working with all the people in the Bruce Energy Centre to bring resolution to that issue in a manner which I think preserves the Bruce Energy Centre and the customers there, as well as Ontario Hydro's commitment to provide them with the steam at a reasonable cost. It will not be at the cost that was originally discussed way back when.
Mrs Fisher: If I might just close my questioning by continuing on that a little bit, because it's been one of those things: People have minimally dealt with the heavy water issue here, have hugely dealt with the nuclear issue because of the IIPA parameters and review within here, but we ought to be congnizant of the subsidiary, if you will, or secondary impact this is causing. I know that an Ontario Hydro official locally is quoted in the paper as saying that it's costing Ontario Hydro $1 million a month more because it's burning bunker sea oil in our backyard as opposed to providing this steam from the Bruce A site.
Mr McNeil: This is true.
Mrs Fisher: I don't know what measurement Ontario Hydro has put on the environmental impact to us on that or how it can substantiate that type of continued feature over a long time, even a year, which I understand is the new proposed contract. I don't suppose you'll have an answer for how long you think we can expect that to go on.
Mr McNeil: We've been working with the customers very anxiously since the decision was taken with respect to Bruce A to bring a resolution to this issue. The person who is working on it happens to work for me now. We're trying to work with the customers to bring a resolution that would be a win for them and a win for ourselves. We are anxious to have the Bruce Energy Centre in a position where there's a going forward. I think we're both working towards the same thing.
Mr Conway: Mr McNeil, you've made a very definite impression with the committee and I thank you for that. Your presentation gives rise to a number of questions. Let me start with some of my questions.
First, did I hear you say at one point that, to the greatest extent possible, you were going to minimize the use of American coal-fired electricity because of environmental standards and performances which were rather better here than there? Did you say that?
Mr McNeil: We looked at the opinions of going into the interconnected marketplace, as I explained to the committee or attempted to, and again I apologize if I didn't make myself clear. The interconnected marketplace from a capacity perspective isn't as reliable as having it --
Mr Conway: We're going to have to talk a language that's more -- we've got a viewing audience as well and, I tell you, if you're not a fast-talking lawyer from Philadelphia, you're probably not going to understand most of what he's saying. Just try to keep the language as general and as basic as --
Mr McNeil: I apologize and I will try.
Mr Conway: I appreciate the difficulty.
Mr McNeil: Buying it from outside Ontario sources through the interconnected marketplace, which is to the US or to Hydro-Québec or to Michigan, is not as reliable from a capacity perspective as ourselves. From an energy perspective, when you're in a coal market, which is what we're in, without nuclear and without hydro-electric, you basically have one option in the utility industry right now, other than gas, because of its price, which is an option as prices come down. If you look at the utilities around us, what they have built today is basically coal. Our coal plants in Ontario -- primarily as a result of the scrubbers at Lambton GS and also because we burn a lower blend of sulphur coal than US utilities, the sulphur emissions from Ontario plants are, on average, somewhere between three to five times cleaner than if somebody else were making that product.
Mr Conway: That's what I thought I heard you say. By the way, that's a very marked improvement in terms of language, so I thank you for it. I don't mean to be smart-alecky in saying that, but I understood that and I think more of the audience -- the viewing audience particularly -- understood that than some of the earlier efforts. That's what I thought I heard you say.
We had the Clean Air Alliance in here the other night and, I'll tell you, they did not leave this committee with a very good comfort level that the replacement power plan that is part of your nuclear recovery plan is particularly attractive on environmental grounds. I don't want to get into their testimony with you, but certainly they left us with a very strong presentation that was not very positive on certain of these environmental questions.
How much electricity in a typical February afternoon would we be able to buy from and have delivered from the province of Quebec on a February afternoon, not an August afternoon?
Mr McNeil: I'm trying to deal with that question, February afternoon, because you realize that Quebec is a winter-peaking utility at the same time?
Mr Conway: That's why I asked the question.
Mr McNeil: Depending on the situation, in the order of 400 to 800 megawatts, depending on what their loads are at the time. That's the capacity of it.
Mr Conway: My impression is that while there is some excess capacity in Quebec, particularly in the winter months there's not a great deal of it that would be, in the short and intermediate term, available on multi-year contracts to Ontario Hydro. Is that a right assumption?
Mr McNeil: Mr Conway, I think we share a similar view on that issue.
Mr Conway: Thank you for that. We've talked a lot in this committee about the reliability and the capacity factors at our nuclear power plants. They have not, over time, met the capacity factors that were advertised in earlier days. Your plan for replacement power is going to put, as you yourself have just indicated, substantial new pressure on the coal-fired plants and the oil-fired plant at Lennox, which I gather you intend to operate --
Mr McNeil: Sparingly.
Mr Conway: Not "sparingly," but you intend to retool it so you can fire it with both oil and gas.
Mr McNeil: Right.
Mr Conway: One of the questions that has been put to me by people who know this a lot better than I has been, has anybody at Hydro really thought through the stress they will be placing on particularly the coal-fired plants to carry this additional load?
Mr McNeil: Yes, we have.
Mr Conway: And you're confident that you're going to be able to get the kind of output out of places like Nanticoke and Lambton and Lakeview, those three particularly?
Mr McNeil: Yes, I am, sir.
Mr Conway: What gives you that comfort level?
Mr McNeil: Experience with those plants and the management of those plants. The benchmarking that was done on the fossil side and the hydro-electric side shows that the fossil plant and the hydro-electric facility have been managed to the point where they're in the upper quartile of the industry. We have expectations.
Mr Conway: But you're moving into a different kind of league now with those. Those plants are going to be carrying a much heavier load than they've carried in the past.
Mr McNeil: They're carrying a much heavier load than they have over the last three or four years. In the late 1980s and in the early 1990s those plants produced up to a 30 to 34 terawatt-hour power production level.
Mr Conway: To another issue. I want to know what assumption you have built into your forecast for the 12 operating nuclear power reactors. What capacity factor have you assumed for the 12 operating nuclear power reactors in the years 1998, 1999, 2000 and 2001?
Mr McNeil: The capacity factors we've built into that are identical to the ones that Rick Machon talked to you about this morning, which is having the units coming back on and operating more reliably during that period of time. You can look at the energy production we're expecting to get out of it. It's not at the 86%. I believe it's at 78% and 79% during that period of time.
Mr Conway: So you're expecting in that period of time a capacity factor for the remaining --
Mr McNeil: Twelve units.
Mr Conway: -- operating nuclear power reactors at about what?
Mr McNeil: Seventy-nine per cent, growing up to 86% in the later part of the period.
Mr Conway: Where have those plants been, in terms of their capacity factor, for the last three years?
Mr McNeil: I would concur with my nuclear friend here.
Mr Conway: Is that the key assumption?
Mr McNeil: It is a key assumption to this.
Mr Machon: The Darlington unit, from 1994 to 1997, a rolling four-year average, the average per year has been at 81%. Bruce B has been at 79% and Pickering B has been at 70.4%. But Pickering also had that year where she was off-line, so that's a four-year average during that time.
Mr Conway: Just playing the arithmetic, their capacity factor has been roughly about 74%, 75% over the last --
Mr Machon: Seventy-five, 76%.
Mr Conway: And you're expecting, then, in 1998 to 2001, a capacity factor of about --
Mr Machon: About 78%, 79%.
Mr Conway: That's an ambitious target.
Mr Machon: We believe it's reasonable.
Mr Conway: You believe it's reasonable, and I am not surprised you believe that. The question is, what happens if that capacity factor at those 12 plants comes in for whatever reason at 72% or 69% or worse?
Mr McNeil: Mr Conway, if they come in -- they are there for the capacity. They are there on the peak days, so we're not worried about capacity, so I'll focus my answer on the energy side. If it's on the energy side, we'll have to purchase energy on the interconnected marketplace to meet the demand.
Mr Conway: So it's got a cost implication.
Mr McNeil: It has a cost implication, definitely.
Mr Conway: That's what I wanted you to confirm.
I want to come back to a point that was made earlier by Mrs Fisher, I believe, and it has to do with these proposals, these RFPs that are out there as part of your plan. The committee has received testimony that's been highlighted in recent days by our friends at Energy Probe, and I thank them for it, that as recently as the October 7 board meeting, Hydro has apparently -- reading from Mr Farlinger's letter to Jim Wilson, the new Minister of Energy, dated October 15, 1997: "Power sale agreement with Shell Canada Products Ltd." I'm reading directly from that letter:
"In an effort to retain Shell Canada as a customer, Ontario Hydro, at its Sarnia refinery, in accordance with the previously approved load retention and expansion price, LREP option, the board of directors authorized the corporation to enter into a three-year power sale agreement under the LREP option with Shell Canada Products Ltd. When jointly agreed to with Ontario Hydro, the agreement specifies that Shell Canada will agree to purchase all power for its Sarnia refinery from Ontario Hydro and not to self-generate."
There was an earlier example I think this year where a similar deal was struck with Domtar Packaging up in northwestern Ontario at Red Rock. So a question arises. We are on the one hand going out to make deals, calling for requests for proposals to generate power, and on the other hand we're negotiating with people like Shell and Domtar not to self-generate. Can you just explain the apparent contradiction?
Mr McNeil: Yes, sir, and I'll try to do it in a very simple fashion without giving out any commercial activity at the same time. The revenue associated, for instance, with a kilowatt-hour -- electricity in your own house: You pay roughly, depending on where you live, anywhere from eight cents to nine cents a kilowatt-hour. That's revenue that comes in from that sale. If you were to generate that electricity yourself as a large industry, you would expose yourself to costs in the order of 3.5 cents to four cents. Let's say the differential is four cents. That four cents of lost revenue would have to be taken from other ratepayers to pay the cost of having Ontario Hydro here today the way it's currently structured. So from Ontario Hydro, and I'm using a quote here, from the "power pool" concept, the cost that Shell isn't paying or anybody else isn't paying by self-generating would have to be borne by the rest of the province.
Mr Conway: Mr McNeil, I would understand that in ordinary times, but these are hardly ordinary times. I'm looking at your chart on page 3, "System Capacity Implications" and the nuclear asset optimization plan, and I'm looking at these deficits. We are going to have to meet some potential deficits. They may be better than these forecasts, but they may be worse. We may be forced into that interconnect market whether we want it or not, to buy some of that cheap, dirty, two-cent Ohio Valley coal --
Mr McNeil: It's not two cents.
Mr Conway: Oh, it's not two cents. It's gone up. All right. I haven't checked it recently. We may very well be buying some of this dirty, coal-fired stuff out of the US on the one hand, and on the other hand we're telling people like Shell and Domtar and maybe others -- why wouldn't we in the next few years say, "We want people like Shell and Domtar and others to get in and do some of that," particularly if it's gas-fired, because it's relatively economical and environmentally it's relatively attractive? It just doesn't make sense to me.
Mr McNeil: The RFP we issued, which is closing in a few minutes from now, should bring out Shell and everybody that is available to it. I believe when you get down to the self-generation, self-generation for many industries is definitely a viable option. What it comes down to, however, is a simple matter of costs that have to be recovered.
Mr Conway: I understand that.
The Chair: Thank you, Mr Conway. That concludes the round for a moment. I want to ask, on that point, if you'd be good enough to table with the committee the summary of the RFP you indicated closes in about 15 minutes. Would you table it with the committee? I wanted to make sure I picked up on this before I went to you, Mr Laughren. If you would table with the committee a summary of those RFPs, please, so we can take a look at it. We obviously don't need the details, but we'd like to see a summary of what has come in.
Mr McNeil: Certainly.
Mr Laughren: Mr McNeil, I enjoyed your presentation. There are 11 million people in Ontario and you're the only one who has ever been asked by Mr Conway to speak in plain language. I want you to know that.
Mr McNeil: Thank you.
Mr Laughren: I think that's an honour. I was looking at your slides and at the bottom line "surplus/(deficit)" minus numbers on page 3. Am I being too simplistic to say -- and I'm not suggesting a course of action here -- that if you didn't have any peaking problems, there's enough surplus to look after that deficit?
Mr McNeil: If we didn't have sufficient --
Mr Laughren: Do you follow what I'm saying?
Mr McNeil: Yes. If the consumption of electricity was flat throughout the year?
Mr Laughren: No. For example, in 1999, you've got a surplus of 3,000. Is that deficit of 1,333 netted out?
Mr McNeil: I'll go through that again for you. I apologize if I don't communicate in an understandable fashion. We had roughly 3,300 megawatts of spare capacity prior to NAOP. This is capacity in excess of the reserve margin. Removing the Pickering A units from service reduced that by about 2,000 megawatts. The available plant that we have, to the net reserve margin, we still really have in excess. If you wanted to say we had surplus capacity, we still have in excess of about 1,300 megawatts for this winter.
Mr Laughren: I think I'm with you now. I think it was my problem, not yours. When you buy on the interconnected market -- if that's the right term -- do you get a price for which you pay a premium because of that or it is a discounted price if you were a regular customer as opposed to one who is buying on the interconnect?
Mr McNeil: When Ontario Hydro purchases on the interconnect market, it pays the market price at the time. For instance, if we were buying from Detroit Edison or from Consumers Power, we would be buying on the basis of what they offer the power for. Electricity in the interconnected marketplace is becoming a market-driven price. In the utility structure of 10 years ago, there were economy sales. Basically it was two utilities side by side that had built up their own power plants, and one person would be able to produce power cheaper than the others and they had no need for it at home. While they were recovering all their fixed costs from their ratepayers, they were able to sell at their fuelling class product plus a profit, and they used the profit to buy down the rates at home. That's getting harder and harder to get.
Mr Laughren: I wanted to ask you about the lay-up of the units and what would be taking the place of those units; in other words, the replacement plan that is being put in place. At the end of the day, and I know this is hypothetical at this point, those units that will be supplying the power that's missing from the lay-ups will be expensive in terms of the $2.1 billion excess cost, right? If at the end of the day you decide not to reopen the A units at Bruce and Pickering at that point, it seems to me there's a critical decision to be made. At what point do you decide if any of what you've done on the fossil side should continue, or should the market then be opened up wide and you put in place a plan to as quickly as possible shut down those fossil units? Have you thought that far ahead?
Mr McNeil: Yes, I have thought that far ahead in terms of designing the process. Basically the process we'll be going through is to develop the Ontario Hydro options from their existing facilities, and what other future opportunities there are from within Ontario Hydro, and what its skill mix is in terms of additional capacity if the investment decision was not to invest in Pickering A.
We'll also be putting an RFP out to ask other suppliers, assuming that Ontario Hydro continues as a monopoly structure -- I'm dealing with that industry structure. I have not tried to think through the thought process if there were some other industry structure, but then I wouldn't have the problem.
Mr Laughren: Could we look at the environmental side? At one point in your chart it shows that what you would be emitting would be exactly what is allowed, right? The term "coincidence" came to mind immediately.
Mr McNeil: It was so coincidental that I had my staff go over it four times, but it is coincidental. It also puts us in a situation where, as I mentioned before, we will have to provide ourselves some margin to ensure that Ontario Hydro complies with the acid gas laws. We'll be buying some energy in the United States and from Hydro-Québec to try to balance that off so that we at no time exceed the acid gas emissions. We're trying to do that with some finesse, though, so we're not incurring additional costs nor additional environmental impacts that we would wish not to have.
Mr Laughren: That voluntary agreement that Ontario Hydro has is with the Ontario Ministry of Environment, right?
Mr McNeil: I believe that's what it is, yes.
Mr Laughren: That voluntary agreement goes into the year 2000, I believe.
Mr McNeil: Yes, it does.
Mr Laughren: Are you convinced that voluntary agreement will be the same by then as it is now? In other words, it's not a progressive --
Mr McNeil: Those are the assumptions I'm working under right now. That commitment is for the year 2000. I would assume it would be there for the year 2000. I also believe that the environmental issues surrounding any fossil burn are going to continue to increase over time. It's not my expectation that it would stay at 38 forever and a day.
The Chair: We have exhausted the questioning now for this round of the presentations.
Mr O'Toole: Mr Chair, I believe you started with the Liberals.
The Chair: No, I started with the government this time. The good news is that from the looks of the agenda, Mr O'Toole -- and as you're checking, Mrs Fisher will know she actually began the questioning at, to be precise, 4:20. I think we've been unfortunate in not being able to get to Ms Ng tonight and I know that leaves her on a bit of a horn of a dilemma waiting. The good news is that I would recommend to this committee that Tuesday morning we return to this topic immediately, first off. I would like all witnesses back at the table, if you don't mind, because I would propose that the committee have a chance to complete section 3 and then engage in an overall kind of questioning that may involve any one of you in response.
In addition to that, and I make this comment to direct the clerk and to direct our staff, I would like particularly Ms Clitheroe to be here at that time to answer a number of questions, so I'd like to make sure that that's very clear. I respect the fact that she's been out of the province today and only just arrived back in an hour or so ago. But I would like to make sure she's on notice right now of my expectations for next Tuesday, if you'd be good enough to carry that message through to her.
If that meets with the agreement of the committee, then what we'll do is stand down for the remainder of the day, because it's almost 5 o'clock, until tomorrow. But for this topic we'll hold it off until Tuesday of next week. Is that generally agreeable?
Mrs Fisher: One question, Mr Chair: The way we've been going, like this morning, for example, where we didn't really get enough time to deal with Mr Machon, just as a recommendation so that we do finish off the one we're on right now, could we start with the final questioning of that one before we take the next presentation? I think there's an indication that there are still some outstanding questions to this specific one we're on now.
The Chair: I'm sorry, the final questioning of what?
Mrs Fisher: We did one round of questions on the power system implications.
The Chair: With Mr McNeil.
Mrs Fisher: Yes. I personally don't believe that we're finished in that question area. I wonder if you could start with that and then move on to Ms Ng and then go to questions on that as well.
The Chair: If there's a wish of the committee to go around again, but there may not be, and if there's not, then I am not prepared to go around just for one caucus. I would if all caucuses wanted to have a go at it, but I am a little pressed to keep us on some schedule. I want to remind you that in my comments I indicated we carry on the schedule, but then I've asked the witnesses to stay at the table so we can ask generic questions. In fact, you'll have a chance to come back at that point and ask questions then. Would that be agreeable?
Mrs Fisher: I think it would as long as it's not limited to 10 minutes for the whole bunch of us.
The Chair: It may be limited, depending on the time. I have no control over that. I will give some guidance, but I'm not giving any guarantees until we get there.
Mrs Fisher: Could I ask you to ask the table if we could finish off this one first, as we start, and then go on?
The Chair: We'll ask the caucuses.
Mrs Fisher: I'm not challenging the Chair. I'm just asking.
The Chair: Of course you're not challenging the Chair. I'll ask the caucuses if they're prepared to carry on questioning of Mr McNeil.
Mrs Fisher: Thank you.
The Chair: Are there other questions you wish to ask at all?
Mr Laughren: I don't want to be unhelpful, because I appreciate Mrs Fisher's point, but I don't have any more questions.
The Chair: Fine. Two caucuses have said they are not.
Mrs Fisher: I accept that. Thank you.
The Chair: As far as I'm concerned, we have completed with Mr McNeil in this round, but you have a chance to ask Mr McNeil other questions when we get to the general opening round. I think that will achieve your objective.
If I can just go over a couple of other items of business before we conclude today: Are there any members of the committee who will not be travelling with the committee but rather will be travelling on their own tomorrow?
Mr Kwinter: I understand that Mr Conway will be travelling on his own.
The Chair: Will you, or not?
Mr Kwinter: I will be travelling with the committee.
The Chair: That is my great pleasure, sir. Mr Conway will not, Mrs Johns will not; that's all. Everyone else will be travelling together.
Mrs Fisher: No, I won't.
The Chair: You will not either. That's what I meant. A hand up means "I will not," Mrs Fisher.
Mrs Fisher: I will not.
The Chair: That will be three who will not. I want to make sure the clerk knows. The bus will leave promptly at 9 am, 0900 for Mr Conway. We will leave from the front door of the Parliament Building, so please make sure we know where we're going from, right on time. That's number one.
Number two, we know about Monday, which will be a series of about 15 deputations. Tuesday will be the expert witnesses back again, Ms Clitheroe included, and others who our staff will be sorting out over the next day or so.
Tomorrow we leave at 9 o'clock from this building and we go to Kincardine. You have before you the affairs of the day. You know where the meetings will be held tomorrow and you know that the presentations will begin particularly at 7 tomorrow evening. There's the tour of the facility and then a number of deputations, and again on Thursday morning. That gives the picture for the committee for the remainder of this week.
Just before we go, our counsel has departed the scene. I don't know where he is. We have a series of questions yet to ask, so on his behalf I will simply table the note that our counsel has some questions to ask. He may do it in writing or we may reserve that until Tuesday when he comes back, but there are a number of items there to deal with at that point.
It almost being 1700, any other business to table with the committee? If not, then the committee will stand adjourned until 9 tomorrow morning, when it will meet at the front door of the Legislature and depart immediately.
The committee adjourned at 1654.