Tuesday 30 September 1997
Ministry of Environment and Energy
Ms Deborah Farr, manager, electricity operations and planning
Ms Cynthia Brandon, counsel, legal services branch
Mr John Savage, adviser, electricity operations and planning
SELECT COMMITTEE ON ONTARIO HYDRO NUCLEAR AFFAIRS
Chair / Président
Mr Derwyn Shea (High Park-Swansea PC)
Vice-Chair / Vice-Président
Mr Monte Kwinter (Wilson Heights L)
Mr Sean Conway (Renfrew North / -Nord L)
Mr Doug Galt (Northumberland PC)
Mrs Barbara Fisher (Bruce PC)
Mrs Helen Johns (Huron PC)
Mr Monte Kwinter (Wilson Heights L)
Mr Floyd Laughren (Nickel Belt ND)
Mr John R. O'Toole (Durham East / -Est PC)
Mr Derwyn Shea (High Park-Swansea PC)
Clerk / Greffière
Ms Donna Bryce
Staff / Personnel
Mr Lewis Yeager, research officer, Legislative Research Service
Ms Anne Marzalik, research officer, Legislative Research Service
Mr Richard Campbell, consultant
Mr Robert Power, legal counsel
The committee met at 1540 in committee room 228.
The Chair (Mr Derwyn Shea): Welcome to the second meeting of the select committee on Ontario Hydro nuclear affairs.
I will note that Mr Conway has indicated an emergency in his riding and is unable to be with us but will be joining us as soon as he can.
In the meantime, as the committee knows, we are meeting this afternoon and this evening, at least that is the recommendation of the subcommittee. We need a mover first of all for the subcommittee report, if somebody would care to move it. Thank you, Dr Galt. Now we'll have discussion on the subcommittee report. You have that before you.
Mr Doug Galt (Northumberland): In connection with hiring, if we need to discuss in any kind of detail, I think we should go in camera rather than discussing individuals in open session. That would only be fair to them. However, if everybody's comfortable with the recommendations, then we can just go ahead.
The Chair: All right, I'll take that as a notice that you would move a motion if there's going to be any discussion on that. Otherwise, we'll carry on and see what the other caucuses have to say as we proceed through that.
The other items obviously are not contentious enough to require withdrawal.
Mr Monte Kwinter (Wilson Heights): The only caution I would make is that the recommendation of the subcommittee be conditional on us entering into satisfactory negotiations with the individuals involved and adhering to government guidelines and industry practices.
The Chair: I assume that you would be content to leave that matter to the subcommittee.
Mr Kwinter: Yes, I would.
The Chair: We'll make that in the form of a motion.
Mr Kwinter: I move it.
The Chair: That's actually part of our report. That's detailed, but you've said it again for the record. Any other comments?
There are recommendations. Let me just walk you through them to make sure there is no misunderstanding. We'll walk it through. You'll see the subcommittee has brought forward for the committee its recommendations that we proceed in an orderly fashion.
Item 1 deals with the four phases that are recommended.
Item 2 deals with the issue of staffing for the committee. You'll see the recommendations. There is the potential for a motion that Mr Galt has put before us to keep in mind in case we want to deal with that in any other detail. Otherwise, that's before us.
Item 3 is simply the pro forma recommendation that the committee will meet at the call of the Chair. But the subcommittee has placed before you a recommendation so that we can at least get our calendars in some kind of logical order for the next several weeks. Seeing what the House leaders are doing these days, that may be a faint hope, but we'll continue to press on the side of the select committee.
You will see the dates of the week of September 29 and the agenda that the subcommittee thinks would be appropriate for us to follow to make sure we're moving through in the right kind of order, one week building upon the next so that as we get to issues like site visits and public deputations we will have had a chance to be well briefed. The technical briefings begin today with ministry staff and then Ontario Hydro coming up next week.
It would be our hope that the committee staff, if they are approved by the committee, would be available for the briefing sessions so as to be up to speed as well. The week of October 6, you'll see we begin to bring in the witnesses at that point from Ontario Hydro, then moving into the Atomic Energy Control Board and so forth. Then we move into another schedule for the weeks of October 20, 27 and November 3.
You will note Mondays from 2 pm until 6 pm, 7 pm till 9 -- that would give at least one evening where deputants who may not be available in the daytime will be able to access the committee in the evening -- and Tuesdays, Wednesdays and Thursdays 9 until 5.
The week of November 10 is constituency week and it is recommended by the subcommittee that the committee not meet.
At that point we should know very clearly if we're in a position to be writing our report or if we need any additional time. That's something the committee will be seized of to deal with. I think that by the time we're there we'll know how we're proceeding.
You will see also the subcommittee's recommendations.
Item 4: We will try to use videoconferencing wherever possible, particularly for offshore deputants and witnesses.
Item 5 indicates very clearly the view that there will be at least three site visits. It's obvious which nuclear sites they would be.
It is the Chair's intention to continue to keep as close as we possibly can to the December 1 deadline. We're aware that the October 3 deadline was dropped by the Parliament, by motion. That is not one that will occupy our attention any longer. But we do have a deadline to complete as much as possible.
Behind all of this is the understanding that a number of questions and issues have been raised in a number of other forums, certainly since the late 1980s and on.
We have already asked legislative research to begin to assemble documents. Some documentation's been brought before us already in the form of this document that you have on your desk to this point. There will be other documents we hope to table with you very shortly as well so that we as we go through our orientation briefings we can all have a chance to come up to speed on some of the issues that deal with the question of where we go from here. The essential issues we wrestle with to start with are: What went wrong, if anything? What is being done, if anything, to respond to that? Then there are the future issues we will deal with. Behind that there are a number of other questions that will be raised.
The subcommittee recommended that the minister be asked to attend the committee at a little later date so that we may have a more complete examination of issues he may like to lay before us. In the light of what may be some other studies that may or may not be released, the committee at that point will at least be in a position to ask appropriate questions and to give focus appropriately to issues that will be germane to the third part of this committee study.
With that behind us, we have the recommendations of your subcommittee. To begin with, I would be prepared to receive a motion to approve and then enter into discussions for that. Any discussion as a result of the report?
Mr Galt: There's just one slight modification in the discussion, as I remember, related to Ontario Hydro completing on the Monday. We weren't going to drag them over into the Tuesday, only that, if necessary, Carl Andognini would come from Tuesday into Wednesday. I think Monday is plenty for Ontario Hydro to tell us the problems without giving them any more than 2 1/2 hours.
The Chair: Mr Kwinter, do you agree with that correction?
Mr Kwinter: Yes, I have no problem with that.
The Chair: We'll make that correction to the agenda as well. Any other discussion arising out of the subcommittee's report?
Mr Kwinter: It seemed to me in our discussion at the subcommittee that we certainly explored the possibility or the desirability of visiting a coal-fired station. I notice that is not in our list of site visits. We had discussed possibly Nanticoke or Lakeview or somewhere.
The Chair: As you may recall, we did discuss that. We discussed three potential sites. I'm reminded that we did not come to an agreement on any one site, but we did discuss that as a possibility. We thought that as we moved through this next week or so we might be in a better position to focus on one of those fossil fuel sites to visit. But if it would please you to add in that the committee should at a later date give consideration to a visit to a fossil --
Mr Kwinter: I would suggest that we not designate which site, but just that we visit a fossil fuel site.
The Chair: That we may give consideration to a fossil fuel site. Is there agreement to add that in? We'll consider that as we move through the process. Any other corrections or discussion on the subcommittee's report?
Are you ready to vote? All in favour? Opposed? Carried.
That means we have approved the consultants for the committee. I will ask that the consultants be sent up. They are in the building, just on the chance that they might be approved. They were advised that they should hold their breath because this committee had the right to decide what it would do. But they were here, standing by, so that they could come up to speed as quickly as possible. I'll make sure they're brought in and they're ready for the briefings.
We had agreed we would start the technical briefings immediately following the approval of the subcommittee's report. We have done that, so the briefing is now going to be held by the Ministry of Environment and Energy, electricity operations and planning section. I will ask the staff if they will come forward and take the witness stand. There are Deborah Farr, John Savage and Cynthia Brandon. Those are the three names I have right now that are on your agenda.
Mrs Barbara Fisher (Bruce): Just as a point of clarification, Mr Chair: I was wondering whether or not all of the select committee procedures from here on in are public, and if they are, how has anybody been advised of that?
The Chair: My understanding it that they're always open to the public if they want to attend a subcommittee meeting. Some members of this committee have attended a subcommittee meeting. It's open -- were you speaking about the full committee?
Mrs Fisher: We're now in a session where we're going to be presented with information to a select committee. I want to know if in fact this is now a public forum, and if it is, does anybody know that we're even doing this today and that the briefing is on? I'm just asking. It's not in the subcommittee report.
The Chair: The answer is yes, but I'll let the clerk answer.
Clerk of the Committee (Ms Donna Bryce): The committee notice went out last Thursday that the meetings were on this week. That's normal procedure for standing and select committees, and all standing and select committees are in open session unless the committee moves a motion to go into closed session. Today being the first meeting, approving that subcommittee report is critical to getting the information out. Subcommittee reports are always confidential until approved by the full committee but because in this select committee the Chair has the authority to call meetings, Derwyn went ahead and set up this week's meetings. This subcommittee report is now a public document.
Mrs Fisher: I'm not being critical of the process to date. The reason I'm asking is that I've had people approach me and ask me at what stage in the game would the select committee's procedures become public, open, all the time, for whomever wishes to sit and listen. Is that as of now? That's what I'm asking.
The Chair: Yes.
Mrs Fisher: Just to finish that off then, how will anybody know that? Does the agenda of this committee get posted somewhere? How will anybody know?
Clerk of the Committee: Notice is sent out the week prior to the meetings. The press gallery gets copies of that. Notice is sent out to the various people within the assembly. There is a notice in the subcommittee about advertising for public hearings; that will go out. Notice will be placed on the Ont.Parl channel to advise the public that the committee is meeting. Those are all the normal channels, unless you want something special?
Mrs Fisher: It's a little bit different, I think, in that people won't even know today, for example, that next week, as just adopted by the subcommittee report, there will be certain people attending as intervenors or presenters. I just think that should be public knowledge. I don't know how you put it out. This is truly an honest question. I don't know. I'm telling you that I think that it should be out. I think that somehow it's not necessarily typical of another standing committee.
The Chair: The clerk is suggesting that the committee may wish to do a press release as well, in addition to everything else that's being done, if that would be of help to you?
Mrs Fisher: I think it would be of help to the public. I think that there's a keen interest in knowing what's happening here and I know that our effort is trying to make sure that everybody is advised. I just didn't see in the report how we were going to handle that side of it. I'm just asking because I didn't know.
The Chair: I think the clerk's response has given you a fairly clear indication of the procedure which is followed by all committees, and the broad range of responses to it. We'll also then do a press release to make sure that people are aware of it. We have no control over whether that's picked up or not, but at least local media can take advantage of it.
Mrs Fisher: That's great.
The Chair: Is there an agreement on that by all caucuses? Mr Laughren is nodding his head. "Yes," says Mr Kwinter. All caucuses are agreed to that, so that's fine. We'll carry on in that regard.
Mrs Helen Johns (Huron): I'd like to suggest that we move our two legislative people to a desk so they might be able to take some notes here. They're sitting at chairs there and it might be best if we move them somewhere where they would have adequate space to write.
The Chair: If they have come in now; I'm not sure. If they are, then by all means they ought to have a spot to work on the legislative desk. You're quite right. They might just introduce themselves as they come down.
Mr Richard Campbell: My name is Richard Campbell and I'm with the firm of GPC, Government Policy Consultants, here in Toronto.
Mr Robert Power: My name is Robert Power. I'm with the law firm of Outerbridge, Miller, Sefton, Willms and Shier, here in Toronto as well.
The Chair: I would think at some point there may be discussions with you as well, but for now, if you'd like to take your seats, you can make the appropriate notes necessary. I'm pleased you're able to attend and be with us from the very beginning of the committee's deliberations and its orientations. If there are issues of some concern, members obviously will want to consult with you. I'll keep an eye open to keep your attention and make sure we're all on the same wavelength.
MINISTRY OF ENVIRONMENT AND ENERGY
The Chair: Let me turn our attention to the technical briefing. That is being conducted by, as I mentioned, the Ministry of Environment and Energy.
Ms Deborah Farr: Thank you, Mr Chairman. My name is Deborah Farr and I'm the manager of electricity operations and planning within the policy division of the Ministry of Environment and Energy. I have with me two colleagues. Cynthia Brandon is counsel with our legal services branch. John Savage is an adviser of utility operations with the electricity operations and planning section.
The Chair: Thank you. Are there any other staff from the ministry at all that you may want to call on?
Ms Farr: No. At this point there will just be the three of us.
The Chair: Thank you very much. We are in your hands.
Ms Farr: Thank you, Mr Chairman. What we're here to do today is provide a technical briefing on the electricity system. We'd like to cover some materials with you; specifically, an overview of Ontario Hydro and the Power Corporation Act, which is the act against which Ontario Hydro receives its mandate. We'd also like to speak about the --
Mr Kwinter: On a point of order, Mr Chair: Are they going to be providing us with any written material?
Ms Farr: No.
Mr Kwinter: Okay. That's fine. I just wanted to know.
The Chair: Although that does raise a good point. It may be that upon reflection it would be helpful if anything can be distilled. But we'll have the minutes, frankly, of Hansard. If there's anything that could enhance your presentation, obviously you might reflect upon that, and if there is, feel free to table that with the committee.
Ms Farr: One thing I would like to point out is that I believe that background binders have been provided to the members. A fair amount of the material that we will cover here today is covered in that binder. Certainly, it can be supplemented with other things that we might speak to here today.
The Chair: All members have this documentation here right now. I know they have all read it, so they are ready now to proceed with questioning in detail from that. Thank you. If you think that as a result of your presentation there's anything further that might be tabled, do so. We will have Hansard to guide us as well.
Ms Farr: Perhaps I can just go over what we're going to cover. I mentioned the overview of Ontario Hydro and the Power Corporation Act. We'd also like to speak to the Ontario Energy Board Act and the Ontario Energy Board and its relation to the rate reviews of Ontario Hydro's rate submissions. We'll also speak to the Atomic Energy Control Board because it has specific responsibility for the nuclear facilities Ontario Hydro operates. Then we will also speak to the municipal electric utilities, the distribution sector of the electricity system.
The Chair: Ms Farr, to facilitate matters for the committee, may I ask that as you go through each section, pause, let me ask members of the committee if they have questions on that section, then we'll move to the next section.
Ms Farr: That's fine. I'd like to start with just a brief summary of the Power Corporation Act. Ontario Hydro operates under the Power Corporation Act. It gives Hydro the statutory responsibility to generate, transmit, distribute and supply electricity throughout Ontario, as well as to provide energy-related services and energy efficiency programs. The PCA is the vehicle that establishes Ontario Hydro as a self-regulating monopoly and as a financially self-sustaining corporation without share capital. It gives the corporation the ability to set its own rates and to raise capital by issuing bonds and notes which are guaranteed by the province of Ontario.
The Minister of Environment and Energy provides policy direction through the administration of the Power Corporation Act and through the appointment of the members to Ontario Hydro's board of directors. Also, the Deputy Minister of Environment and Energy is a non-voting member of Ontario Hydro's board of directors and represents the Ontario government on behalf of the minister. The deputy's responsibility is to represent government's interests in Hydro's decision-making and to ensure that Hydro's activities are consistent with government policy.
With respect to the act, Ontario Hydro was created in 1906 as a publicly owned commission to provide electricity at cost to all people of Ontario and to assist with the economic development of the province. It has special statutory powers, including expropriation powers, and it has a tax-exempt status. As we mentioned earlier, it does have the power to set its own rates, but that is subject to review by the Ontario Energy Board. Ontario Hydro also approves the rates of municipal utilities and private utilities to which it sells electricity. It approves the municipal utilities' capital expenditures, borrowing and other related matters. The act also makes Hydro responsible for regulating and inspecting the safety of electrical equipment in Ontario and enables it to restrict access of other generators to its transmission system.
To counterbalance these particular powers that Ontario Hydro has, the PCA also provides mechanisms which are designed to protect the public interest. The government appoints the chair, the chief executive officer and the board of directors. The deputy minister sits, as I mentioned earlier, as a non-voting member, and there are other governance controls, including the power to issue policy directives under the PCA. There's also requirement for order-in-council approvals for all significant operational contracts as well as the construction of new facilities for electricity purchases and power exports and for borrowing and issuing of securities.
Maybe I can just go through fairly quickly the list of the areas where order-in-council or LGIC approval is required. It's appointing, removing for cause and determining the remuneration and expenses payable to the chair and the directors, except the president; appointing either the chair or the president as the CEO of the corporation -- currently the president is the CEO, but as we know, Mr Farlinger is in fact acting as chair, president and CEO at this time, pending the appointment of a new president. They appoint the auditors to audit the accounts of Ontario Hydro. LGIC approval is also required for borrowing money for the purposes of Ontario Hydro. LGIC approval is required for advancing money appropriated by the Legislature for the purposes of Ontario Hydro; guaranteeing the securities issued by Ontario Hydro; authorizing Hydro's participation in economic development programs; and authorizing the minister to issue binding policy directives.
Certain specific powers and authorities are granted to Ontario Hydro under the PCA which may also be exercised only with the prior approval of the LGIC. Specifically, they are acquiring by appropriation or otherwise constructing and using real and personal property for the use and supply of electrical power; borrowing money and issuing securities; entering into contracts for the supply of electrical power to a municipal corporation; making regulations for generation, transmission, transportation and distribution; selling, supplying and delivering heat energy; acquiring, constructing and operating equipment, facilities and works for the production, supply and delivery of heat energy; engaging in specific activities for the purpose of facilitating use and sale of heat energy. Carrying on related business ventures also requires LGIC approval, as does prescribing by regulation the Ontario electrical safety code.
Understanding now that that is the Power Corporation Act, do you have any questions on that?
The Chair: We'll pause here for a moment. Let me just ask members a question in terms of procedure so it's established at the beginning. Do you wish to proceed by caucus or by speakers' list? Is anybody particularly fussed one way or the other? Then let me do it on the speakers' list; that will make it easy.
Mr Kwinter: Ms Farr, I was interested in your explanation of the various responsibilities under the Power Corporation Act. The one I'm particularly interested in is the deputy minister's role at Hydro. The Power Corporation Act provides that the deputy's responsibility is to represent government's interest in Hydro's decision-making and to ensure that Hydro's activities are consistent with government policies. That is what you said if I'm not mistaken?
Ms Farr: Yes, sir.
Mr Kwinter: The problem I have -- this isn't a criticism, but it seems to me that if that is a statutory requirement, the government has the authority to set the policies of Hydro, and that is why the deputy is there. We are in a situation where there is a white paper that is supposed to come down with the government's view of what the policies of Hydro should be. It would seem to me that it would be imperative that we as a committee have that white paper so that in our discussions we at least know -- if the act gives the deputy the power to convey the government's policy to Hydro and Hydro is bound to adhere to that policy, then we should at least know in what context we are discussing what we are discussing. That is going to be signalled in this white paper. It was my understanding that that white paper could have been available October 1, which is in another day or so. Do you have any idea of when that paper will be forthcoming?
Ms Farr: I'm sorry, but I do not. That is a policy question that I think would be best directed at the minister, in terms of when that paper might be available.
Mr Kwinter: Do you understand where I'm coming from?
Ms Farr: I do understand. I would like to clarify one item, and that is that the deputy minister is a non-voting member of the Hydro board of directors. The intention is that they, as you indicate, convey the government policies and priorities with respect to electricity. The Hydro board of directors is appointed through LGIC, and it is their responsibility to conduct themselves and to deal with the day-to-day operations of the utility.
Mr Kwinter: But the point is that they serve at the pleasure of the crown. As a result, they get replaced if they don't follow government policy. They're not an independent board that can make any policy. They're independent within a certain framework, within the policy guidelines. But those policy guidelines are determined by the government. Because they are government appointees, anyone who takes issue with government policies would be replaced.
The point I'm making is that in any of our discussions -- we're trying to resolve some of the problems at Hydro, and it's going to be very difficult if we don't know the direction that is going to be given to this board. The white paper is a discussion paper, but eventually it will signal the direction that the government sees Hydro going in.
The Chair: I think Ms Farr responded by suggesting -- you've made a point very clearly. It may be a point best directed to the minister, and it may also be directed to the parliamentary assistant. You may wish to get that on the record later in the response. Let me carry on in rotation, unless you want to respond precisely to that point, Mr Galt. Mrs Johns?
Mrs Johns: It's my understanding that under the Power Corporation Act, Ontario Hydro is obligated to provide power to the province. I'm interested in the proposal Ontario Hydro has put forward and what kind of repercussions that has. I guess that's one of the objectives we have on this committee. I was wondering if there was any past history that you could let us know about that would inform us about times when there would have been a shortage of power and what Ontario Hydro had to do in those circumstances to be able to provide that power. Has there ever been a time in the history of Hydro where they have not been able to fulfil that mandate they had to provide power to all the province?
Ms Farr: To my knowledge, Ontario Hydro is responsible and has carried out its responsibility to meet the electricity needs of all Ontarians. Now, there are on a day-by-day basis incidents that might occur that might require them to take what I would call extra steps in order to meet those demands. For example, they might at a given moment be required to purchase additional electricity purchases from the neighbouring utilities in the States to meet the demand of a particular day or a particular week, or they might have to bring on generation that doesn't typically operate very often to meet the demand that has been a result of some particular situation. But to my knowledge, and of course this could be verified by Ontario Hydro, I am unaware of them being unable for any length of time to meet their statutory requirement.
Mr Floyd Laughren (Nickel Belt): Good afternoon, Ms Farr. I was disappointed in your answer on the white paper, but I won't pursue it at this point. I agree with my friend from Wilson Heights that that is critical to this committee.
What I wanted to ask you about was that you implied in your comment about the setting of rates that Ontario Hydro sets the rates subject to the approval of the Ontario Energy Board, which makes it sound as though the Ontario Energy Board has the final say in setting rates.
Ms Farr: I hope I said subject to review by the Ontario Energy Board. If I said "approval," I apologize.
Mr Laughren: Either way, it makes it sound as though that's where the process ends. That's not the case, is it?
Ms Farr: No. I have some materials here to share with you a little bit later about the Ontario Energy Board process, but the quick answer to your question is that yes, the rates are submitted by Ontario Hydro, reviewed by the Ontario Energy Board and they do make recommendations with respect to that rate submission; however, it is the responsibility of the Ontario Hydro board of directors to make the final decision with respect to the rates for the following year.
Mr Laughren: Not the cabinet?
Ms Farr: No.
Mr Galt: Thank you very much, Mr Chair. I'm absolutely intrigued by the lack of ability presently of the Ontario government -- and this isn't just in the last year or so; this is traditional -- to have any significant control over the monopoly. First, I'm curious: Is that board currently filled, and what is the number on the board?
Ms Farr: The Power Corporation Act allows for a total of 22 members to the Ontario Hydro board of directors. There are currently 15 members. In response to your comment about the lack of control, the Power Corporation Act has provided Ontario Hydro with specific responsibilities, with specific powers, but does counterbalance those by virtue of the fact that they do appoint the members of the board of directors and it is their responsibility to make the decisions on the day-to-day operation of the utility.
Mr Galt: The comment was made earlier that if those members of the board didn't behave according to government policy, they could be dropped from the board. Is that true, that it's quite easy to end their term partway through?
Ms Farr: They do have a three-year term. I believe they can be let go with cause, but perhaps our legal counsel can answer that question.
Ms Cynthia Brandon: That's exactly right. In order for a board member to be removed from their position, there must be cause. A board member of course is responsible to the corporation, to Ontario Hydro, so cause would probably have to be not acting in the interests of Ontario Hydro, not necessarily not pursuing a policy that the government at that time has decided they'd like Ontario Hydro to pursue, unless the government has issued a policy directive under I believe section 11 of the act. Once a policy directive has been issued, the board members are relieved of that fiduciary duty they owe to the corporation in terms of their liability, so they can then follow the policy of the directive even if it may not be in the best interests of the corporation at that point in time.
The shorter answer to your question is that you're right; there has to be cause to remove a board member.
Mr Galt: I hope I'm not dragging this out too long. Help me with "cause." Could you give me two examples, a ridiculous extreme and one that would be kind of borderline? Is that a fair question? I'm trying to get a handle on this. As I've been trying to work with this the last two weeks, it bothers me, the lack of what the Ontario government can do or not do, yet we get saddled with the debt. I know we have little control there. The public thinks we have all kinds of control over Ontario Hydro, rates and everything, but obviously it's not the way the public thinks.
Ms Brandon: I'd like to clarify that I am not a labour lawyer, so I'm not going to do astoundingly well on this. However, I can cite you the instance, for example, of where the government had made a decision that the number of board members would be reduced and some board members were given notice that their appointments were going to be terminated. That went to court and in fact the board members were reinstated because there simply was no cause for dismissal.
If they've engaged in any kind of illegal activity, that would obviously be cause. If they were acting in a way that was not in the best interests of the corporation, I think that would be the best broad example of there being cause.
Mr Galt: Do they have to take a sledgehammer and go out and start beating on one of the generators to get laid off? I'm being silly, but I'm trying to sort out what a cause would be.
Ms Brandon: I would think that if that happened, there might be cause there, yes. If they're acting with a conflict of interest --
Mr Galt: Maybe I'm pushing too hard, but I was trying to get an understanding.
Ms Brandon: Other than the very broad terms -- I'd be happy to send you some further examples once I've really looked at the issue of what would be cause. I can tell you what would not be cause. Cause would not be, short of a policy directive, simply not adopting the government policy.
The Chair: Your response to Mr Galt would indicate that the responsibilities are the same as any other corporate director --
Ms Brandon: That's exactly my point, and they owe their duty to Ontario Hydro.
The Chair: -- in any corporation, which would involve particularly issues of due diligence.
Ms Brandon: Yes.
The Chair: It's a question then of whether due diligence is being pursued. In that instance, there may be some legal enjoinment there, but that's the only area.
Ms Brandon: Yes.
The Chair: Is the board recompensed? Are there honoraria paid to the board members?
Ms Farr: Yes, there are.
The Chair: Would you just elaborate.
Ms Farr: I believe it's $5,000 per annum paid to the board members, and there is also a per diem of $185 for their attendance at meetings.
Mrs Fisher: I have a couple of questions around the board issues. What constitutes a quorum? Half of those who show or half or more of the board?
Ms Farr: That is a question that I don't know the answer to, I'm afraid.
Mrs Fisher: Good start.
Ms Farr: I apologize. I will find out for you.
Mrs Fisher: Second, given that Ontario Hydro is a public corporation, although managed by a board of directors at arm's length from government, are the board meetings public, and if not, why not?
Ms Farr: The board meetings are not public. They are for the board members only and their invited guests, for example, if they have someone in to provide a presentation. Their responsibilities are to consider the advice and guidance of senior management, which they may or may not accept, as advice and guidance to the board of directors. It is not a public forum to provide that advice and guidance.
Mrs Fisher: Would you know in your life of knowledge of Ontario Hydro if there had been any consideration of whether those boards should be public, given that it's a public company? In addition to that, although it is an incorporated body, it is different from a private corporation, also somewhat in terms of what maybe should be deemed the openness or the non-openness of the board proceedings because it is a public company. Would you know if there's ever been a serious discussion since the last major rewrite of the Power Corporation Act, which was what year?
Ms Farr: There was a minor one in 1994, I believe. Then there was one in 1989, changes to the Power Corporation Act in 1989.
Mrs Fisher: Would you know if there has been any discussion with regard to whether the board meetings should be public or not?
Ms Farr: I'm unaware of any discussions in that regard. The corporation does act as a business entity; they do look at business decisions. The senior management provides advice and guidance which may or may not be accepted by the board.
Mrs Fisher: Would you know, compared to other public corporations, whether their board meetings are open or closed?
Ms Farr: I'm unable to provide you any advice on that.
Mrs Fisher: The one other question I have is this: As it relates to the board and how they process their decision-making, the terms and conditions of why this select committee is struck revolve around the IIPA report and how that came to be, the economics of it and the feasibility of the recovery plan in it, as well as AECB's response to whether that will meet the safety requirements under the regulatory part of the operation of nuclear sites.
I have a question that's very direct. I don't know if this is where I should ask it, but I'll start with this audience. If it's not the right body, then we'll keep asking it till one that's there is the right answer. How long in advance of that board meeting -- I don't know; it was around August 13 -- would all of those board members have had all of that executive input and the management decision recommendations? How long in advance of that were they given that information so that when they went to board that day they could make that decision of such magnitude?
Ms Farr: I suggest you may want to clarify some of this information with Ontario Hydro. The board operates in subcommittees, so certain board members may have seen things in advance of others, or it may be a subject of a couple of subcommittee meetings in advance of it going to the full board. In terms of the binder of materials that is provided to board members -- our understanding of it -- it is roughly about one week in advance of the board meeting that the board members are provided with the full board package.
Mrs Fisher: Okay, thanks very much.
Ms Farr: If I could respond to a question you asked earlier, and my colleague Cynthia Brandon helped with that, the quorum for the Ontario Hydro board of directors is a majority of directors being present at the time.
Mrs Fisher: Present, a majority of the directors.
Ms Farr: A majority of the directors.
Mrs Fisher: So 12 or more.
Ms Farr: If there are 15, there would be --
The Chair: You've got 15 on the board, so eight will be a quorum.
Mrs Fisher: That's exactly the question I'm getting at, though. Is it of the total board potential or of the sitting members or of the present members?
Ms Brandon: It's a majority of the directors for the time being that constitutes a quorum. I would take that to mean a majority of the directors who are actually appointed at any given time.
Mr John O'Toole (Durham East): Just a housekeeping type of issue: There's a fair amount of time being spent on the board and understanding its function. Having served on a number of boards -- not of course of this magnitude -- there's attendance and then there's passive attendance. How many board meetings would they have in any particular year? Is there a regular schedule of board meetings?
Ms Farr: Typically, they have a board meeting each and every month. I believe they have a requirement for nine board meetings. I'd like to verify that for sure, but that's my understanding.
Mr O'Toole: That's within their constitution or bylaws. Is there a constitution or a set of bylaws governing the activities of the board?
Ms Farr: Certainly Ontario Hydro does have --
Mr O'Toole: Lots of policies.
Ms Farr: -- lots of policies, conflict-of-interest guidelines etc. I suggest if you want more information on the specific machinations of the Ontario Hydro board of directors, you might want to speak to them directly.
The Chair: Just to remind the committee, next week we begin in depth with the briefings for Ontario Hydro. These questions will be particularly germane then.
Mr Laughren: Ms Brandon, you were quite delicate in your response to Mr Galt. I thought you were going to say that the difference between cause and not just cause was that if you tried to dump board members in the middle of their term because they were not Tories, that was not cause, and indeed that's what the court decided, isn't it?
Ms Brandon: I don't recall the references to that.
The Chair: That was comic relief. I appreciate that.
Mr Laughren: No, deadly serious.
Mr Kwinter: I just wanted to comment on a couple of statements that were made: one about the appointments and the cause. I wasn't talking about cause, but what happens is that traditionally -- and I assume but I don't know whether it's mandated -- these appointments are three-year appointments.
Ms Farr: Yes.
Mr Kwinter: At the end of three years, they automatically lapse unless they're renewed.
Ms Farr: That's correct.
Mr Kwinter: That is where the government has the control. They can terminate -- or not renew; they don't terminate, they just lapse. Unless you get renewed you're no longer a member of the board.
Ms Farr: That's correct. Every board member is appointed for a three-year term. They must receive a new LGIC approval to be reappointed to the Hydro board.
Mr Kwinter: That is what I meant by government control. They determine who is going to sit on that board.
Ms Farr: Yes, they do.
Mr Kwinter: If you're going to interrupt it, it has to be for cause. We understand that. There's also a provision that you can only serve two three-year terms. Is that correct or can you go on indefinitely?
Ms Farr: That I'm not sure of, sir.
Mr Kwinter: Usually the government procedure is that you get two three-year terms. To answer your question about public boards -- as I chaired a public board -- we at one time did not have public meetings and then there was the same question you asked and we reverted to public meetings, except that one part of it was a private meeting. That had to do with fiscal matters, had to do with employees, had to do with competitive things where it would not be in the board's interest to discuss these openly.
Interestingly enough, when we first announced that these meetings would be public -- I used to be chairman of the Toronto Harbour Commission, which is a public body -- two or three people turned up and then no one turned up. I don't blame them. They're the world's most boring meetings. That's how it worked.
Mr O'Toole: When I was asking about a set of bylaws that would govern such things as the appointments and the terms and set out very clearly the number of terms -- there's one member who's been on since 1990; clearly they are in their third term -- and the process for appointments, I would suspect there would be some set of bylaws that we'll hear about, like Mr Kwinter has suggested. One's on here since 1990, so I'm not sure. You don't know if they can run as many terms as they wish. In your experience, has anybody served longer than third terms?
Ms Farr: I'm afraid I just don't know for sure.
Ms Brandon: The act doesn't speak to it, if that's of any assistance, but as you say, it would be within their own bylaws and policies.
Mrs Fisher: If I might suggest, it probably comes under the agencies, boards and commissions terms of reference as to the appointments and how they are achieved and derived in terms of the number of repetitive terms. I have to agree that since it is a government appointment to the board, it wouldn't be the board, the Power Corporation Act or anybody who is internal who would decide their mandate or their function or their duration. I think we would find that under the ABCs and they'd be laying it out there.
The Chair: Mrs Fisher, would you like to have that tabled with you for all agencies, boards and commissions, or just for this? Any information you want specifically about appointments above what's been given out today?
Mrs Fisher: I think it would be very beneficial for all the members of the committee to have the extract -- it's a board, the Ontario Hydro board, so the extract of the board, the details from the agencies, boards and commissions book, we'll call it.
The Chair: I'll ask legislative research to provide that information for us and table it.
No other questions on this topic? We'll move on to the next item.
Ms Farr: I'd like to move on to just a brief overview of Ontario Hydro. Much of this information, as I mentioned, is in your background binder, if you want to refresh yourself afterwards. Ontario Hydro has the mandate, as I indicated earlier, to generate supply and deliver electricity throughout the province. It sells wholesale electric power to more than 300 municipal utilities, and Mr Savage will be speaking to that a little later. It also serves more than 100 direct industrial customers, that is, those customers which are large power users, over 5,000 kilowatts. It also serves more than 900,000 retail customers in areas or communities not served by the municipal utilities.
In total there are some 3.7 million customers in the province that are served in one manner or another by Ontario Hydro. It's the largest utility in North America in terms of installed generation. It has 69 hydraulic stations, five nuclear stations, and for those of you who are curious why five, Bruce A is considered a station, Bruce B is considered a station, Pickering A is considered a station, Pickering B is considered a station, and Darlington. That's why there are actually three sites but five stations.
Mr Kwinter: People talk about either reactors or stations. So the reactors are greater in number but the stations are only those stations you're talking about.
Ms Farr: Yes, there are, for example, four reactors at each of the A and B units as well as Darlington, that's correct. There are also six fossil fuel stations. Hydro has capacity of about 30,000 to 34,000 megawatts of power. That's capacity. That is the amount of installed generation that is sitting at the sites at any given point in time in order to be fired up to provide electricity or energy.
The nuclear stations represent about 60% of that capacity. Nuclear production supplies most of the base load for the electricity system. Base load is basically that amount of electricity that is required on a day-to-day basis, 24 hours a day, day in, day out; that's 16,000 megawatts. There are also some base-loaded hydraulic stations. The remaining hydraulic and fossil stations are used for peaking capacity. That means to meet the load at those times of day when the generation is higher. For example, when we all get up in the morning, flick on the switch, turn on the coffee maker, fire up the stove to have our porridge, whatever, and at the end of the day when we all go home and flick on the TV to find out what happened in the world, those are the peaking times of the day.
With respect to transmission, there are 29,000 kilometres of high-voltage transmission lines in the province and we have interconnections with a number of neighbouring utilities.
Ontario Hydro's finances: I will cover this in a little more detail in a little while, but let me just quickly go over it. I mentioned earlier it is financially self-sustaining. It doesn't have share capital. It has about $40 billion in assets and it has annual revenues of close to $9 billion. The operating and financing charges offset those revenues and the resulting net income is used to retire debt.
Just taking 1996 as an example, revenues were almost $9 billion. The costs in financing charges were $8.3 billion. That would have left you roughly about $700,000 as net income. However, in 1996 Ontario Hydro took some extraordinary write-offs in the area of $2.5 billion and they ended up with an operating loss of $1.9 billion. That's compared to 1995 where they had about $625 million net income.
I think I also mentioned earlier that the province approves Hydro's borrowing with LGIC approval, and that the notes and bonds issued by Ontario Hydro are in fact guaranteed by the province. The province does levy a charge for guaranteeing the utility's debt. It is 0.5% of the debt outstanding and it was roughly $160 million in 1996. Ontario Hydro does not pay corporate taxes or dividends, but it does provide grants to municipal governments in replacement for the taxes not paid in the order of about $50 million to $60 million in 1996. They also pay water rental fees to the province for the use of the water resources and that was in the order of $120 million in 1996, just to give you a flavour of those costs.
Hydro's current debt stands in the order of $32 billion. They have a requirement called the statutory debt retirement appropriation, SDR as it is known. It is basically equivalent to about one-fortieth of the outstanding debt; that is, over a 40-year period Ontario Hydro must make enough net income to pay down the outstanding debt. The SDR amount in 1996 was roughly $600 million.
We've done a fair amount of talking already about the board of directors so I won't belabour that. The board of directors is responsible for the business affairs, and the way they conduct the business affairs is through committees. There are four of them -- the audit finance committee, the environment and public policy committee, the human resource and corporate governance committee, and the nuclear review committee. Items that would appear before the board would go through those committees and be approved at those committees and then come to the full board.
The corporation has basically a number of what they call signature business areas, one of them being the generation business area and that would be hydraulic, fossil and nuclear. For the time being, while Ontario Hydro is focusing on the nuclear recovery plans, they have separated out that part of the organization and it resides under Mr Andognini's judgement. The other two, fossil and hydraulic, are under Mr John Fox. The transmission company, as I mentioned earlier, has 29,000 kilometres of high-voltage wires and they're responsible for operating those wires. The retail signature business areas are the ones that provide the supply of electricity and the services to the end users.
Then we have something called the central market operator. That particular function operates the system. It provides for system operation and reliability. They decide which units will run, what will be purchased, what will be sold in any given day. There are also some corporate business functions. As well as doing things like finance and corporate relations, they also explore growth opportunities and look at business ventures, that sort of thing. Ontario Hydro International and Ontario Hydro Technologies are part of that corporate business signature area.
There is an organizational chart of the utility which was provided in your background binder if you want any more details on that. You'll see that the last few I mentioned, the transmission, the retail and the corporate business are all together under Ms Clitheroe's tutelage at this particular point in time.
The Chair: Ms Farr, just a couple of questions I have to begin with: In terms of hydro-electric is there any information available to indicate what capacity is untouched currently in the province of Ontario?
Ms Farr: Unrealized potential at this point in time? I do not have that sort of information available to me. I would suggest Ontario Hydro might be able to assist you with that. My sense is that all of the economic hydraulic sites have been utilized by the utility.
The Chair: That would be an issue that obviously the ministry would have been interested in, in the past as well as the present, and there must be some information somewhere in the files.
Ms Farr: I'm sure there may be some information available. I apologize that I just don't have it available, but I will take it back and see what we have.
The Chair: That's all right. Would you just perhaps work through there?
Ms Farr: Absolutely.
The Chair: I'll also ask legislative research if they can find some information just very quickly on that.
The issue of fossil fuels: Does the ministry have any guidelines in terms of priority of fossil use?
Ms Farr: The operation of the system is the responsibility of Ontario Hydro. However, there are obviously air emission regulations that the utility must meet, opacity regulations and other standards that they obviously must meet. We don't regulate what they use and how they use it. We regulate what they put out.
The Chair: I understand that answer. That's the same kind of answer I'd get if I was dealing with incinerators and so forth, so I appreciate your response.
But somewhere along the line the Ministry of Environment might have wrestled with the question of -- let me just take a couple of different kinds -- coal versus natural gas, as a case in point. Is there any evidence to suggest that there has been some kind of priority in that regard?
Ms Farr: No, not that I'm aware of.
The Chair: Just a final question I have: I was intrigued with the use of the word "company." I have just a simple Irish peasant background, so you'll have to bear with me for a moment. When I see the word "company," as opposed to, say, "division" or "department," something I'd be more aware of in terms of the corporate structures, can you just explain for me the significance of that? I'll also ask that question of the chairman of Ontario Hydro. Do you know why they would use that?
Ms Farr: They have chosen to separate out the organization, as I understand it, into what they call signature business areas. In their endeavours to make the corporation a more business-like entity, they have set them into separate profit centres basically, operate them as companies and demonstrate their effectiveness as individual units.
The Chair: So I should attach no particular significance to the word "company."
Ms Farr: No.
The Chair: Thank you. Mr O'Toole.
Mr O'Toole: Just very quickly, in the first overview of the finances you said that in 1996 they had an extraordinary write-off of $2.5 billion. What is that, briefly? It appears to me that it's a significant amount. There must be a very obvious reason I'm somehow not aware of. A $2.5 billion write-off in one year is a significant chunk.
Ms Farr: Just bear with me here. I'll just give you a quick rundown on what those write-offs --
Mr O'Toole: Was it capital, depreciation or something that --
Ms Farr: Basically there were some operational write-offs there, things like the Mattagami development, the Bruce unit 1, financial restructuring, some heavy water that upon their estimation no longer continued to have value to the corporation and therefore they wrote them down. They also had the $400 million associated with the nuclear recovery plan. That was the estimate late last year of what they thought the expenditures would be towards recovering the nuclear system.
Mr O'Toole: That kind of leads to my question. If they had a solid, sound management team with some kind of nuclear recovery plan, it seems to have escalated in cost from some $400 million to some $8 billion. Were there other internal financial things that deferred certain write-offs? Maybe I'm asking you too much of an inside question, but $2.5 billion from a previous profit year, if you will call it profit, $600 million, and then all of a sudden we've gone to $2.5 billion and now $8 billion. Maybe somebody knows something that we're trying to find out. How did we get that bad so quickly?
Ms Farr: Again, this would be a question that you'd want to ask in more detail of the corporation.
Mr O'Toole: Sure. You don't have any insights into that.
Ms Farr: Part of their process was their investigation through the independent, integrated performance assessment that caused them to determine that the costs were higher. But I would suggest that the details need to be addressed to --
Mr O'Toole: I'm not trying to be flippant, but that couldn't be cited as just cause, could it? You know, who's in charge? I certainly would if I was a shareholder, which I think I am somehow. That's my perspective on it. There's a wide variation there from profit to loss.
Mr Kwinter: I have a couple of questions. I'd like to just follow up on Mr O'Toole's question. For an organization that pays no taxes, I don't quite understand why they have to write anything off. Usually a corporation writes off non-performing assets in order to lessen their tax exposure. I'm just curious to know, are these facilities that are totally shut down or are they just ones that are not performing and as a result they've written them down?
Ms Farr: I will qualify my answer in that I am not a financial expert. The kinds of write-downs they took were things like the Bruce unit 1, which in their estimation was no longer of value because the amount of dollars to recover a unit like that would have been far and away more expensive. That asset was severely impaired, and therefore their decision to write it down.
Again, in terms of a more detailed answer, you'd have to direct to Ontario Hydro.
Mr Kwinter: One other question. The 0.5% guarantee fee: Is that actually paid or is it capitalized as part of the debt?
Ms Farr: To my knowledge, it's actually paid.
Mr Kwinter: I'm just curious. Okay.
Mr Galt: I have several unrelated questions, if I may. I understand we're connected with the US and Manitoba sometimes to pick up power or sell power.
Ms Farr: That's correct.
Mr Galt: What about Quebec?
Ms Farr: Yes, we're connected to Manitoba, to Quebec and to some utilities down in the States as well.
Mr Galt: So there is a connection between Ontario Hydro and Quebec. I didn't pick that up earlier.
Ms Farr: Yes, there is.
Mr Galt: I'm kind of caught off guard. I knew some of this before, but there's corporate taxes, no dividends and there's all sorts of grants in lieu of taxes. They have been traditionally in a very favoured position. Do you have any feeling of how we arrived at this or the original decision to give Ontario Hydro such a favoured position in the economy?
Ms Farr: I believe the derivation of all of this was from the Power Corporation Act in that they were given special powers, but at the same time it was counterbalanced with the obligation to serve etc. There were puts and takes, the result of which was that they do have a tax-exempt status.
Mr Galt: The concern I have is, and it's really maybe a little tangential here, but in my riding a private plant competing with Ontario Hydro pays 20 times or thereabouts in local taxes compared to the grant in lieu of taxes.
Anyway, there are four board committees. Who sits on those boards? Is that part of the board of directors of Ontario Hydro?
Ms Farr: That is part of the board of directors and various board members sit on each of those individual committees. They may sit on more than one. They may sit on two or three, as does the chair of the board of directors.
Mr Galt: The chair would sit on all four committees?
Ms Farr: The chair sits on some, I'm not sure if all. I would have to verify that for sure.
Mr Galt: Just a little clarification there. You mentioned the chair and the president and CEO. Who appoints the president and CEO of Ontario Hydro? Is that the board of directors or is that the Ontario government?
Ms Farr: The president and CEO is by the board of directors.
Mr Galt: Some 29,000 kilometres of high-voltage wires: Are we talking individual wires or corridors?
Ms Farr: We're talking about 29,000 kilometres of lines. There might be multiple lines on, for example --
Mr Galt: So rows of towers then?
Ms Farr: Yes, lines.
Mr Galt: So that's a group of lines on those towers?
Ms Farr: Yes.
Mr Galt: Okay. Sorry to be nitpicky but --
Ms Farr: There might be four sets of wires.
Mr Galt: You might have two towers side by side, so each kilometre would be counted as two.
Ms Farr: Each kilometre of line, which might have multiple towers on it; might have five lines on it, might have --
Mr Galt: So if you had multiple towers down a corridor, then that would just be considered as one kilometre, you're saying.
Ms Farr: One kilometre of transmission line.
Mr Galt: The last one relates to when Ontario Hydro in the past has been building -- and I'm thinking of something like Darlington. I don't have any figures, but the impression I got was that it kept getting bigger and bigger and bigger in the cost. Is that all internal? Do they contract out? Is there any limit to how this takes off and gets so monstrous in a building project such as that one?
Ms Farr: Ontario Hydro obviously would be the designer of the particular facility. For example, when they were building Darlington, there was a large influx of construction employees who would have been temporary construction employees to help with the construction of that facility who would not continue with the corporation after the facility was complete.
Mr Galt: Maybe what I'm trying to sort out is, once the Ontario government gave the okay to go ahead with Darlington, it was going to cost X and it turned out it cost four times X plus Y and Z or whatever, and I'm only using that, what kind of checks and balances does the Ontario government and maybe Ontario Hydro have to try and contain those escalating costs?
Ms Farr: The capital expenditures are approved by the board of directors, so the Ontario Hydro board of directors would obviously be responsible for approving those funds and monitoring those funds presumably, as would obviously senior management, and it would be based on management's proposals and management's revisions to estimates that the board of directors would release further funds for the further construction of facilities. It's the Ontario Hydro board of directors that is responsible for those decisions.
Mrs Fisher: I'd like to ask a little bit about Ontario Hydro Technologies and Ontario Hydro International. I understand that they're the corporate business entity now. They weren't always there, as I understand it. Am I right with that? There was a new division set up more recently, I think, called corporate business or business corporate or something. Could you give me some idea of when that happened?
Ms Farr: You're quite right. Ontario Hydro International and Ontario Hydro Technologies have certainly not been around long in the lifetime of Ontario Hydro. I believe Ontario Hydro International, for example, was incorporated in 1993 and OHT came into existence around that point in time.
Certainly some of the functions definitely predated that in terms of new business ventures. There was a new business ventures arm of Ontario Hydro which looked at some of the same things. The intention of these particular entities is to sell or to promote existing expertise and existing technologies within the organization that had already been developed for the organization. They felt that there would be potential opportunities outside the organization where they could perhaps capitalize and get back some of the investment dollars that had been spent on items that they had to develop already for their own use internally.
Mrs Fisher: Between the two of these, would I be right in saying that some of their past decisions did some things like this: either consider or buy rain forests or different types of light bulbs, refrigerators, windmills or solar panels? Am I right? That's where all that type of business took place, either inside Technologies or International? I'm asking.
Ms Farr: I wouldn't say that all of those things took place inside of there. They didn't buy rain forest in Costa Rica, but --
Mrs Fisher: Just got close.
Ms Farr: Certainly, for example, the windmill that you talk about was part of their renewable energy technologies, which was outside Ontario Hydro International or OH Technologies. The OH International and OH Technologies were to use existing technologies that had already been developed in house and take them out to the outside community and potentially recoup some of the moneys that had been spent on those; for example, power pack. I can't remember exactly what it was called, but they were little remote, battery-operated -- Enerpak I think is what they were called actually. They had developed them internally and they took those to the outside community and said: "Are you interested in this? Potentially we can recover some of the investment dollars we spent to develop it because we had to."
Sound technology: Having fish repelled from the intakes of generating stations because they foul up the intake area. They had to develop technology to repel the fish from coming inside there and clogging the intake valves. They used that and determined a way to turn it around and attract fish, and they would look to see whether there were external applications for that. Those are the kinds of things that these particular entities were involved in.
Mrs Fisher: You can see where some of those, or maybe another opinion would be all, would be of benefit to the corporation. But I have heard questions over the history as to how viable some of those exercises have been, and at what cost and at what losses. What I'm trying to understand here is, in this big, corporate structure -- coming back a little bit to the Chair's question earlier with regard to it really doesn't matter whether it's a division, a department or a whatever, they are all intertwined right now.
Ms Brandon: Actually Ontario Hydro International, though, is in fact a subsidiary corporation, so it does have the legal status of a corporation, as opposed to their transmission company, which is really just a business unit within. Ontario Hydro International is a sub of Ontario Hydro, therefore the liabilities should flow back to Ontario Hydro International and not to Ontario Hydro.
Mrs Fisher: But the decisions that are made with regard to its business and its activities are still those made by the board then. Ultimately, whatever they do must come to board approval, or do they? That's the question I'm asking. Do they come to board approval or do they independently decide?
Ms Farr: Ontario Hydro International does have its own board.
Mrs Fisher: So it no longer then is attached as a --
Ms Farr: The board members are also members of the corporation. For example, Mr Farlinger would be a member of that board. But the purpose of the incorporation was so that any activities they would engage in would be completely contained within that subsidiary company and not come back to the parent company.
Mrs Fisher: My question then would be, if they run into an indebtedness issue as opposed to a profit-making and self-sustaining unit, who ultimately then is responsible for that?
Ms Brandon: If they run into indebtedness?
Mrs Fisher: Yes. If they try to operate independently as a private incorporation, yes, with some of the same board members, but my assumption is that technically speaking you have the Ontario Hydro corporation and you have Ontario Hydro International over here. Yes, you have commonality of the board membership, but it's an independent business. Are the generated revenues taxable?
Ms Brandon: I don't believe they are. I believe in the end from the accounting perspective there is an auditing process and an accounting process from Ontario Hydro International up to Ontario Hydro. But with Ontario Hydro's books I think they in fact have to show all of their subsidiaries on their own reporting audits themselves.
Mrs Fisher: In the end though, if they're independent per se for business corporate practices, their indebtedness then should not fall back to the Ontario Hydro books.
Ms Brandon: I believe what the government has attempted to do, with that thought in mind, is to try to stay aware of and keep some limitations on how much money is actually flowed over to Ontario Hydro International so that the loss is contained and the ratepayer is protected.
Mrs Fisher: Do we know if in the last year or two they've been a profit-generating independent corporation?
Ms Farr: They were in 1995.
Mrs Fisher: They were?
Ms Farr: Yes. In 1996, I think they were very close to zero but made a small profit.
Mrs Fisher: One other question on this issue of renewable energy technologies: Where does that fall now in the big picture?
Ms Farr: Ontario Hydro Technologies?
Mrs Fisher: The renewable energy technologies.
Ms Farr: Oh, the renewable energy. It still resides under, I believe, environment, health and safety. Rod Taylor is acting in that capacity.
Mrs Fisher: Of the four divisions of Ontario Hydro though, the four subcommittee areas, you've got nuke, you've got genco, you've got chief finance and you've got chief development and transition. Does it fall in there?
Ms Farr: What I'm indicating to you is that it actually is above here, in the environment and health and safety.
Mrs Fisher: Oh, I see.
Ms Farr: The renewable energy technologies was a special project and resided up here.
Mrs Fisher: Is this supposed to be a self-sustaining unit as well?
Ms Farr: Renewable energy technologies?
Mrs Fisher: I guess all of Ontario Hydro is supposed to be a non-profit corporation, but is it turning out to be a self-sustaining unit without debt?
Ms Farr: Are you talking about renewable energy technologies?
Mrs Fisher: Renewable energy technologies.
Ms Farr: My understanding of the renewable energy technologies, and they were pulled back for a rethink at the beginning of this year, was that they were going to spend some dollars to promote renewable energy technologies that are not necessarily cost-effective right now, but for them to eventually have a place, some moneys needed to be spent to develop those technologies. Ontario Hydro was going to spend additional dollars to promote that, so no, they're not cost-effective at this point in time. I would like to say, though, that they have pulled back on that program and are currently rethinking it.
Mrs Fisher: How much influence does the ministry have? I'm still foreign to understanding where this mesh happens between ministry, which I understand advises a minister, and a separate corporation over here which advises its board and then a decision is made independently. I understand that and I respect that's the status as it operates today. But if the Ministry of Energy was to analyse renewable energy technologies as an example, who would they advise if they didn't feel that renewable energy technologies were in the best interests of Ontario Hydro when Ontario Hydro's 1906 mandate was to produce electricity and sell it?
Ms Farr: I'm not sure I understand your question. Who would advise whom? I'm sorry.
Mrs Fisher: Would the ministry play any type of an advisory capacity to anybody? The minister obviously is supposed to be at arm's length from the decision-making of the board of directors of Ontario Hydro. This is a bit of a complex question here, but you have this public corporation that has responsibility with a board of directors to make its own decisions based on the Power Corporation Act. I would never swear that I've read every part of the Power Corporation Act word for word, but I think that's something I better do. But having said that, does the Power Corporation Act address renewable energy technologies and how they will operate?
Ms Farr: No, it doesn't specifically address renewable energy technologies, but you will remember that in the early 1990s the government was quite supportive of renewable energy technologies and the corporation was also supportive of sustainable energy development. The energy priorities and the business of the corporation were in sync as they related to those types of topics.
Mrs Fisher: You're getting close to the subject I'm trying to get at here. We know that the government was supportive and we know that Hydro was supportive. Somewhere there must have been a crossover of thoughts, ideology or something, which I'm not knocking. I'm just trying to get to understand how that influence of government gets over to the operating status of a corporation that by the Power Corporation Act doesn't have the mandate to do that specific duty. I'm trying to get to understand how you get over there and who makes that decision that they should take on that new venture at whatever cost.
Ms Farr: It's the decision of the Ontario Hydro board of directors. They are obviously familiar with the energy priorities. They obviously have fiduciary responsibility in the corporation. Corporations do make decisions to spend research dollars or whatever, and they would make decisions as they feel appropriate. At that particular point in time the RETs program was accepted by the Hydro board of directors as a prudent activity for the utility to be in.
Mrs Fisher: Coming back to Mr Laughren's question earlier, now I'm starting to see a bit of a tie-in here I didn't understand before. I'm trying to differentiate between the role of government and how it does its business and how in fact it gets to communicate with Hydro, which it ultimately is responsible for in terms of long-term debt. That's one of the reason we're here today. I guess it comes back to the position of the non-voting status of an assistant deputy minister, is it --
Ms Farr: The deputy.
Mrs Fisher: -- the deputy minister who attends boards but in a non-voting capacity. Is it at that stage that this information of government is shared? I can't understand. If the function is there, what does that person do at those meetings? Do they communicate?
Ms Farr: Well, I certainly hope so. I'm not privy to the Hydro board meetings. There are a number of ways in which the minister and the chair communicate to ministry staff and in which Ontario Hydro staff communicate. There are meetings between the minister and the chair on an occasional basis. Ministry staff speak to Ontario Hydro staff on a very regular basis to understand the issues of the day. There are a lot of areas where we do communicate.
Mrs Fisher: I don't mean to prolong it and I'm not going to, but I appreciate trying to get that connection, because first of all I do support that there has to be some type of cross-communication. Obviously there has to be someone who makes a decision in the end based on something. I was just trying to understand that tie. You always feel that if you dare talk over there, you're crossing a line of what you're allowed to do or not allowed to do versus trying to find out what Hydro's up to in the real world today and where it's going and that type of thing. I appreciate that and I see that there is a formalized role through the board, in a non-voting capacity of a position but also that more open role as well, to convey to each other's thoughts back and forth. I'm not being negative about it. I was trying to figure out how that ever happened.
Ms Farr: We also communicate through the more formal processes, like orders in council. I gave you a whole list of things on how we communicate.
Mr Kwinter: I'd like to spend a bit of time with Ontario Hydro International, the consultancy part of Ontario Hydro. If they're consulting on the Three Gorges project in China, does that come under that?
Ms Farr: I believe Ontario Hydro International did do some work with Three Gorges, but I just don't know what the outcome of it was.
Mr Kwinter: No, no. All I want to know is, is that where it is? It would be in that section?
Ms Farr: Yes. It basically would be in pursuing international projects. They would sell their consulting services. They might sell some of their technologies. Those are the kinds of things Ontario Hydro International would become involved in.
Mr Kwinter: Would they also provide actual general contracting facilities to other countries where they would actually be building facilities?
Ms Farr: They would certainly provide consulting services. They would have project engineers, for example, whom they would be contracting out. For example, I believe they had some OHI staff present in India assisting with the construction of the facility.
Mr Kwinter: The reason I'm asking is that it would seem to me that in any kind of relationship the corporation, Ontario Hydro, would almost automatically have to guarantee any of the obligations of any of their subsidiaries. Usually you're dealing with sovereign contracts. There are very few private people who get involved in these projects. They're usually government to government and Ontario Hydro acting as an agent of the government in doing these things, either for Ontario or for Canada. My only question is, if any of these things have a loss, is that covered? Does that eventually come back to be paid by the ratepayer or is that something --
Ms Farr: No, typically Ontario Hydro International is providing consulting services or contract services where they're saying, "We are paid to have five people who have expertise in a particular area consult to you." It's like Acres Consulting having a consulting contract in India to help with the construction of a particular generating facility. It would be no different than that.
Mr Kwinter: But they don't actually do the construction. They just provide the --
Ms Farr: Expertise.
Mr Kwinter: -- technical expertise without actually doing the project?
Ms Farr: Yes, that's correct.
Mrs Johns: Under the Power Corporation Act, Ontario Hydro has a statutory requirement to repay part of its debt every year. Under the plan they're proposing presently, they would not make payments on that debt for a number of years. If this committee were to agree to that, how would we change the legislation to allow that to happen?
Ms Farr: I believe there's actually a provision in the PCA that does allow, with LGIC approval, for periodic times that this amount could not be repaid. There would need to be an order-in-council application that would be agreed to by the government to do that.
Mrs Johns: My second question is as a result of some reading I've been doing recently and your discussions on the human resource committee. There's quite a bit of talk in newspapers and in articles I've been reading about the -- well, first of all, with this IIPA report there's quite a discussion on the lack of human resources within Ontario Hydro. When you follow that back far enough, you come to the point in the last eight years or so where they gave a buyout package to a number of people within Ontario Hydro. There is some question about whether those buyout packages, offered under the auspices of Maurice Strong, were really the right business decision to make. So I guess my question is, would the human resource committee have had to approve those buyout packages and the decisions to change human resources in Ontario Hydro in the last eight years?
Ms Farr: The human resource subcommittee of the board would have reviewed the board memoranda provided to them for board consideration on downsizing packages, which is what they were called in the early 1990s. So the human resource committee, or whatever its equivalent was, because it may have not had exactly the same name at that point in time, would have reviewed the board memoranda and would have agreed on the package.
Mrs Johns: Can you get me the people who have been on the human resource committee since, let's say, 1985?
Ms Farr: Yes.
Mr O'Toole: We're actually delving quite deeply into some of the financial stability, or lack thereof, of the organization. I'm going back. I'm looking at the decommissioning costs. It's part of the report you provided for us. I'm also keeping in the back of my mind that under their own annualized budget they've got to have this SDR kind of added on to the end of what the real thing is and we've got to make this one fortieth of what our debt load is.
Whenever I look at it and I start to read that background on each year, I've always wondered about the future decommissioning costs, how and where they're carried. I'm told it's like $100 billion to close a nuclear plant because of the radioactive life and the need to monitor all these costs, that they collect each year some $22 million towards decommissioning costs and $106 million for future waste disposal. Those are collected by customers as part of the rate, part of the nuclear overhead, if you will. That shows up in kind of a vague way in their balance sheet under Hydro assets, but really it's used to discharge future borrowing. So it's used as kind of operating revenue really and it's just added on to the debt while at the same time we've got this SDR plan which we're considering possibly zipping out of the financial picture for a while to give them some relief.
I request the committee to have a little more clarity. I don't have the privilege of their annual statement. I haven't read it, but I will when it's provided. I'd like it to be clarified with respect to just those two things. Internal borrowing is the actual cost of doing business, because you're putting a surcharge on the cost of power, collecting the money, using it to offset operating costs, which really amounts to about the same amount of money as the SDR. You know, we've got to make profit, that number, the $600 million number. I find the accounting, from a very primary perspective -- I want to qualify that; I'm not a CA, I don't know much about it -- rather circuitous, meaning rather that it's devious actually, without being suggestive that's it's marginally accounting magic.
To me, that whole area is further complicated when I look at some of the strategic business units as you've described them to the member for Bruce. Who assumes the liability? There's no share capital. There's none of that. There's no traditional -- they've got the guardianship. The first page here says it's $32 billion in debt.
Ms Farr: If I could just --
Mr O'Toole: That's cast against some knowledge of asset value, which to me is ridiculous; they don't have any assets.
The Chair: Mr O'Toole, I think Ms Farr has got the question clear now. So we'll just --
Mr O'Toole: Do you understand what I'm saying? I find it almost devious from the point of view -- when I look at --
The Chair: Mr O'Toole, I think she has the question right in hand. Now let's see if we can hear that answer for a minute.
Ms Farr: What I'd like to clarify is that Ontario Hydro does collect funds from ratepayers towards the future decommissioning of its nuclear facilities -- and fossil facilities, for that matter, for all of its facilities. It collects those moneys. It views it as a liability as opposed to a separate fund. You are absolutely correct. It's listed as a liability on the book. At the end of 1996, it was in the order of $2 billion. Those funds are available to the corporation to reduce borrowings -- absolutely. I would like to point out a couple of things. The treatment Ontario Hydro uses is not exclusive to Ontario Hydro. In point of fact, it is consistent with other jurisdictions, particularly jurisdictions that are also public utilities. There are private utilities that have segregated funds, ie, they set that money aside much like a pension fund, but there are a number of public utilities that operate in exactly the same manner as Ontario Hydro, so it's not unique to Ontario Hydro. I'll just point that out to you.
With respect to your figures, yes, they are $22 billion towards decommissioning and $106 million, as you quite rightly picked out, towards future disposal costs. In terms of the size of the liability, ie, what it could be, there is definitely a range of estimates out there. Ontario Hydro would be the one to speak more intelligently to what that range is, but Ontario Hydro has made an assessment of what they think is a reasonable estimate and are accruing funds based on that estimate.
Mr O'Toole: It's even more complicated than that, unfortunately. I will need to have some time to think about the numbers myself, to analyse, even to ask a decent question. When I hear that the useful life of a nuclear plant is some 40 years and then its unuseful life has some annualized costs attached to it, for decommissioning and the rest of it, I'd suspect it should be clear to us what those two pictures are. This little stipend on the rate should be part of that. I should be able to say, "Okay, if they tell me they can produce kilowatts per hour, does that include all those numbers?" That's kind of where I want to get to. Do you understand? If they can say, "We can compete with Michigan or Quebec," the deferred cost of borrowing is part of the cost. If I'm using internal cash flow to offset my real cost of capital, that's a cost that's real if I don't save the money.
You've been very thorough and diligent in your responses, and you're right that with you I'm only preparing to ask a more sophisticated question later on in the process. But I qualify it as a very novice person looking at that: "Gee, yes, we're really competitive with the rest of the world on nuclear." Yes, right.
The Chair: Mr O'Toole, you'll be comforted to know that on Monday next you will have the opportunity to re-pose these questions. I have no doubt that those who will be deputing that day will have read Hansard and will be prepared for some of the answers.
Mr Kwinter: Ms Farr, if I can just get a clarification, you say that the Power Corporation Act provides for a deferral of the SDR into the future. Is that a deferral or a forgiveness?
Ms Farr: No, my understanding of it is that they still have a requirement to pay down their debt. It's simply that they defer for a period of time their requirement to meet the SDR requirement.
Mr Kwinter: What I'm trying to determine is that if you don't --
Ms Farr: You don't forgive debt.
Mr Kwinter: I'm not talking about forgiving the debt. That's a $600-million opportunity cost you're losing if you don't get that $600 million. Does that get added on to the debt or is it just a wash, that it doesn't reduce the debt, but it doesn't increase the debt?
Ms Farr: It simply means that those moneys are not available to pay down debt, so their debt would continue to be higher than it would have been had they made that net income which is at least the SDR requirement.
Mr Kwinter: There's no accounting for that, there's no compensation, there's no sort of premium that accrues as a result of not paying it? It's like me. If I don't make my mortgage payments, my mortgage may not go up but the mortgage company is forgoing that income. There's got to be something. They don't just say: "Oh well, it's okay. Don't bother paying me your mortgage payment this month. Pay it to me next month." There's got to be some provision.
Ms Farr: The interest accrues on the outstanding debt each and every year. Again I preface my comments by saying I'm not a financial expert.
The Chair: Next Monday there is the opportunity for that one, Mr Kwinter.
Mr Laughren: I think Mr O'Toole was asking some interesting questions. I think just because he's not an accountant, that doesn't make them illegitimate by any stretch of the imagination. First of all, being first before the committee means you're getting questions that really should be directed at Hydro. We're coming to understand that.
What I wondered about was, I think you said Ontario Hydro has set aside $2 billion as potential future decommissioning costs, something like that. Am I correct?
Ms Farr: Yes, $2 billion at the end of 1996.
Mr Laughren: What I wondered about was the role of the ministry. I think that's more the kind of question you could answer. Does the ministry review that number with a view to whether or not it's a realistic number or whether it's just a convenience for Hydro to put in a number that's in the billions? I think most of us would concede that it doesn't come close to what decommissioning would really cost.
As a matter of fact, I can remember way back when the nuclear debate was raging that the three main concerns by people were (1) the cost, (2) the disposal of the waste and (3) decommissioning costs. All three chickens are coming home to roost. No comments about the chickens glowing in the dark, either, Mr O'Toole.
I wonder what role the ministry plays in reviewing Hydro's numbers to determine whether or not they're a convenience for Hydro or a realistic number.
Ms Farr: I'd like to mention just a few things. The amount of the acknowledged liability at this particular point in time is $2 billion at the end of 1996. That doesn't mean that is all the dollars they are going to collect.
Their premise I think is that it will be around the year 2025 before they'll actually have to physically put the used fuel somewhere and that by the time they get there, they will have sufficient funds to pay for whatever that facility may be.
As we may know, the federal government is currently looking at what sort of disposal of used fuel -- what is the mechanism etc.
Mr Laughren: Forgive me, but there's more to decommissioning than the storage of fuel rods, right?
Ms Farr: Yes, absolutely. With respect to the responsibilities for used fuel management and determining the amount of funds, that is the responsibility of the Ontario Hydro board of directors. The ministry does not review and approve those expenditures.
I would like to point out, however, that the Atomic Energy Control Board has a role to play here in that they are responsible for the control and safety of the nuclear facilities and, as part of their new act, the Nuclear Safety and Control Act, they are looking at regulations specifically associated with financial guarantees and dollars allocated to decommissioning and used fuel management. So there is also that authority as well, and you may want to query the ACB when they appear before you.
Mr Galt: It may go without saying, but I am just going to make the comment that Ms Farr's presence here is to explain Electricity 101, so to speak, and not to defend Ontario Hydro. I hope she doesn't feel she is being put in a position to defend Ontario Hydro --
Mr Laughren: It's indefensible.
Mr Galt: -- because that's certainly not the role today. I'd also remind members to be mindful of the clock. We would like to, if at all possible, get through this by 9 o'clock tonight. However, there is tomorrow, but it would be nice if it could be wound up tonight. I'm not telling them what to do or how to do it, but just kind of a gentle reminder.
The Chair: Thank you, Mr Galt. You know we continue tomorrow as well with the technical briefings. I appreciate that. Your exhortation is well taken. I think most people realize that, but we are trying to plumb some important depths here.
Part of the reason I've been allowing a little bit of latitude has been the role of the deputy minister and the linkages there. I think there is some importance in making sure the committee is very clear on what that linkage is and what it implies. But we'll be conscious of any of the questions, such as the ones posed by Mr O'Toole, appropriately addressed to Ontario Hydro on Monday. Do you have more points that you want to raise?
Mr Galt: We'll just enjoy them on Monday, very much so.
The Chair: Mrs Fisher?
Mrs Fisher: I just have one. Taking a step further, I agree that Ontario Hydro accounts for in a way its responsibility for long-term funding requirements for decommissioning of all natures: fuel handling, fuel storage, decommissioning of site, whatever tear-down of whatever type might happen.
As it stands right now, that does not fall under any jurisdiction of anybody else but Ontario Hydro to ensure they have that funding there. Am I right?
Ms Farr: It is their requirement, their responsibility to make sure they have sufficient funds to put back what they have changed.
Mrs Fisher: I don't have a financial statement in front of me, but would I be right in thinking that, given that the normal life of a unit is 40 years with some major remedial work expected at the midlife stage, 20 to 25 years, in all probability they maybe haven't kept up with banking that reserve fund on the expectation of an earlier shutdown?
I cite unit 2, Bruce A, as an example. If they chose not to restore unit 2, for example -- there are all kinds of reasons why it has additional costs -- would I be right in thinking that perhaps they're a little bit ahead of their anticipated financial planning to provide enough money to do the full, not layoff, but now formal shutdown of that unit independently?
Ms Farr: I don't want to speak to the details of all the specific assumptions in Ontario Hydro's decommissioning plans that lead them to say, "We will charge whatever it is per kilowatt-hour to each customer." That's best directed at Ontario Hydro.
Just so that we're clear here, because a unit is shut down does not automatically imply that you need to decommission it immediately. In point of fact, these facilities will sit there for a period of time, likely a long period of time, before what you would call the major decommissioning takes place.
Even the site itself has to be brought to a certain environmental level before they can go in there and do certain things. So their assumptions are towards certain life expectancies, towards certain cool-down times, and I don't want to use that word incorrectly. They have certain expectations that they will have to do it. I believe the current expectation is that about the year 2025 is when they will physically have a facility where they would, for example, put used fuel etc.
Mrs Fisher: I agree that we shouldn't get into the specific detail, but let me ask this question in a broader sense and in a general picture. If one of the series of A units -- Pickering or Bruce or whatever right now -- did not come back up, would you agree with me that this would put a larger onus financially on Ontario Hydro to have available to them the funds for the long-term storage? I agree with you -- I understand the phased shutting down process etc. Would that not appear to be maybe a shortfall in the planning right now, financially?
The Chair: Ask our consultants that.
Mrs Johns: If this is a stumbling block, that's why we pay this gentleman. Tell us something about it.
Mr Campbell: There have been a number of questions where I might have been helpful to the proceedings tonight, but this is not one of them. It's best left to the financial experts for Ontario Hydro to explain all the assumptions under the decommissioning funding provisions. I think Ms Farr has gone as far as she can and as far as I know I can. It's best left to another witness.
Mrs Johns: Can you just tell us what decommissioning would involve, since we've kind of got into that, from your perspective as a nuclear expert?
Mr Campbell: I'm not quite a nuclear expert but I'm an expert on some matters. With respect to decommissioning, envision a return to a green field. That is, you have a nuclear plant now, and over a long period of time the expectation is that you move back to what was there before. With respect to a nuclear plant, that takes a great deal of planning and a great deal of time. The provisions that Hydro has accounted for deal with the fuel, most important, and then second with the equipment and machinery and all the lower-level radioactive waste associated with the facilities.
Mrs Fisher: One other question: I understand the regulatory requirement to ensure that all that happens lies with the AECB and Hydro has to meet those requirements. My question is this: Who has the responsibility to determine at what stage in the game, in the bigger picture now, let's say, the permanent shutdown and the long-term monitoring, if you will? Who decides that? Is that Ontario Hydro board or is that AECB?
Mr Campbell: I think you will find there are aspects of it that are shared. Certainly AECB prescribes, but Ontario Hydro in its duty will have a great deal of detail on all those questions. I'm certain that the financial people at Hydro, considering the fact that there is a potential for some nuclear units to be decommissioned earlier than some of the assumptions may provide for, would have all the detail you would require.
Mrs Fisher: I have one final question. I know that somebody this year was going throughout Canada and Ontario holding public forums with regard to long-term, high-level waste storage.
Mr Campbell: Yes.
Mrs Fisher: Was that AECB or was it Hydro?
Mr Campbell: That was the federal government, an environmental assessment review process sponsored by the federal government.
Mrs Fisher: In the end, they will determine what process will be handled to take care of these --
Mr Campbell: The initial hearing is with respect to the concept of deep rock disposal, and a report from what is referred to as the Seaborn commission is expected later this year on the concept and what would be practical to proceed with.
Mrs Fisher: That's not AECB, though, is it?
Mr Campbell: No, it is the federal government.
Mrs Fisher: I would suggest that this be one of the parties that we invite to come before us. I think it's very significant right now with regard to potential cost, the timing of those costs and the responsibility, where it lies and what Ontario Hydro and the province might be up against.
The Chair: Who is the lead ministry on that?
Ms Farr: The federal Department of the Environment.
The Chair: All right? The committee agrees.
Mrs Fisher: I would also recommend that if there is any possibility of trying to get that person back to back with the AECB, it might help the committee in terms of understanding the areas of responsibility. I just think it would be useful to keep them together if you can because they will, in the end, determine where all this stuff ends up.
The Chair: AECB is scheduled currently for Wednesday, October 8, so we'll check to see if there is any convenience for that to happen as well in terms of timing, keeping in mind the need of blending in some schedules. I'll try and do that.
Mrs Johns: I'd like to ask a process question here. I heard this gentleman say that there were some issues he could have helped us with along the line. Obviously, they don't feel comfortable with putting these data before us. What is the process going to be here when they feel they have something to add to this committee?
The Chair: I'm glad you raised that because I haven't had an opportunity to meet with them. As you will understand, this committee began to meet and went through the process of selecting its staff and we carried on in the briefing. I was proposing in about 20 minutes from now to sort that out and have an answer for you when we come back at 7 o'clock. I have also asked in the meantime that if either of them perceives some difficulties in the short run, they just give me a very quick time-out request for a moment, let me have a fast consultation and we'll go from there.
Clerk of the Committee: If I could just add, they'll be sitting at the table as well, so they'll be able to indicate when they want to get in.
The Chair: We'll try to sort that through, because they are there to help us and they are there to help us pose questions. They might even perhaps give some assistance to crystallize where the questions are best asked. Right now I know there is a great deal of interest in getting questions on the table. In some cases I think we have probably abused Ms Farr just a little bit in terms of some questioning because we've gone beyond her mandate and responsibility, but I can understand why, so I've been a little easygoing in the first round to do that.
But I think we start to crystallize and focus our questions on the appropriate agencies, and now that we have our staff with the committee, we can begin to do that. Give me the dinner hour to work on that and we'll work our way through this over the next hour or so, but I appreciate that question. It was insightful.
Any other questions on this topic? I have a couple to go back to just very quickly, Ms Farr. The OHI is an intriguing one, and OHT. You indicated in your response to questioning that the OHI has its own separate board.
Ms Farr: Yes.
The Chair: That board consists of individuals who are also members of the OH board.
Ms Farr: Yes, some members are members of the OH board.
The Chair: Are there some members of the OHI who are not members of the OH board?
Ms Farr: Yes.
The Chair: Are they corporate members or are they laymen outside OH?
Ms Farr: Corporate members.
The Chair: They are employees?
Ms Farr: Yes.
The Chair: They are voting members?
Ms Farr: Yes.
The Chair: I see. Let me ask you: That board is fully empowered under the Corporations Act?
Ms Brandon: Actually, the Power Corporation Act gives authority for Ontario Hydro, with approval of the LGIC, to create a sub, and that's pretty much all the act says about the sub. Its existence is authorized under the PCA but you won't find much more direction for the sub under the PCA itself. It would really be incorporated under the Ontario Business Corporations Act.
The Chair: So it's incorporated under Canadian charter?
Ms Brandon: Ontario legislation.
The Chair: And it has some members of the board who are employees of Ontario Hydro?
Ms Farr: Yes.
The Chair: Are the board members paid an annual remuneration?
Ms Farr: Not that I'm aware of. Because they are corporate employees, they're not paid a per diem or a salary.
The Chair: Are OH board members paid?
Ms Farr: The full board?
The Chair: If an OH board member is a member of the OHI board, are they paid separately for the OHI membership?
Ms Farr: Maybe I can just clarify: Ontario Hydro board of directors members who are non-corporate employees receive the annual remuneration and the per diem. If they are corporate employees, they do not.
The Chair: I really do understand that and I appreciate it. You've very precise. It's a small matter but just one I want to make sure is very clear in my head. If Ms X is a member of the Ontario Hydro board and Ms X is then appointed to be a member of the OHI board, is Ms X paid to be a member of the OHI board as well?
Ms Farr: No, because all of the members of the OHI board are also corporate employees. For example, Ms Clitheroe is a member of the Hydro board of directors but she is also a corporate officer. She also sits on the OHI board. She is not paid other than her normal remuneration. None of the OHI board members are non-corporate employees.
The Chair: So all OHI board members are employees?
Ms Farr: Yes.
The Chair: Are there debts accrued to OHI?
Ms Brandon: I'm not aware of their financial statements. I can't answer that myself.
The Chair: You wouldn't know what portion of the $32 billion OH debt would be OHI?
Ms Brandon: I personally don't know.
Ms Farr: I'm not sure that they have a debt.
The Chair: I've gone into an area that is not necessarily in your area anyhow, so I will ask Ontario Hydro about those areas.
Let's go on to the next section. We have another few minutes before we break.
Ms Farr: Okay. Actually, it's opportune. I will just finish off the Ontario Hydro segment and then the Ontario Energy Board and the Atomic Energy Control Board we can deal with afterwards.
I just wanted to speak to some of the load information and business planning information related to Ontario Hydro. Again, this is a snapshot. For more detailed information, you'll likely want to speak with Ontario Hydro representatives.
Just to give you a thumbnail sketch: Over the last five years Hydro has made some relatively conservative assumptions about sales growth. It's in the range of 1% to 1.5% a year. It's the load growth projection they've used to determine their costs and revenues. Having said that, though, over the last five years the actual load has in fact been below that.
Electricity sales in Ontario peaked in 1989, before we saw the cumulative 30% increase in the electricity rates over the three-year period 1990-92 and the recession of the early 1990s. It's quite likely that electricity sales in 1997 will still be below 1989 levels. In 1996, Hydro forecast sales would grow by 0.8% in that year and sales were actually flat. Last year, Ontario Hydro forecast sales growth to average about 1.25% a year over the period of 1997 to 2000. That's roughly about half of the expected growth in Ontario's economy over the period. However, in developing last year's business plan, and I'll explain that in a second, they assumed that the low growth would be flat.
By "last year's business plan," what I mean is that Ontario Hydro has a business planning process, which basically goes through the fall of the year, where they make economic assumptions, growth assumptions etc, and all of the corporate costs and programs are based on those assumptions, as well as just the business they're in. In other words, it starts August, September, and then at the January board meeting the Ontario Hydro board of directors approves their business plan for that year. So back in September through December 1996 they went through the business planning process and in January 1997 their business plan was approved.
In spite of the flat revenue, in their last year's business plan the declining debt servicing costs and the reductions in operations, maintenance and administration costs that they were projecting would have meant that they would have been able to cover their capital expenditures and still pay down debt. In point of fact, they were looking at paying down debt in the order of about $1.5 billion a year, so they would have ended up at the end of 1999 at about a $28-billion debt. Also in that plan, the average cost of power was projected to go down by about 5% over the period 1996-99. That's the context in which they have entered in 1997. As I indicated, the load is flat, very little movement, and their current assumptions related to their nuclear recovery plan will obviously change that picture for 1998.
The Chair: Just a question in that regard: Has there been any analysis to attribute that to the flatness? Is it involved with the issues of efficiency and increasing efficiencies? Is it involved with business decline? Is there any information that's been provided to the ministry to indicate why there's that differential of between 1% and 1.5%?
Ms Farr: There is information available within the ministry that I could provide to you. Unfortunately, I'm not the expert so I wouldn't be able to speak to it intelligently. But I can certainly take that back and have that information provided or have someone available if you wanted to ask questions.
The Chair: But at this point, as we speak, the assumption is still 1% to 1.5%?
Ms Farr: Yes.
Mrs Johns: In their financial statements in December 1996, Hydro wrote off $2.5 million that we've already discussed here. Was that the first time Hydro had written off assets?
Ms Farr: Actually, it was $2.5 billion. No, it isn't the first time. At the end of 1993 they had a very large write-down as well. I think it was in the order of $3.5 billion, but that would have to be verified.
Mrs Johns: From the overall perspective, I'm interested in if in previous times the write-downs included nuclear assets. I'm interested in when was the first time we saw them beginning to recognize that their assets were not at the value they were book-valued at. Because really what's happening here as they're writing down their assets is that they're trying to match book value with actual value, I would assume. That's what you do when you take a write-off. You realize that your assets are overvalued. So I'd like to see from you, or maybe this is an Ontario Hydro question, I'm not sure, when write-offs happened in the past and if they were related to nuclear assets.
Ms Farr: Ontario Hydro would provide most of that information. I can speak to the fact that in 1993 Bruce unit 2, which was the first that I'm aware of, was written down at that point.
Mrs Johns: Can you tell me the process when Ontario Hydro decides that they want to write down an asset? What happens? I would imagine that accounting staff at Hydro says to the board and the board says to whomever, "We think we should do this." I'm really interested in governments being involved in the write-down. Does the government give approval for a write-down to come on the financial statement?
Ms Farr: Ontario Hydro would speak to their own internal process in terms of the write-downs. With respect to the role of the government, it is considered a business decision, a fiduciary responsibility of the board to ensure that the assets continue to have value. So they would make the decision based on the advice and guidance of senior management about those. The government would not provide judgement on that.
Mrs Johns: So government has no say in whether the assets are matched properly. For example, if they decide after this year to leave these assets valued at I think it's about $37 billion on the financial statement, we as a government cannot say, "The assets aren't worth that kind of value."
Ms Farr: The Ontario government leaves that responsibility to the Ontario Hydro board of directors.
Mr Galt: This question may be out of order but I'm curious what this would cost to produce, what has just been handed out.
The Chair: We'll ask Ontario Hydro that.
Mr Galt: I think we just found an example of our problem.
The Chair: Can I just suggest for the benefit of the committee that I'll notify Ontario Hydro that it would be helpful if they were to read the Hansard, for example, of this meeting.
Mr Laughren: They will.
The Chair: There are a number of questions that have been raised that I think would at least prepare them for some of the walk-through when we get back together again. That's obviously a question they would pick up on.
Mr Laughren: They've probably got the room taped.
Mrs Johns: I have a process question about that and in fact I was asking the clerk about this previously. It's my understanding that unless this committee makes a recommendation, Hansard could take up to a week for us to see, and that of course will help no one. I understand that you can fast-track Hansard to get us priority somehow so that it comes more quickly. I would request that we do that of the Clerk's office or of Hansard so that we can see this on a more timely basis.
The Chair: I'm pleased that you've raised that. I was going to do that momentarily, just before we broke. I would ask if we have concurrence from all three caucuses that I make that request, that it's agreed?
Mr Laughren: Wait a minute. May I have your assurance that if you do this, it won't cost any money?
Mrs Johns: We're going to get Hansard some time anyway.
Mr Laughren: I'm just asking.
The Chair: What kind of assurances would you like, Mr Laughren.
Mr Laughren: I'd like assurances that if you ask for this to be fast-tracked, there will be no additional bill to the public sector.
The Chair: To the public sector?
Mr Laughren: In other words, it won't cost overtime and extra printing costs. Let's not cast aspersions at Hydro while we do something ourselves that costs more money.
The Chair: I can't give you that assurance. You understand that all we can do is ask.
Mr Laughren: Then I don't support it.
The Chair: Maybe you would support it if I phrase it another way.
Mr Laughren: I might.
The Chair: That Hansard be requested to expedite within the economic guidelines and goalposts.
Mr Laughren: If there's no additional cost.
The Chair: I'm in the hands of the committee.
Mr O'Toole: I support Floyd's sentiments.
The Chair: All right. That seems to picking up the sentiment.
Mr Laughren: I tapped into the mood of the committee.
The Chair: A very solid, conservative, fiscally prudent viewpoint and I'm so pleased to watch that epiphany unfold.
Are there are any other questions at this point?
Mr O'Toole: Just more or less my concluding statement or question on the corporate entanglements, and I'm just sort of saying it for the greater good of the greater group here. When I'm reading the other operating highlights, I'm interested to have someone explain to me -- Ontario Hydro set up Ontario Hydro Interconnected Markets Inc. This permitted Ontario Hydro to sell to the US market. This is the interesting challenge. Export sales to the US currently reduce the cost for Ontario customers. I suggest to you that they could not possibly sell at cost. That's subsidized. It's short-term operating revenue to drive the real cost down and it's all debt deferment. From a very novice accountant, like Commerce 101, that's price stabilization, to keep the price flat, by utilizing assets that aren't properly being discharged. I hope Maurice comes in because some of the things here I don't think are appropriate business practices. I'm serious. That worries me.
The Chair: Again, that may be a query that's particularly directed to Ontario Hydro.
Mr Kwinter: This question I'm going to present to Hydro as well, but you might give me your version of why you think it happened. I notice that in their financial results they had projected that the net income for 1997 would be $740 million. They've now lowered that projection and they expect it's going to be $165 million for 1997. That's a pretty dramatic change in expected revenue and that doesn't take into account the $3.5 billion which could arise as part of the nuclear recovery strategy. Do you have a view as to why there was that dramatic reduction in revenues?
Ms Farr: I think you're absolutely correct that Ontario Hydro will be able to address it more effectively and in detail. My general understanding is that a lot of that has to do with lower production from the nuclear facilities up until the end of September of this year. When you don't have the nuclear facilities available to you at the lower operating cost, then you must replace it with more expensive generation. That has added costs and therefore lowered their net income projection. But as I said, more detailed explanation will be provided by Ontario Hydro, I'm sure.
Mr Kwinter: What about export sales? Have those been down?
Ms Farr: I can't recall, sorry.
Ms Farr: If I could just add one thing to the question that Mrs Johns asked a little earlier about the responsibility of Ontario Hydro's board in dealing with making decisions on write-downs and things like that, I want to mention that the Ministry of Finance does approve the borrowings of the corporation, and if they felt that Ontario Hydro was not fiscally responsible, they obviously would not approve those borrowings.
Mrs Johns: Does the Ministry of Finance have the knowledge, for example, to know the market value of the assets of Ontario Hydro versus the book value? Do we have enough knowledge in the bureaucracy to be able to make those assessments?
Ms Farr: I can't answer that specifically. I can just find that out for you. I assume so but I'm not speaking in full knowledge.
The Chair: We'll end the questioning there. The committee will stand down for one hour. It will return at 7 o'clock; dinner for the committee and the consultants in the dining room.
Depending on how the questioning goes upon our return, I would propose that we might be able to find about a half an hour towards the end of the evening to spend in quiet session with our consultants; that is, if we are able to conclude this part of it. If not, then we'll have to carry on tomorrow.
The committee recessed from 1757 to 1903.
The Chair: The committee will be in session, please.
Mr Laughren: Mr Chairman, I wonder if in the interest of expediting the work of the committee, I could move a motion, assuming I could elicit one piece of information from Ms Farr on the Macdonald commission report. I didn't know whether you were prepared to talk about it this evening or not?
Ms Farr: No, I did not come prepared to talk to that item.
Mr Laughren: Okay. That's fine. Then I would put the motion as follows. I don't know how long Ms Farr intends to take this evening, silver-tongued devil that she is, and I don't want to pre-empt her presentation, but I was hoping that this evening we could finish this part of the Ministry of Environment and Energy's presentation to the committee, and then tomorrow, for the first half-hour, deal with a closed session of the committee with our consultants, from 3:30 to 4; and then from 4 to 5, because we must adjourn at 5 tomorrow, deal with the presentation on the Macdonald commission recommendations. I'll put that in the form of a motion.
The Chair: We'll take that as a form of a motion. Any discussion? Does the committee agree to that? All in favour? Opposed? Carried. Thank you. Then that's so ordered for tomorrow. We'll complete this part of the business tonight. Whatever time that concludes, if it's earlier than 9, we'll conclude and retire for the night. Tomorrow, we'll begin at 3:30. From 3:30 to 4 approximately, at the determination of the Chair, we will meet in closed session with our consultants. Then from 4 o'clock to 5 o'clock, we will return once again to the ministry and deal with the Macdonald report.
Let's carry on, please. Ms Farr, we're in your hands.
Ms Farr: I have two remaining sections that I would like to speak to: One is the Ontario Energy Board Act and the other is the Atomic Energy Control Act. Then Mr Savage will speak to the municipal utilities.
With respect to the Ontario Energy Board Act, it is section 37 of that act that requires Ontario Hydro to submit a proposal to the Minister of Environment and Energy whenever they wish to make a change in the rates or charges to customers. The minister must refer the proposal to the OEB for review at a public hearing. The OEB reviews that proposal by Ontario Hydro. It does convene a hearing so that intervenors are allowed to query the submission and then it must report back at least four months before the proposed effective date of the rate change.
Once the Ontario Energy Board has the submission from Ontario Hydro, they develop what they call an issues list, and that is basically those issues that the hearing will address. They negotiate whatever will be excluded from the hearing. It's based on that issues list that the hearing is convened, and intervenors are allowed to query those things that are within that set of issues that has been agreed upon.
The hearings portion takes roughly about three weeks to a month. The arguments are heard from Ontario Hydro, from the counsel for the Ontario Energy Board staff and also from the intervenors. Based on that information, the hearing information and the issues list, the Ontario Energy Board prepares its report. Typically, in a normal process it would report back around about the end of August for a rate increase that typically -- Ontario Hydro asks for rate increases at the beginning of the year.
Those recommendations are generally directed to Ontario Hydro. On occasion they will make a recommendation and direct it specifically to the minister. However, Ontario Hydro does have the final rate-making authority. It is through their board of directors that they make a final decision on the rate level for the next year, and then they let the customers know 60 days in advance of the rate change.
The Chair: I'm sorry. Are you just pausing for a moment?
Ms Farr: I just wanted to give you a little bit of a history in terms of what the rate increases were and then I'm finished.
The Chair: Please carry on.
Ms Farr: The rate increase levels: For 1991, they proposed 7.8% and 8.6% was the decision on it.
Mrs Johns: Boy. My God.
Mr Laughren: You pointed to me?
The Chair: All right. That's a question being put to the committee. We'll be very clear that no fingers are being pointed at this time.
Ms Farr: The proposal for 1992 was 8.9%; the rate increase implemented was 11.8%. The proposal for 1993 was 8.6% and the rate implemented was 7.9%. Since then, the rate increase levels have been zero, as in no change.
Mrs Johns: Under a Conservative government.
Ms Farr: Starting in 1994.
The Chair: And has been maintained for 1995, 1996 and 1997.
Ms Farr: That is correct, and I am finished.
Mr Kwinter: I just want to go through the process again. My experience as a minister dealing with beer was that the breweries would make their case to the LCBO and the LCBO would have to get cabinet approval to increase the price of beer. It was a very political issue, I can tell you. Before an election, the price of beer did not go up. After an election, it usually did. The question I'm asking is that when I see in the material here that it's advice only to the minister and to Hydro, I think you said that it goes to the minister but the Hydro board has the final authority as to what the rate is going to be.
Ms Farr: That's correct.
Mr Kwinter: And the minister cannot overrule the Hydro board on the rate?
Ms Farr: No, the minister's responsibility is to forward Hydro's rate proposal to the Ontario Energy Board. The Ontario Energy Board makes its recommendations, but the decision is that of the Ontario Hydro board of directors.
Mr Kwinter: Then the cabinet does not have control.
Ms Farr: The cabinet is not involved in the rate decision.
Mr Kwinter: It's not involved in the setting of rates.
Mr Galt: I may have missed it, but who sits on the Ontario Energy Board? How is it composed?
Ms Farr: They are appointed by the LGIC. There must be at least five members, including a chair and a vice-chair. There are normally about eight full-time members and three or four part-time members, and they are typically appointed for about three-year terms.
In terms of the hearing or the process for the Ontario Hydro rate submission, typically three of the members actually sit on the panel to hear Ontario Hydro's specific rate review. They will have a chair and two other board members who will hear the rate submission and listen to the intervenors. There is counsel for both sides -- Ontario Hydro and the Ontario Energy Board staff -- and then there is also counsel for the intervenors who question the various witnesses etc.
Mr Galt: How many of these are paid employees?
Ms Farr: The board members?
Mr Galt: Yes.
Ms Farr: The board members are appointed by the LGIC. I'm not sure how their remuneration works.
Mr Galt: But are they occasionally or sometimes or regularly staff of Ontario Hydro?
Ms Farr: No. The Ontario Energy Board has no Ontario Hydro staff. They are separate and distinct entities.
Mrs Fisher: The follow-up to that might be that we might be well advised to ask -- again, it's a commission -- for the excerpt from the agencies, boards and commissions book. It will tell us how long and who and how much.
I have two short questions. Has there been any discussion that you know of -- I don't really care how far back you go, 10 years or 20 years -- as to whether the OEB findings should be binding as opposed to only recommendations to Ontario Hydro? I'll repeat that: Has there been any discussion that you know of at the ministry and recommendations to the minister in the past 10 years, 20 years, that the findings of the Ontario Energy Board rate hearings be binding as opposed to only recommendations to the board of directors of Ontario Hydro?
Ms Farr: As it currently exists within the Ontario Energy Board Act, they are only advice and guidance to the Hydro board of directors and to the minister. Certainly there have been views, whether they be of intervenors etc, that there might be a different way to deal with this, but to my awareness there has been no critical discussion to say that it must be the case.
Mrs Fisher: Has the ministry, that you know of, ever done a review of how many of the recommendations made by the OEB to Hydro have been accepted and, further, passed as a motion of their board of directors and acted upon that way?
Ms Farr: Ontario Hydro, as I recall, has in the past provided a follow-up document to the minister that says, "These particular recommendations have been accepted, these have been rejected," and with reasons. In the past when there were rate increase levels there has been such a document prepared by Ontario Hydro that has been the subject of a little bit of discussion at the beginning of the next year's hearing.
Mrs Fisher: I think it might be handy to have made available to us -- I don't know really how far back to go on this request, and I'm open to any idea here, but the request I'm thinking about is, what in fact have the OEB hearings cost us in the past and are there usually hearings on an annual basis even when there is not a rate increase? If you recall, the last one was an application for no rate increase, a zero per cent increase, but it did result in an action being taken to adjust the formula for rates. I wonder if we could get some idea, some accounting of the cost, if somebody could come up with a number -- it's not a hard thing to do, I don't think -- to Ontario Hydro, because they pay the intervenor status funding. I wonder if we could get the cost of that to Ontario Hydro for each of those years, whatever year we go back to.
Mr Lewis Yeager: Just the intervenor funding?
Mrs Fisher: The cost of the hearing process in total.
The Chair: All right, we'll have legislative research look at that.
Mrs Fisher: May I add to that a little bit? At each of those hearings, there's a reason why you have intervenors and it's not often because they fully support everything that's happening. I'm not looking for any type of great big library of anything there, but if they could just show us the intervenor list and what their interest was, and then the cost of the hearings for that year.
The Chair: Okay.
Mr Laughren: Following up on what Mr Kwinter said about beer prices, even though the Ontario Energy Board sends the recommendation back to Ontario Hydro, I think you would be hard-pressed -- if ever you could get them to admit it is another question, but I don't think there has ever been a rate increase or a flat line that's gone back to Hydro that hasn't been approved by the Premier of the day. I just think that's one of the givens of political life in this province, and that's more or less what Monte is saying.
Mrs Johns: You mean you approved that 8.6% and 11.8% and 7.9%?
Mr Laughren: I'm really glad you asked that question. When did the cost of Darlington, the outrageous cost that the Tories triggered with the launching of Darlington, when did those construction costs start getting plugged into the rate increases?
Ms Farr: It is a question that I think you need to have Ontario Hydro verify, but it was definitely around the late 1980s, the beginning of the 1990s.
Mr Laughren: That's correct. That needs to be understood.
Mrs Johns: We're not paying for Darlington now.
Mr Laughren: Let me finish my point, please. You were the one who started the cheap shots, so let me finish. When Darlington was built, as with all other construction projects, the costs of those projects were not computed into the rates until they started delivering power to the ratepayers of the province, am I right?
Ms Farr: That's correct.
Mr Laughren: So when Darlington went out of control, from $3 billion to $4 billion up to $14 billion, guess when those rates had to be computed into the rate increases? That's when it happened. That's why the increases went up so fast. So, Ms Johns, before you start pointing fingers, maybe you better understand what it was that triggered those rate increases.
Mrs Johns: I understand totally.
The Chair: We'll carry on with the questioning. If the consultants have any additional information in that regard, they can provide it for the committee within the next 24 hours. That would be helpful as well. Mr Laughren, do you want to ask any other questions?
Mr Laughren: No.
Mrs Johns: I was interested in what you said because somehow it doesn't compute for me. I just wanted to ask this question: How could the Conservatives, in the Common Sense Revolution, promise a rate freeze if they had no control over the ability to be able to guarantee a rate freeze?
Ms Farr: I believe what I said was that Ontario Hydro has the final decision-making authority with respect to the rates. However, obviously they would be aware of and certainly understand that the government has an energy priority, which is a rate freeze to the end, I think, of the year 2000, and would take that into account in their deliberations as they consider the final rate increase level. So while they make a decision on the rates, they obviously take not only the Ontario Energy Board recommendations into account but also the energy policy of the day.
Mrs Johns: So, because all of these facilities are amortized over approximately 40 years, as I understand it, for example, Darlington would still be adding costs over the next 40 years, starting in 1990. From that perspective, if we had followed through on the same logic, that that adds costs, then it would have added costs for the next 40 years.
Ms Farr: I'm not sure what you mean by adding costs. What happens in the construction of a facility is that the capital costs of that facility are basically capitalized, that is, they're not put on the books until such time as power is being produced, and then that cost is depreciated over the lifetime, which is a 40-year lifetime, presumably, of this facility.
Mrs Johns: So Mr Laughren's point that Darlington affected them for three years and really doesn't affect us would not really be valid, because that Darlington cost is being amortized over 40 years.
Mr Kwinter: I seem to be missing something in this. Understand that I'm not really asking you to defend it, but I would like to get some clarification somewhere along the line. If the Ontario Energy Board has hearings, all they can do is advise Hydro. Regardless of what the perception is, I can tell you that a rate increase does not go into effect in Ontario without the government of the day approving it. That's just a fact of life. It seems to me that there's a useless exercise here of window dressing. Why go through this whole expense and process when Hydro can say, "Here's what we need," and the government says yes or no and, "This is the rate." I just don't understand why we're going through this process. I take the suggestion, but what is the cost of going through this and what is the efficacy of doing it?
I've had a peripheral involvement with Hydro, and over the years I know we've had the CEO of Hydro come and brief cabinet on a regular basis as to what's happening in Hydro. As I say, I think you're naïve if you think these rates are set without government approval. Somewhere along the line, I don't understand why we go through this process. I don't know whether you can answer it or somebody can answer it.
Mrs Fisher: I would just like to add to that. It's the same frustration I've thought about -- experienced, is really the fact -- because nothing is binding. That raises a question this committee needs to get serious about, in terms of our recommendations when we go forward, as to whether or not the findings of OEB related to Hydro rates are binding or not, as opposed to those of gas, which are. So there's a value in the end in terms of being able to establish some credibility to the committee and then enact it. It doesn't make any sense to me -- it never has, by the way -- so here's our opportunity, I guess, to open the door for discussion there. But that's exactly what happens: They hear; they recommend.
I would like to see the record. Pick a number -- again, I don't know if we established a year there -- 10 years back. This isn't picking on anybody; it's just to put a picture in front of us as to the seriousness of the problem, the cost attached, the number of recommendations that were made and those that in fact were accepted. Then if you take a look at the intervenor list and you compare it against the costs and you see the things that weren't done that were recommended, I agree with you: You wonder whether or not it's a ridiculous procedure, as opposed to just window dressing, because it's costing, and all that adds up.
Mr Laughren: I must say I'm getting somewhat agitated here, because it seems to me -- and I agree with Mr Kwinter that at the end of the day the government will tacitly approve the rates -- the government of the day, if they've got anything upstairs, will take a look at an independent assessment of that rate increase request, because I don't think -- and I don't want to take any cheap shots at Hydro -- any government of the day wants to just take Hydro's word as to what rate increases they need. Go back to Darcy McKeough's day when he took them on and said no and rolled back the request for capital expenditures and so forth. It seems to me that's the role the Ontario Energy Board plays, to provide an independent -- and they are independent -- assessment of Hydro's request for a rate increase. For that reason, I think it's a worthwhile exercise. I'm not quarrelling with your request for information; that's fair.
The other point, and I'm not going to let Mrs Johns turn my mind to glue here this evening: Surely to goodness, if you get a 10% rate increase because of Darlington coming on stream, that's built into the new rates, so why would you have to add it in future years? It's already there in the rates. I don't understand at all her argument that in future years you didn't have to consider the cost of Darlington. Of course you have to, because that's already built into that new increased rate that was approved back in the early 1990s.
Mrs Johns: Which year? Is it 1991, 1992 or 1993?
Mr Laughren: All those years. It was three years. I think it was about a 10%-a-year increase in rates. That was very substantial, because $14 billion is a huge amount of capital to start building into the system for the ratepayers to pay for. They had to do it. What are you suggesting? That the debt of Hydro should have gone even higher? I don't think so. I think you had to do that. I think the power act says you have to do that as well. Tell me if I'm wrong, Ms Farr, but it seems to me that was the reason why rates went up the way they did when Darlington came on stream, and those rates are still there.
Ms Farr: Let me just clarify that at the point in time that Darlington did come into service, the rate increases reflected the costs of Darlington coming into service as those costs were brought into the rate base. Once they're brought into the rate base, you're absolutely right: They continue to be part of the rate base. That's correct.
Mr O'Toole: I'm unfortunately maybe not keeping up. I just want to go back to the rate freeze and the ability of any government to forecast that with any degree of ability to control policy. Wasn't that a widely understood dilemma that Hydro and the Ontario Energy Board and the rest found themselves in? When they looked at the market and the deregulation of the market, they understood that they were already overpriced. They were carrying far too much debt to be competitive. They understood that even before Macdonald entered the game. Certainly the board and the accountants did. In fact, if you look at the industrial restructuring comment you put in here in two lines, it said that Ontario Hydro notes that it's carrying too much debt to operate in a fully competitive electric market. That's where we are.
I'm trying to get back to this. If you've got this huge problem and the only way is to defer it on to the rate base somehow and you're not competitive now, no wonder everyone wants to deregulate. They're bailing out. Hydro certainly knew that.
Were there occasions -- this is a question I would ask of them -- where they had excess capacity and should have sold it to defer some of the losses for capacity? Overcapacitization was the issue. They didn't need the other plant. They had this excess capacity not properly managed and basically costing them money, depreciating in value the older it got. They should have pumped out the power and sold it to anybody who wanted it. Was that ever a problem in your mind, where they said, "One of our initiatives here will be exporting power"? They should have got right into that market.
The Chair: Mr O'Toole, can I just break in for a moment? Is that a question that is even more directly posited with Ontario Hydro?
Mr O'Toole: It has to do with the rate freeze. I'll come back to that and say that as a government or as anybody involved in the industry on an ongoing basis -- and I would probably put it to either Richard or one of the experts -- in the background, they must have had these arguments internally, saying, "Would we be better off to sell six cents of power at four cents and only lose two cents?" They must have had those discussions. Now they're going to end up with stranded assets, which is an even worse problem.
The Chair: All right, Richard, will you come up to the table. We'll see if we can dispense with this question, and then we'll move on.
Mr Campbell: Thank you, Mr Chairman and members of the committee. Going back 10 years, Ontario Hydro had a plan to build many, many new nuclear reactors and generating stations on the demand-supply plan. At the end of the last decade that plan was going forward with an environmental assessment, but there was quite a paradigm shift around the beginning of this decade, the 1990s, brought about in part by the rate shocks of 1991, 1992 and 1993, where load started to flatten and industrial customers and residential customers reacted to the high rates, and the prospects of deregulation all of a sudden appeared on the horizon.
All that happened at the same time that the Ontario Energy Board Act and the Power Corporation Act were still in force. They're still in force today. The Hydro board has a requirement that includes a provision for net income recovery. Their hands are pretty much tied. They look at the numbers. They decide on a rate increase. Certainly in the early 1990s the impact of Darlington was a major component of the impact of the rate increases.
All of a sudden a vision of the future that included significant power shortages became a vision of the future that saw significant power surplus, and that is exactly what happened. Load did not grow. In fact, it contracted. It has been flat ever since, and as a result Ontario Hydro has to deal with surplus assets. It did so in the early part of this decade by declaring certain parts of its plant surplus and mothballing them. Also now, as you're aware, they are doing the same with nuclear plants for certain reasons which include economics. So they're reacting to the marketplace in that way.
Mr O'Toole: But how does the rate freeze quantify into it? Was that ever discussed, like saying to be competitive, or you've got to kind of cap the cost here and sort of say all this is paid for ultimately by the end user, and to be reasonable and whatever? That's got to have been around for more than just the Macdonald report in this short era.
Mr Campbell: I'll just have to say that the regulated public utility has been the model that's been around for 100 years in this province. Those are the rules by which all the players have been playing the game. It's the prospect of those rules changing dramatically that has given Hydro and other members of the industry the reason to start to prepare for competition. When you are a public board that can set a rate to recover costs you do that. As Mr Laughren has pointed out, in the early 1990s, faced with the impact of costs of a major new plant coming in on stream, you recover those costs. That model has to change because under the current rules Ontario Hydro and other public utilities cannot compete in a North American market.
Mr Galt: On a point of order, Mr Chair: If I may, the last 20 to 25 minutes we've been off topic. We've been into the solution, the problem and then the solution. I'd really plead with you that we get back on topic. The original intent was a briefing to understand how Ontario Hydro works; more specifically, an overview of Ontario Hydro functions, the Power Corporation Act and the background of the Macdonald committee. If we can stick to that, maybe we can get this completed in a reasonable length of time and when it's in order we can start questioning Ontario Hydro and other expert witnesses. But we're really spinning our wheels. We're not going anyplace.
The Chair: I appreciate your comments. I have made two interventions, and members have insisted on walking down certain paths. I hope that tonight we'll have a chance to reflect upon that and keep ourselves focused on the witnesses who are before us to get the very best of their expertise. Point taken.
Mr Kwinter: Mr Chairman, I want to respond to Mr O'Toole. One of the problems with Hydro is that you don't build a generating capacity overnight. There are huge, long lead times, very expensive and very long times to do it. I can just tell you that in 1989, when I was the Minister of Industry, Trade and Technology, the major power users came to see me because they were concerned that they were going to be facing brownouts. They really felt that we did not have enough capacity, and we had to go out and negotiate deals with Manitoba so that we could have sufficient power to meet the expected needs. Then suddenly it just flipped, and that's just something that obviously, no matter what kind of modelling you do, you don't necessarily anticipate. I think that's one of the concerns we have and that's what we just heard about.
The Chair: Okay. I think we have now exhausted that area. Let's now bring ourselves back into some focus. Ms Farr, we're in your hands again.
Ms Farr: The last piece I would like to address is the Atomic Energy Control Board and their act, which is called the Atomic Energy Control Act. It is just in the process of changing. The federal Parliament just recently passed the Nuclear Safety and Control Act and the federal government is in the process of drafting regulations with that act that will change the act somewhat to increase the definition of the safety and control that the AECB has with respect to nuclear facilities.
The Chair: Are you suggesting, Ms Farr, that they are increasing the security levels, the standards and so forth?
Ms Farr: I'm suggesting that they are better at articulating what safety and control mechanisms are associated with nuclear facilities. The existing act is actually quite small and not very well defined, and the new Nuclear Safety and Control Act is an effort to more specifically identify those responsibilities of the Atomic Energy Control Board.
The Chair: Are you suggesting that the act to this point has been unclear in a number of specific areas, or has been silent, or ambiguous?
Ms Farr: I'm saying that the previous act did not specify as clearly as the AECB would like, and that is why they've enacted the new legislation. That being said, they have in an operational sense put in place the controls and mechanisms they feel are appropriate related to nuclear facilities.
The Chair: I have to pursue this because this is absolutely germane to the kind of issue we're talking about, that Mr Galt is pleading with us to be focused on, that if we begin to ask one of the questions of what went wrong, behind that may very well rest the questions of definitions by Atomic Energy and so forth. The question I put to you before included words such as "silent" or "ambiguous" or "contradictory," and you have been very circumspect in your response to my question. I appreciate that, but as a layman I want to push the envelope just a little bit more in this regard. In your mind, from the ministry's point of view, were the guidelines issued by Atomic Energy precise enough, clear enough, unambiguous enough to ensure that there was no operational confusion?
Ms Farr: That is a question I really cannot answer, Mr Chairman. Ontario Hydro is the one that has the daily conversations, the "must live up to the licenses" that the AECB puts forward to them, and they would indicate to you, and I suspect that you're best to ask Dr Bishop, if you're seeing Dr Bishop, with respect to how they have moved from the old AEC act to the new Nuclear Safety and Control Act.
The Chair: Or more appropriately to ask the question of the federal government, their representative, and that federal government representative is here.
Ms Farr: Yes, that's Dr Bishop.
The Chair: My final question to you, then, from the ministry's point of view is: Is it your understanding that in the ministry there has been a very clear understanding of guidelines, that from the ministry's point of view the ministry staff have understood the guidelines, have understood the control and safety mechanisms outlined by the Atomic Energy Control Board?
Ms Farr: It's not our responsibility to understand all the individual instructions as they relate to the licence for the nuclear facilities. That is the responsibility of Ontario Hydro as the licensee.
The Chair: I understand your answer.
Ms Farr: As the ministry we understand that nuclear safety and control are the responsibility of the Atomic Energy Control Board and we understand where they are responsible as opposed to where we are responsible.
The Chair: In final point, then, flowing from that, in your mind, representing the ministry, is there any linkage between controls and standards and environmental impacts?
Ms Farr: I'm afraid I don't understand that question, Mr Chairman.
The Chair: All right. I'll rephrase that with another ministry. Other questions?
Mrs Fisher: I just have one. During this review period of AECB, have they requested any input from the province, seeing as they are tied together in a certain way? Obviously, the licensor is AECB, the operator Ontario Hydro, but in the end we have the responsibility for those things that happen. Has there been any request by the AECB of the province for input into potential changes to the way in which the AECB will operate? Has the federal government approached the provincial government asking us for any type of input?
Ms Farr: The licence is between the licensee and the licensor, so we are not involved in the development of the licence to Ontario Hydro or how Ontario Hydro meets the requirements of that licence.
In terms of the Nuclear Safety and Control Act, the federal government is obviously interested in any provincial input as they develop their draft regulations and have asked if there are specific areas where we have interests. That is part of their responsibility, to make sure that our interests are also solicited.
Mrs Fisher: So they have approached us for input that way?
Ms Farr: Yes, they have.
Mrs Fisher: Have we provided any?
Ms Farr: The process will take us through until September 1998, so we haven't had a lot of opportunity to review even draft regulations at this point in time, but we will make our input to those.
The Chair: Are there any other questions? Okay, we're in your hands, Ms Farr.
Ms Farr: Just to quickly go through the powers, they have broad powers of regulation in the development, application and use of nuclear energy. What they do is ensure that the use of nuclear energy does not pose an undue risk to health, safety, security and the environment.
They have a comprehensive licensing system that covers all aspects of the nuclear facilities, prescribed substances and equipment, including certification of domestic and foreign export transport packages. There are some 4,000 licences currently in effect.
The licensing system is administered so that the concerns and responsibilities of the federal and provincial governments in the areas of health, environment, transport and labour are taken into account. They also extend to the control of import and export of prescribed substances, as well as compliance with requirements of the treaty of non-proliferation of nuclear weapons.
The AECB board is a five-member board. One member, the president of the National Research Council, is automatically appointed by provision of the AEC act. He or she is an ex-officio member. Four members are appointed by a governor-in-council appointment, a federal appointment. One of them is appointed as president. The current president is Dr Agnes Bishop. There are approximately 400 officers and staff employed for the purpose of carrying out the work of the board.
Mr Galt: What was that number again?
Ms Farr: Four hundred staff.
Of the five board members, only one, the president, is a full-time member. The others are part-time. It's a quasi-judicial, decision-making body making decisions on health, safety, security and environmental issues for the nuclear industry. They meet approximately nine times a year.
AECB staff have the responsibility of implementing the policies of the board and making recommendations to the board concerning issuing of licences and other regulatory matters. The majority of the 400 staff I referred to are based in the board's headquarters in Ottawa. However, there are inspectors at all nuclear generating facilities, including those of Ontario Hydro.
There are three types of licences issued by the AECB. One is called a facilities licence. They also have nuclear material licences and import-export licences. The one you would be most interested in likely is the nuclear facility licence, which includes nuclear reactors.
Before the AECB issues a licence to operate a facility, the applicant must meet specified criteria for siting, construction and operating. That would mean they would have to meet criteria for the siting initially, then for the construction, and then they would have an operating licence. All of Ontario Hydro's nuclear generating stations have nuclear operating licences at this particular point in time.
The AECB process also provides for public input. What happens is, all of the AECB board meetings are open public meetings and the public are invited to attend. The materials for the board meetings are distributed two weeks in advance of a board meeting. For example, there is an AECB board meeting on October 9. Those materials would have been made public late last week, and the board will review them at their meeting on October 9.
There is also an opportunity for input in the licence decision-making process through this particular venue. When licences come up for renewal, as do Ontario Hydro's, they are part of that public process. There is what's called an initial consideration of the licence where intervenors can make their submissions and speak to their submissions. Then, at a subsequent time prior to the expiry of the existing licence, there will be a final consideration by the board of the utility's licence.
The AECB board staff are responsible for making their submissions to the board as well, so they would make a submission on a particular licence renewal, whether it be Bruce A or Pickering A, and advise the board of their particular recommendations on issuing a licence for that facility. All of these submissions to the board are written submissions. They do speak to them when they get there, but they are required to provide written submissions in advance.
The AECB board also does a certain amount of off-site hearings where they may travel to a community in order to hold some of their hearings. For example, last November the AECB travelled to the Durham region and one of the agenda items was the renewal of the Pickering licence.
The AECB board grants a licence renewal when they're satisfied that all the essential safety issues have been adequately addressed by the proponent. However, even after a licence has been issued, the AECB can for safety reasons impose restrictions on the operations, anything from derating the output of a unit to a complete station shutdown if they feel that is warranted.
Mr Kwinter: The AECB grants three different types of licences: facilities, nuclear materials and import-export licences. Do they just license processes and facilities? What about people? Do they have responsibility for licensing people or do they just expect that the licensee will provide the necessary skills to carry out their particular requirements?
Ms Farr: The AECB address a whole range of different areas. For example, they approve key station positions like the operations manager, the shift supervisor, the authorized nuclear operator etc, so for certain key positions they are part of the approval process. They also approve emergency procedures, the maintenance standards, minimum shift complements. They are involved in approving those particular items as well.
Mrs Johns: Does the atomic energy board have any ability to decide on how many nuclear reactors there are in a province, versus in Canada, for example? Could they say, for example, "No, I think we have too much nuclear in the province now"?
Ms Farr: They're concerned with the safety and control of the nuclear reactors. They're not concerned about: Are there three? Are there five? If the proponent meets the criteria that are specified, they would grant a licence.
Mrs Johns: I'm not sure exactly how this happened, and I just want to clarify this. The atomic energy board had some concerns about Pickering and therefore granted a shorter-term lease than was normally granted in the past.
Ms Farr: Correct.
Mrs Johns: So we know they must have had some concerns about Pickering. Do we know if they had concerns, because they have inspectors in all the plants, about Bruce and Darlington?
Ms Farr: The AECB staff recommendations are a matter of public record. Each time a facility comes up for a licence renewal, the AECB staff would identify any issues and would make their recommendation not only in terms of those issues but also in terms of the length of the licence that they would recommend to their board. So if they had any issues, they would be a matter of public record.
What they were saying with respect to the Pickering A plant was that they were comfortable with a shorter licence period, given the issues they had identified with Pickering.
Mrs Johns: Has the government received back from the atomic energy board the report that was asked for by the minister with respect to their assessment of the Andognini report?
Ms Farr: The AECB staff have just recently completed their preliminary review, and that will be tabled with the committee. It's just recently been made available. It will be the subject of discussion at the October 9 AECB meeting as well, and it will be made available to this committee.
Mr Laughren: Following up on Mrs Johns's question, I'm interested in the tabling of that report. You don't know exactly when it's going to be tabled with the committee?
Ms Farr: As soon as we can get it out the door.
Mr Laughren: But do you have it yet?
Ms Farr: Yes, and I understand it will be tabled tomorrow.
Mr Laughren: Okay, great.
The Chair: No other questions?
Mr Laughren: One, and it ties in with what Mrs Johns was asking. I know that when a licence review is up or they go to AECB for review, they can do all sorts of things then. What about in interim periods? Say it's Pickering that's up for renewal. What if in the meantime there are problems at Darlington or Bruce? Will the AECB take the initiative at that point and call in Hydro and say, "Look, we know that you're not up for review for another six months or a year, but we've got some problems and we're going to deal with them now"? Do you know that?
Ms Farr: I expect that you'll have lots of questions for the AECB representatives but, yes, they do have the ability to speak to the licensee at any particular point in time to deal with issues, and they also have the ability between licences to derate a station or take whatever measures are necessary in order to ensure safety and control.
The Chair: As we conclude, I'm just a little puzzled with one piece of information, Ms Farr. Maybe you can help me understand it. Clearly, according to your testimony, before a site is licensed, it has to meet a range of criteria.
Ms Farr: That's correct.
The Chair: It is then licensed. It is then assumed at that point that the federal authority is satisfied that the issues such as safety and operating competencies are met. Am I right so far?
Ms Farr: Yes.
The Chair: At the same time, the federal authority places inspectors on site.
Ms Farr: Yes.
The Chair: Those inspectors are competent, capable?
Mr Laughren: Say no.
Ms Farr: I can't speak to that.
The Chair: Mr Laughren may be going after different fish than I am. I assume they are competent.
Ms Farr: I assume they are too.
The Chair: Do they have the authority to intervene in the operation of that site if for any reason they believe issues of safety, health and so forth are being compromised?
Ms Farr: Again, this is something I think you should explore more fully with the AECB.
The Chair: I understand, but from the environmental point of view, your ministry --
Ms Farr: From my understanding of it, these are site managers who are responsible on behalf of the AECB for the safety and security of that facility, and if there were an incident that would be flagged to them that required an action, they are fully authorized by the AECB to do so.
The Chair: If I start from the assumption that at the beginning of the operation the plant meets all the standards, the operators meet all the standards, everybody is competent, everything is safe, and I have onsite supervision and ongoing inspection by the federal regulators, how does it happen that there is a degradation of those standards from the time a licence is first issued until it becomes time for renewal?
Ms Farr: The AECB staff on site are responsible for ensuring minimum standards, and I'm choosing my words here, the expected standards that are appropriate in their responsibility for safety and control. As long as the licensee meets that standard, they are acceptable to the AECB and they continue to have their licence. The fact that there may be problems identified or a ratcheting down of a particular safety standard or whatever is the responsibility of the licensee. As long as it meets the requirements of the AECB, they are allowed to operate. Ontario Hydro, as I understand it, operates to a standard of nuclear excellence. They may not be excellent, but they are certainly within the fully acceptable standards for safe and reliable control of those facilities.
The Chair: So what you're saying to me is that 50% is a passing grade. You may self-impose a standard of 90%, but the person who's doing the grading, AECB, is only interested in that 50% goal mark. They may make comments, and more editorial than anything else, but it's the 50% you must reach to be able to get your licence. Is that correct?
Ms Farr: I wouldn't use numbers like that. I'm just saying that as long as it meets their safety criteria, the AECB is satisfied.
The Chair: I apologize to you. I did give you fair warning earlier today I come from that strange background that has to put these things into some kind of understandable context.
Let me come at this another way. Do the standards change?
Ms Farr: That's something --
Ms Brandon: Mr Chair, may I suggest with all due respect that I think the ministry has sort of gone as far as they can go on their information on the AECB and --
The Chair: I understand that, and I said I was conscious of that when I began, but I was concerned because of the environmental aspect. The last time I heard, the ministry had the word "environment" in its name, and I have a concern about that. That's fair enough. I'll come back and pick this up with another group. That's fine.
Mr Kwinter: I'll want to ask the board, but just to follow up on the Chairman's comments, the classifications of the facilities virtually throughout Ontario are "minimally acceptable," according to the report we have. I understand there are four grades: There's excellent, there's good, there's minimally acceptable, and I guess there's unacceptable.
The question I ask is, when you have a brand-new facility, does the Atomic Energy Control Board say, "You cannot open until you are" excellent, good or minimally acceptable? Do you know that?
Ms Farr: I'd just like to differentiate. My understanding is that those particular grades are associated with nuclear industry standards that Mr Andognini and his group have adopted as the measures to look at. They would more appropriately address that. The AECB will look at its criteria and measure the facility against the established criteria it has for safety and control. I'm sure the AECB will speak specifically to what their criteria are with you.
Mr O'Toole: This might be a bit superfluous, but is there any kind of number that's used by the ministry for every lost hour of production? How much money does it cost just to lose the production or output or whatever it is? Is it $1 million an hour or $1 million a minute? We had this number, $1 million an hour, and it was really effective to quantify in people's minds --
The Chair: Is that appropriate to Ontario Hydro?
Mr O'Toole: Well, the ministry must have some understanding, "Holy jeez, they're down for a day; that's $24 million," or whatever it is.
The Chair: May I suggest that is a good question for Ontario Hydro. It may be really difficult, in fairness --
Mr O'Toole: Does the ministry have some idea? Does $1 million an hour sound okay?
Ms Farr: I don't really have a specific idea. It does depend on the day and what's available, the time of year etc.
The Chair: Time of year, peak load, blah, blah, blah.
Ms Farr: But Ontario Hydro might provide you with a rule of thumb that you can use.
The Chair: Mr O'Toole will likely have that all worked out by Monday.
Mr O'Toole: No, I won't. I'll be wondering at the end of December 2.
The Chair: Ms Farr, I want to thank you very much on behalf of the committee for being present. Aside from the cross-talk here, we do thank you for attending. Is there anything further that you wish to add?
Ms Farr: No, thank you.
The Chair: Does anybody else in the deputation wish to add anything?
Mr O'Toole: We should have just hired you.
The Chair: We thank you very much, then. There is nothing else to be added. We appreciate your testimony. If we need to hear from you, we will invite you back. You can be sure of that.
It being five minutes after 9, if I can take the liberty of doing tonight what we said we might do tomorrow for the first half-hour -- Mr Laughren, what do you think?
Mr Laughren: As long as we're finished with this deputation.
Ms Farr: Mr Chairman, did you want to speak to the municipal electric utilities or not?
The Chair: Do you want to deal with that now? All right, let's deal with it right now then.
Mr Laughren: That was the deal, yes.
The Chair: Fine. Done.
Mr John Savage: John Savage is my name. I'm here to speak to the topic of municipal electrical utilities.
I'd like to just start off by clarifying what is meant by distribution in the electrical utility business. The transmission system moves electricity in bulk at high voltage from generating stations to centres of load, such as cities. Transmission lines operate at voltages of about 50 kV, or 50,000 volts, and are almost always overhead lines.
The distribution system is used to distribute power to customers at the local level. Distribution lines may be overhead or underground. They operate at voltages below 50,000 volts, usually 44 kV, 27.6 kV, 13.8 kV or 4.16 kV. The key elements of the distribution system are transformers to step the power down to a voltage suitable for distribution, the lines which bring the power to each customer's premises, and transformers at the customer's premises to step the power down to utilization voltage, such as the 120 volts available in a house.
In Ontario, distribution is carried out by three different types of utility. The Power Corporation Act and its predecessor acts established the right of a municipality to distribute electricity within its own boundaries, and 306 municipalities have chosen to purchase electricity at cost from Ontario Hydro and distribute it within the municipality. Second, where a municipality does not choose to establish a municipal utility, Ontario Hydro is responsible for distributing within that municipality. Finally, when the act of 1906 passed, it allowed privately owned utilities to continue in operation. Over the years, most of them have been taken over by municipalities, but there are still four significant private distributors in Ontario. They are the Great Lakes Power Co, the Canadian Niagara Power Co, Gananoque Light and Power Co, and Cornwall Electric.
I'll just run through a brief profile of the municipal electrical utilities. As I mentioned earlier, there are 306 MEUs in Ontario distributing electricity to 2.9 million customers. They range in size from 115 customers to 220,000 customers. The largest 15 utilities serve over 50% of all the municipal utility customers. MEUs distribute 72% of the electricity consumed in the province. In this respect, Ontario is quite unique. Although other provinces have some municipally owned utilities, no other province has the distribution system dominated by municipally owned utilities.
Ontario Hydro distributes power directly to 103 direct industrial customers and 963,000 rural customers.
Finally, the private utilities serve about 50,000 customers.
Municipal distribution costs account for about 15% of the retail price of electricity. In the case of Ontario Hydro retail, it's about 24% of the price.
Altogether, the municipal utilities have about $5 billion in equity and about $200 million in debt.
The structure of municipal electrical utilities: Any city or town which contracts for a supply of power from Ontario Hydro is obliged to set up a commission which then takes control of the utility. A village or a township is not obliged to set up a commission. Some of them have chosen to run the utility directly through a committee of council. In all, there are about 240 commissions with directly elected members. There are about 31 which are run by a committee of council and there are about 35 which have appointed commissions. Each commission normally has either three or five members. The head of the municipal council is an ex-officio member of the commission, although he may choose to appoint somebody in his place.
The commission is responsible for the operation of the utility and does not answer to any other body, with certain specific exceptions. Once a municipality has set up a municipal commission, the commission stands in place of the municipality for all purposes dealing with electricity distribution. The commission sets the policies on service conditions, hires and fires the senior staff at the utility and sets the rates.
Almost all municipal utilities in Ontario belong to an association called the Association of Municipal Electrical Utilities, which provides technical services to its members and in some cases negotiates and liaises with other bodies on behalf of its members.
The regulation of municipal utilities: Municipal utilities are regulated by Ontario Hydro as to rates, capital spending, borrowing, supplying power outside the municipality, and accounting systems. To a lesser extent, the municipal utilities are regulated by their own municipality. The municipality has the power to approve borrowing done on behalf of the utility and also has the right to approve any sales outside of the municipality. Other than these specific areas, the municipal utilities are autonomous.
There are two utilities which do not have their rights approved by Ontario Hydro, because they do not buy any power from Ontario Hydro. They are the Canadian Niagara Power Co and Cornwall Electric. Small, privately owned suppliers of electricity are not regulated under any provincial legislation. However, they must obtain approval from the municipality to construct distribution lines within the municipality.
Now I'd just like to describe briefly some of the legislation which governs municipal utilities. The two important acts are the Power Corporation Act and the Public Utilities Act.
The Power Corporation Act is primarily an act governing Ontario Hydro, but there are a number of provisions in there which bear directly on the operation of municipal utilities. Part II of the act deals with the supply of power and the relationship between municipal corporations and Ontario Hydro. Perhaps the most notable provision in there is a provision which sets out the price payable for power. This is what is usually known as the power-at-cost section. Part V of the act deals with the control and regulation by Ontario Hydro, and as mentioned earlier, it sets out the various areas in which Ontario Hydro can regulate municipal utilities.
Another section of the act which is of significance to municipal utilities is section 83, which was added in December 1994. This section sets out a process for allowing municipal utilities with restricted service areas to expand their service areas to the boundaries of the municipality in steps.
The other act which governs municipal utilities is the Public Utilities Act. Part III of this act sets out the legal framework for the day-to-day operation of all municipal public utility commissions. It is this act which makes it mandatory for the council of a city or town to establish a commission once they have contracted with Hydro for the supply of power. Section 42 of the act establishes the makeup of the commission and the number of commissioners to be elected by general vote at elections held under the Municipal Elections Act.
Some particular sections of the Public Utilities Act which are of particular interest: Section 31 makes provision that the amount payable to a public utility is a lien and charge upon the land in the same manner as municipal taxes.
Subsections 37(6) and 37(3) include requirements that approval of Ontario Hydro be obtained before disposing of some or all of the municipal utility or its assets.
Section 44 stipulates that the salary, if any, of the commissioners shall be fixed by the municipal council.
Section 46 requires that when there is a public utilities commission which is supplying more than one utility -- in other words, electricity and some other service -- the books and accounts of each utility shall be kept separate.
That's about all I'd planned to say.
The Chair: Thank you, Mr Savage. There will be questions.
Mr Kwinter: I'm just trying to get a profile of a municipal utility. To characterize it, Ontario Hydro is the wholesaler; the municipal utility is the retailer. Is that a fair portrayal of the relationship?
Mr Savage: Yes.
Mr Kwinter: Are there any municipal utilities that generate their own power or own their own transmission lines?
Mr Savage: I believe there are 11 which have some generation, although in no case do they supply all of their needs from their own generation. They are buying power from Ontario Hydro as well. In general, municipal utilities do not own transmission lines, although I believe there are a few exceptions to that here and there with short lengths of transmission line.
Mr Kwinter: In those large companies that are into cogeneration and have the ability to supply, generate, do they do that through Hydro or through their local municipal utility?
Mr Savage: I'm sorry. I didn't quite follow.
Mr Kwinter: I understand that we now get into cogeneration, where there are companies which in their particular processing are generating electricity and some of it is surplus to their needs. They sell it into the grid or they provide it -- I'm just trying to find that out, how that works.
Mr Savage: In general, you cannot sell power into the grid unless you have a specific, special agreement with Ontario Hydro. I believe there are some cogenerators that do, but you can't just start one up and begin doing it automatically.
Mr Kwinter: No. That's what I'm trying to find out, how that works.
Mr Savage: You have to have an agreement with Ontario Hydro to move the power out, because it's their grid.
Mr Kwinter: Yes, but it's possible to do that, is it?
Mr Savage: Some are doing it, yes.
Mr Laughren: Maybe you can help me here. MEA has always intrigued me. I've heard them say that they in fact own Ontario Hydro. Have you ever heard that coming out of MEA?
Mr Savage: I've heard similar sentiments, yes.
Mr Laughren: I don't mean this as a frivolous question, but I've never understood how they come to the conclusion that they own Hydro. Is there some kind of historical corporate rationale for that, or is there something else here that I don't understand?
Mr Savage: Yes, I think the claim is a historically based claim. In 1906 when the original predecessor of Ontario Hydro was set up -- I think it was the HydroElectric Power Commission of Ontario -- it was set up by a group of municipalities in southwest Ontario as a kind of cooperative venture specifically to build generation and take over existing privately owned generation and build the necessary transmission to move the power to the municipalities. At that time, I believe it was widely recognized that Hydro was a creature of these municipal utilities.
Mr Laughren: Thank you. I've never heard that explained before.
The only other question I had was following up on Mr Kwinter's analogy of Ontario Hydro being the distributor -- manufacturer and distributor, I guess, or wholesaler -- and MEA being the retailer. In my own area there is a municipality that gets serviced by Ontario Hydro and has been offered a better deal -- a 10% better deal, which is quite a bit, given their bill -- if they'll buy from an MEA. How is that possible?
Mr Savage: I think I know what you're referring to. Ontario Hydro has approached some municipal councils and offered to take over the operation of the municipal utility at a savings in rates to the --
Mr Laughren: Ontario Hydro?
Mr Savage: Yes. Is that what you're referring to?
Mr Laughren: No. This is the reverse. A local utility, Sudbury, has offered to take over and provide hydro to a small municipality that's currently getting it from Ontario Hydro and has offered them a 10% saving. Am I missing something here? It seemed to me that there would be a lower price from Hydro than Sudbury.
Mr Savage: I'm not familiar with the specifics of that one, so I can't really comment. It does seem a little odd.
Mr Power: If I understand the facts correctly, and I may not, municipal electric utilities get a better electrical rate from Ontario Hydro than areas which are not served by Ontario Hydro, which is known as the rural rate. So if they are trying to expand their boundary, they can offer the discounted price they get relative to the rural rate.
Mr Laughren: It's fairly simple.
The Chair: Thanks, Mr Power. That was very concise.
Mrs Fisher: Two questions. First, I understand there are such things as non-utility generators which, upon producing electricity, almost impose the residual electricity to Ontario Hydro through contract. Hydro is obligated -- this is a question; correct me if I'm wrong -- to purchase back the residual power. If somebody can prove they can produce power for less than what Ontario Hydro can sell it to them for they have the right to go ahead and do that. Often that's done through gas-fed generation. My understanding is that Ontario Hydro's obligated to purchase back any of the residual power that individual business doesn't use. Could you confirm that?
Mr Savage: I think Ontario Hydro is only obliged to buy power from any individual or company if there is a contract in place, if Hydro has signed a contract with that company to buy back power. But there is no obligation on Hydro to sign a contract.
The Chair: We'll make sure we ask that question as well of Ontario Hydro.
Mrs Fisher: The other question I have is with regard to the establishment of an MEU. I was trying to write as you were speaking, and I'm just wondering if I got this right: There are 306 municipal electric utilities right now?
Mr Savage: Right.
Mrs Fisher: You said there were 11 others -- can you come back to that 11 number?
Mr Savage: I said there were 11 which have some of their own generation capacity.
Mrs Fisher: Is there anything in Ontario where an MEU is other than municipally owned and operated?
Mr Savage: There are four privately owned.
Mrs Fisher: And those are Great Lake, Canadian Niagara, Gananoque and Cornwall?
Mr Savage: Right.
Mrs Fisher: Is there any attachment or obligation to the municipality for any of that? Is it a business power provision so they become an MEU? Do they feed a municipality?
Mr Savage: They are distributing power within municipalities, yes.
Mrs Fisher: To residents?
Mr Savage: Yes.
Mrs Fisher: Do you have any idea if there is a difference in rates between the private ones and the other 306?
Mr Savage: In general, the private ones are cheaper.
Mrs Fisher: Do have any idea on the gap?
Mr Savage: It would vary depending on what type of customer you're talking about and what the load profile is, but they are cheaper.
Mrs Fisher: Talk regular residential; don't bring business into it. If you have the private one -- let's pick a place, Gananoque -- and you have a municipality it services of X number of residents, do you have any idea on the gap on their sale price of electricity to their residents versus those other 306 by municipal?
Mr Savage: I don't actually know what Gananoque's rates are, but traditionally they were lower than Ontario Hydro's. I have a feeling they're pretty close now to the rates in the other municipalities.
Mrs Fisher: Each of the four we've named here are servicing communities, residential communities, maybe a mix and blend of commercial and all the rest as well?
Mr Savage: Yes.
Mrs Fisher: Are there any you know of, or have you ever heard of any being applied for, that are specific to an individual business? Have you ever heard of an application for an MEU for a business?
Mr Savage: An MEU, by definition, is a utility set up by the municipality to serve its inhabitants. A municipality couldn't set one up just to supply one business.
Mrs Fisher: Could a business set one up for a series of businesses in an industrial park?
Mr Savage: I don't believe it would be a municipal utility, no.
Mrs Fisher: Have you ever heard of that breed?
Mr Savage: I've never heard of it being done successfully, no.
Mrs Fisher: Successfully? Thank you.
Mr Laughren: As an example in my area, Inco generates about 15%. It's a huge energy consumer. It generates 15% of its own hydro, but to my knowledge it doesn't feed into the grid, but I'm not sure of that. They generate a huge amount of electricity, all through hydraulic. You couldn't consider them MEU because they're strictly -- well, originally, it was for their own purposes. Maybe you could tell me, do they plug into the grid?
The Chair: There's energy from waste, a whole range of things we might be looking at. The EFWs alone pose other interesting issues.
Mr O'Toole: I'm familiar with the rural rate and the MEU rate. Is the MEU rate a flat rate or is it peak or is it an average rate?
Mr Savage: Each municipal utility has its own rate. Each of them has a series of rates.
Mr O'Toole: I'm talking about their purchase of it from Ontario Hydro.
Mr Savage: The wholesale rate from Ontario Hydro?
Mr O'Toole: Yes, the wholesale rate. Is that flat, bulked up, how much they sell, what?
Mr Savage: No, I believe it's time of year, based on time of day and so on.
Mr O'Toole: So there's kind of a grid there --
Mr Savage: There are different rates at different periods.
Mr O'Toole: I'm always amazed -- this may be just a side comment, but I'm very familiar with the MEUs in our area. The vice-president, soon to be president, lives in my riding and keeps me up to date, Pauline Storm, an interesting person. I've always wondered how in the heck they can actually buy a product from a company whose extensive mandate is to make the product and actually make money on it. You've described their debt-equity stuff, and they seem to be in a pretty good position. Is Hydro selling it at cost? That's the question. Are they actually selling it at cost?
Mr Savage: Hydro is required by the Power Corporation Act to sell it at cost.
Mr O'Toole: Is it the same rate, based on hour of day and peak load and all those common factors, between one municipality and its MEU and another?
Mr Savage: Yes.
Mr O'Toole: So it would be the same because it's bought off the same grid.
Mr Savage: Yes. There are slight differences depending on the voltage you buy it at, but in general every municipal utility has the same rate for power for Ontario Hydro.
Mr O'Toole: Could I ask an opinion? It's not fair, quite often, to ask staff. If I look at the experience in Australia, the government actually controlled the distribution side. They let the generation side get deregulated and fight it out, but they controlled the wires. Do you have any views on that, that maybe that's where the government should focus its -- that's actually the monopoly position. If you haven't got the wires, you can produce all the power you want, but you can't distribute it. Have you got a view on that at all?
Mr Savage: The wires here in general are owned by governments too, either directly or indirectly.
The Chair: Thank you very much, Mr O'Toole. Just before you finish, a question: I want to pick up on a question raised by Mr O'Toole to make sure we're very clear on your answer. To your knowledge, the wholesale rate set by Ontario Hydro is the same for every municipality? Was that your response?
Mr Savage: Essentially, yes.
The Chair: Then it's up to each of the retailers to add on their mark-up according to their own determinants.
Mr Savage: Based on their own costs, yes; they add their own costs.
The Chair: For example, the city of Toronto has decided it's going to commit itself to a $2-billion underground construction project and it's passing that on in the rates. That's a local commission's determination.
Mr Savage: That's right.
The Chair: I got myself into some trouble a few years ago, when I spent six years as a hydro commissioner, by suggesting that I found it hard to understand why in Metropolitan Toronto, for example, we have six electric companies. I couldn't quite understand how the hydro differed on one side of, say, Sheppard, as opposed to the other side. I puzzled over this. Unfortunately, I was still learning politics at the time, and I learned in a hurry how quickly the issue is not just a matter of power. Well, it is a matter of power, but not the kind of power I'm talking about. I suddenly discovered that as I walked into that rat's nest, and have spent the rest of my life doing mea culpas.
I wonder if you could respond to a question a layman might ask. When you flick the switch on, one doesn't know if it comes to you from Toronto Hydro or North York Hydro or Ontario Hydro. It's just that the damned light had better go on. Having said that, would it follow that one might ask: "Do I need to have all these intervenors? Why wouldn't I just buy it directly from Ontario Hydro?" Second, am I going to be able to do that if we're moving into new technology, like fuel cells and everything else? What's the role of MEUs? Just a simple question you might want to muse on for a moment.
Mr Savage: Of course there are almost one million customers in Ontario who do buy directly from Ontario Hydro. The fact that they're paying higher rates than everybody else is probably the main reason Etobicoke Hydro exists.
The Chair: So they're paying higher rates than those who are getting it from a retailer?
Mr Savage: Than those who are getting it from a municipal utility, yes.
Mr Laughren: There's a good reason for that.
The Chair: I'm just asking in response to the questions, that's all. Carry on, please.
Mr Savage: If you're asking why there are six municipal utilities within Metro Toronto, that's a political reason for that. There isn't a good technical reason. Indeed, after January 1 there will only be one, of course.
The Chair: Would you like to respond to why there would be a higher rate charged for those buying directly from Ontario Hydro?
Mr Savage: In general, Ontario Hydro is serving the parts of the province that are the most difficult to serve, like the rural northern communities, which are more expensive because there's a lot more line per customer. Generally speaking, an urban service area is much cheaper to service than a rural service area.
Mr O'Toole: Just for the sake of information, the utilities in Durham -- I believe there are seven, including Hydro; Ontario Hydro is one of the distributors -- have tried to put together a plan where the whole grid for the region would be taken over. Those are the very discussions we're having. It's important, maybe, to say that there is a variation in the actual rate charged which is passed on, which really means the operating cost of the local ones. Just as an interesting aside, if you look across Ontario, regulations don't govern the MEUs and what they can pass on.
The Chair: Mr Savage, thank you very much for your presentation. There are no other questions. Again, my thanks to Ms Farr, Ms Brandon and Mr Savage. Thank you very much for attending upon us. We appreciate that.
We had an agreement that we would conclude as soon as we finished this portion of the witnesses tonight. We will reconvene tomorrow at 3:30 in this committee room for the purpose, in the first instance, of meeting in camera with our consultants. We will adjourn at this point, since we have now completed our testimony at this juncture.
Mr O'Toole: On the MEU presentation, is there a chance of getting a copy of that? There were quite good data there. It sounds like you had it written down. I wouldn't mind a copy.
Mr Savage: I'll see what I can do. A lot of it's just handwritten.
Mr O'Toole: Just the data part of it. I thought it would be a good little fact sheet to put in our book here.
The Chair: We have agreed tomorrow at 3:30 just to meet with our consultants; that'll be in camera. That'll be the only purpose of the meeting tomorrow. We have concluded our witnesses in terms of the ministry.
Mr Kwinter: And at 4 o'clock we deal with the Macdonald report.
The Chair: I was just going to say, from 4 to 5 we deal with the Macdonald report. Fine. We stand adjourned.
The committee adjourned at 2034.