POWER CORPORATION AMENDMENT ACT, 1991 / LOI DE 1991 MODIFIANT LA LOI SUR LA SOCIÉTÉ DE L'ÉLECTRICITÉ
CONCERNED CITIZENS OF RENFREW COUNTY
HYDRO-ELECTRIC COMMISSION OF THE CITY OF GLOUCESTER
CANADIAN PARKS AND WILDERNESS SOCIETY
CONTENTS
Thursday 16 January 1992
Power Corporation Amendment Act, 1991, Bill 118 / Loi de 1991 modifiant la Loi sur la Société de l'électricité, projet de loi 118
Canadian Oil Heating Association
Chuck Maguire, president
Rick McCagg, representative
Don Morrell, representative
Consumers' Gas
Jim Nubel, regional sales manager
Town of Deep River
Lyall Smith, mayor
Ottawa Hydro
Carl Kropp, general manager and chief engineer
Rose Technology Group Ltd
Larry Youell, president
Ivaco Rolling Mills
David Goldsmith, manager of planning and development
Concerned Citizens of Renfrew County
Owen Hendrickson, representative
Hydro-Electric Commission of the City of Gloucester
Robert McCullagh, chairman
Friends of the Earth
Louise Comeau, climate change campaigner
Kai Millyard, representative
Canadian Parks and Wilderness Society
Shelly Endenberg, representative
Jeff Endenberg, representative
Adjournment
STANDING COMMITTEE ON RESOURCES DEVELOPMENT
Chair / Président: Kormos Peter (Welland-Thorold ND)
Vice-Chair / Vice-Président: Waters, Daniel (Muskoka-Georgian Bay/Muskoka-Baie-Georgianne ND)
Arnott, Ted (Wellington PC)
Cleary, John C. (Cornwall L)
Dadamo, George (Windsor-Sandwich ND)
Huget, Bob (Sarnia ND)
Jordan, Leo (Lanark-Renfrew PC)
Klopp, Paul (Huron ND)
McGuinty, Dalton (Ottawa South/-Sud L)
Murdock, Sharon (Sudbury ND)
Ramsay, David (Timiskaming L)
Wood, Len (Cochrane North/-Nord ND)
Substitution / Membres remplaçants:
Conway, Sean G. (Renfrew North/-Nord L) for Mr Ramsay
Duignan, Noel (Halton North/-Nord ND) for Ms S. Murdock
Clerk pro tem / Greffière par intérim: Manikel, Tannis
Staff / Personnel: Yaeger, Lewis, Research Officer, Legislative Research Service
The committee met at 1307 in the Chateau Laurier, Ottawa.
POWER CORPORATION AMENDMENT ACT, 1991 / LOI DE 1991 MODIFIANT LA LOI SUR LA SOCIÉTÉ DE L'ÉLECTRICITÉ
Resuming consideration of Bill 118, An Act to amend the Power Corporation Act / Projet de loi 118, Loi modifiant la Loi sur la Société de l'électricité.
The Chair: Good afternoon. This is the standing committee on resources development, which is a tripartite committee of the Legislature. All three parties in the Legislature are represented, and among their caucuses is the Energy critic for the Liberal Party, Mr McGuinty. and the Energy critic for the Conservative Party, Mr Jordan. The parliamentary assistant to the Minister of Energy is Mr Huget.
Seated with me is Lewis Yeager, a research officer, who is an employee of the Legislative Assembly. Tannis Manikel is a clerk of the committee and she works for the Legislative Assembly. Pat Girouard works with Hansard and her job is to ensure that what everyone says is accurately recorded. She does that very capably, notwithstanding the propensity of some members of the committee to speak while other members are speaking, thereby increasing the difficulty Hansard has.
We have a fairly full schedule, but we are prepared to provide some flexibility to ensure there is as full a coverage of the issues as possible.
CANADIAN OIL HEAT ASSOCIATION
The Chair: The first presentation is by the Canadian Oil Heat Association. There are four people with that organization, if they would please seat themselves in front of the microphones, tell us who they are, proceed with their comments and try to keep their comments to 10 minutes or perhaps even less so that there is adequate time for dialogue and questions. That is inevitably the most productive part of these types of exchanges.
Mr Maguire: My name is Chuck Maguire. I am employed by Petro-Canada and presently sit as the president of the local chapter of the Ottawa Oil Heat Association. I am presently working with Petro-Canada in a fuel oil division and my background also includes gasoline retailing.
Mr Rick McCagg has been employed by Francis Fuels of Ottawa for the past 11 years. In his term at Francis, Rick has worked in the areas of heating equipment sales, energy management, purchasing fuels and petroleum marketing. His related educational background includes certification through the Heating, Refrigeration and Air Conditioning Institute of Canada in residential heating systems design, heat loss and heat gain and heat recovery ventilators as part of the R-2000 program. Rick's employer, Francis Fuels, is a member company of the Ottawa Oil Heat Association and the Canadian Oil Heat Association and he speaks on behalf of both of those associations.
Mr Don Morrell is a self-employed petroleum marketing consultant. He is associated with Petroleum Economics Ltd (North America), with offices in Ottawa and Washington. Petroleum Economics is a worldwide petroleum consulting firm based in the United Kingdom. Don has spent many years with a major petroleum company. He held various sales and management positions in all phases of petroleum marketing in different regions of Ontario and Quebec. His educational background includes studies in commerce at Concordia and Laval universities, as well as a management certificate from Carleton University. Don is a member of the Ottawa Oil Heat Association and speaks today on behalf of this association.
Mr Bill Francis is the president and chief executive officer of Francis Fuels and also a member of the Ottawa Oil Heat Association and the Canadian Oil Heat Association.
Ladies and gentlemen, committee members, one comment we would like to express at this point is that we have prepared this presentation in English only. However, we have representation with us that is able to translate or respond to questions in both official languages.
The Chair: Perhaps I should indicate now that headsets are available for persons who wish to hear this in the other official language than the one in which the speaker is speaking. Translation is taking place simultaneously. Those headsets are available in this room at the table. Sorry to interrupt.
Mr Maguire: That is fine.
The Canadian Oil Heat Association is an eight-year-old association of oil dealers, technicians, suppliers, equipment manufacturers and related government agencies. As of December 1991, there were 135 members across Canada, with 104 in Ontario and growing rapidly. The majority of Ontario members are small independent business operators. The manufacturing members are, with a few exceptions, small Ontario-based companies.
The Canadian Oil Heat Association has developed a comprehensive program of recommendations to satisfy the provincial government's new energy directions for Ontario. It is the purpose of this presentation to demonstrate the advantages and opportunities of using oil as an energy in place of electricity for space heating and hot water heating in residential applications.
In November 1990 the government of Ontario announced its New Energy Directions. Its purpose was in part to achieve greater levels of energy efficiency and conservation. Use of oil as a substitute for electricity and as an alternative to other forms of energy for space heating and hot water heating in residential applications offers a wide range of proven advantages that support the government's energy policy. The advantages of initial installation and operating cost, equipment life and safety aspects are all positive factors which apply directly to the home owner using the equipment. The environmental benefits apply to all citizens of Ontario.
We are all aware of the problems facing Ontario Hydro: the cost of new facilities; supply problems experienced during winter peak periods; uncertainty of availability due to reasons beyond its control, ie, lack of rain; increased costs to the end user, and environmental issues. The use of oil as a replacement fuel or a dual fuel would be a bonus for Ontario Hydro. Over 160,000 of Ontario's 800,000 electrically heated homes are ducted and readily available for fuel substitution. Of the 1.5 million electric hot water heaters, 380,000 are in homes already served by oil. Ontario Hydro would realize needed savings if these locations were fully converted to oil.
The quickest way to the government's energy efficiency and conservation goal is to reinform Ontario's residents about the advantages of oil heating and the incentives that make it attractive to substitute oil for electricity. The public, including provincial officials, have a number of concerns and misconceptions about the use of oil for space heating and hot water heating. These include environmental aspects, cost, safety, security of supply and future prices. It is the responsibility of the oil suppliers and the government to correct these misconceptions if specific policy proposals of the government's new energy directions are to be realized. This presentation will address these misunderstandings.
Mr McCagg: Good afternoon, ladies and gentlemen, members of the committee. My name is Rick McCagg and I am here today representing my employer, Francis Fuels of Ottawa, a member company of the Canadian Oil Heat Association. We are here today to express support for the proposed amendments to the Power Corporation Act as expressed in Bill 118. I would like to address the environmental, economic and equipment technology aspects that we feel make heating with fuel oil a viable choice in a partial or a whole fuel substitution program.
Environmentally speaking, fuel substitution with oil would lessen the need for expansion of existing Hydro facilities and the need for construction of new nuclear facilities. There would be less worry about what to do with spent fuel and about the potential of heavy water spills, and less possibility of reactor failures that can produce catastrophic results such as has been evidenced at Three Mile Island and at Chernobyl.
Choosing oil, as opposed to natural gas, for fuel substitution would stop increased levels of methane gas from being released into the atmosphere. Natural gas is comprised of 80% methane in its unburned form, and methane is a major contributor to the greenhouse effect. The Canadian Gas Association admits there is leakage of the natural gas from the pipeline system, not to mention the amount of natural gas released through the regulators installed in most residential and commercial installations to vent off excess internal pressures in the distribution system. Any fuel substitution program will reduce the amount of acid-rain-causing emissions caused by coal-generated hydroelectric power. The higher efficiencies and new technologies in oil heating make it cleaner than before through a more complete combustion of the fuel.
Fuel substitution with oil does not require the expropriation of lands for expansions of the transportation corridors, as both Ontario Hydro and the gas pipeline systems have in the past. We feel that oil heating is a practical substitute for electricity and will benefit the environment, as well as having benefits over other alternative fuel sources.
On the economic side, fuel substitution with oil will save the taxpayers millions of dollars (a) in reduced expenditures for maintaining existing Hydro facilities, (b) in the fact that no new expenditures for costly generating facilities would be required and (c) no major expenditures would be required with an oil substitution program to upgrade the distribution system and no land acquisitions or expropriations for this expansion would occur. An oil substitution program would leave Hydro's base load intact and not erode it.
The oil industry is ready to accept a partial or whole fuel substitution program. The oil industry is ready to go today. Technology is in place for a bienergy or dual fuel substitution program, as is being done in Quebec with Hydro-Québec, or we can handle a total fuel substitution program. Hydro knows of our track record through various cooperative projects such as the Canada oil substitution program, the early dual fuel program and the EnerMark program.
Oil is currently priced below the 1984 level and not many fuel sources can boast this fact. The National Energy Board has predicted that natural gas prices will exceed oil prices in the next 20 years. The economy in Canada and Ontario will benefit from an oil substitution program. Manufacturing, automotive, transportation and other sectors will benefit directly. This is important now more than ever, with layoffs and plant closures taking place. More dollars would stay in Canadian hands with an oil substitution program. Profits would not be funnelled off to foreign ownerships. The majority of oil heating equipment is manufactured here in Canada and not in the United States, as is the case with natural gas equipment, again keeping Canadians employed and more money in Canadian hands.
In equipment technology, oil-fired heating equipment has led the way in the past 20 years in technological advances and increased operating efficiencies. The flame retention burner introduced in the 1970s increased burner combustion efficiencies from 60% to 98%, giving steady state efficiencies of 85% to 88% on conventional equipment. In comparison, the majority of natural gas heating equipment installed in this time frame in Ontario had operating efficiencies of less than 70%. The 1980s and 1990s saw the development of a new generation of midefficiency, side-wall, power-vented oil furnaces, as well as high-efficiency condensing furnaces with efficiencies of up to 93% annual fuel utilization efficiency.
The year 1990 saw the development of a hybrid dual energy oil-electric heating unit to conform to Hydro-Québec's bienergy program. In a lot of respects, Ontario Hydro's situation parallels that of Hydro-Québec. Replacement of electric water heaters in existing oil-heated homes with new oil-fired water heaters would provide a more efficient and less expensive method for heating water, not to mention supplying more litres of hot water per hour than any other fuel source.
As in the past, the members of the oil heat associations would welcome the opportunity to work hand in hand with the Ministry of Energy and Ontario Hydro in any fuel substitution program. We applaud the initiative to amend the Power Corporation Act with the proposed Bill 118. We realize that no one fuel substitution will be right in choice for every situation; however, we feel that oil heating can and should play an important role in any fuel substitution program. All we ask is for the opportunity.
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Mr Morrell: Good afternoon, members of the committee, ladies and gentlemen. I wish to speak to you about the security of supply of fuel oil as a heating fuel. Fuel oil is a very secure source of energy for home owners. In fact, in spite of at least four so-called oil crises over the past 25 years as a result of geopolitical upheavals, not one Ontario home serviced by oil has had its supply interrupted during that time due to these crises.
The oil delivery and distribution system has four buffer reserves built into it. Refiners in Canada generally have 30 to 60 days of crude oil inventory on hand or in transit. Refiners have an inventory of 60 days of fuel oil at the start of each heating season. Major and independent terminal operators generally have adequate fuel oil storage to supply their retail customers for extended periods of time in the event of a supply interruption. For example, in Ottawa the total fuel oil storage is some 63,000 cubic metres; that is 63 million litres or, for those of us who still think in gallons, about 14 million gallons here in Ottawa in storage.
Finally, each home owner has his own buffer stock in the basement fuel oil stock which will on average keep his furnace running for 30 days. In fact, in Ottawa one supplier serves 12 different subdivisions from central storage tanks connected to homes by pipeline systems. Oil is easily transported so it can be transferred to ease local supply interruptions. We witnessed this dramatically in the Ottawa area in December 1989.
In spite of some occasional price spikes the price of oil has always returned. Current crude oil prices are, as Rick said, at 1984 levels. They were $18.85 yesterday for the west Texas intermediate. Then, as some of you probably saw in the Globe and Mail this morning, the headline was "Crude Prices Surge on Possible OPEC Cuts." If you read the smaller print it said: "Oil prices surged yesterday on additional evidence that OPEC members will reduce the amount of oil they pump to bolster the sagging market...." There is oil out there. Farther on, Venezuela's energy minister: "...said he was sure there would be an agreement among the cartel's members to siphon off production to ease the world oil glut." So you have to read the whole thing and not the headline sometimes. Many retail suppliers in this area and others are guaranteeing a ceiling price for fuel oil for the entire current heating season.
The outlook for energy in oil supply-demand in the next century, as seen by Petroleum Economics Ltd in November last year, indicates a return to an abundant potential, especially when Kuwait and Iraq oil supplies become available again. On the basis of current production of OPEC members oil upstream spare capacity may well exceed 10 million barrels per day by the turn of the century. This fact will ensure that oil prices will remain stable for the foreseeable future.
We believe that the time for a joint marketing program by Ontario Hydro and the oil heating industry is now. We both have a need: Hydro to ease consumption; oil to increase volume for viability. Me, Don Morrell, selfishly I consult the marketing people in the oil business.
Many home owners are replacing outdated furnaces installed in the late 1960s and early 1970s. These home owners should be the prime marketing target of Ontario Hydro and the oil heating industry. The storage capacity for the oil portion of the dual heating system already exists. The tank is in the basement. Oil is a viable source for dual fuel installation in rural areas. Again, in most cases a storage tank exists and the petroleum suppliers are already active in rural areas supplying other petroleum products to the consumers. Therefore, we, as the Canadian Oil Heat Association, recommend that the committee strongly consider dual oil-energy heating as a solution to Ontario Hydro's present dilemma.
Thank you for your attention.
Mr McGuinty: Thank you for your presentation. I would like to deal first with the cost of oil in relation to electricity. I understand it is cheaper to heat by oil. If you are telling us that, why are more people not switching? What is the impediment there in terms of the capital costs and startup?
Mr McCagg: Capital costs for switching an electric system to oil versus any other fuel source really has about the lowest outlay of capital for the consumer. On the average the consumer would be looking at spending in the range of $2,000 to $2,400. Currently, most Ontario residents who are switching to natural gas are putting in midefficiency furnaces which average in the $2,600 to $2,800 range as far as capital outlay is concerned.
Mr McGuinty: How long is the payback period?
Mr McCagg: The payback period on a conversion of that nature would be about four years. That is based on an average home using about 2,100 litres of fuel oil a year and a comparable amount of electricity.
Mr McGuinty: Does the association know of any studies which would indicate how low we have to bring that price or those startup costs down before we get people to make the jump?
Mr McCagg: It would depend on the type of conversion. As we have mentioned, there are two types of conversion, either a whole or a partial, using a dual energy system.
Mr McGuinty: I just want to talk cost, though. If we are talking an average of $2,000 to $2,400, that is too much for me. I do not want to invest that kind of money and I will continue to pay my higher electricity rates. How far down do you have to bring it before the average customer will make the jump?
Mr McCagg: In the early 1980s, when we saw the Canada oil substitution program, what was being offered at that time was an $800 grant which was taxable. That seemed to be enough of an incentive at that time. We are not recommending a cap at $800. Certainly we welcome more. We are not saying it has to be at $800 either.
Mr McGuinty: Has your association considered or contemplated participating in subsidizing fuel substitution?
Mr Francis: I am Bill Francis. I did not do a submission today, but I am here as a backup and most of these people have had my guidance along the way through their various things. As a director of the Canadian Oil Heat Association, I will take on that question. Do you want to give me the question again, please?
Mr McGuinty: I am wondering if the association has ever considered assisting or subsidizing customers in making the jump from electric heat to fuel oil. Would you be prepared to participate in some kind of program which would result from legislation based on Bill 118?
Mr Francis: The oil heat industry has been in subsidy of various things throughout my lifetime of 35 years I have dealt within the industry. We have rented hot water tanks, which were done at cost. We go right through various gamuts of many things: heat savers, heat hoarders and various things to keep down the energy cost to the consumer. We do install rental or lease-type furnaces. My firm sells them for $1 a day and then in five years you have them for $1. These are loss leaders we have.
We try to keep people on the oil as an energy system. Yes, we could do something. We are doing a lot now to hold our share of the market, to keep our market, to be viable and to be an independent business that is viable to my sons, daughters and my next generation and all across Ontario to dealers like myself. We are already subsidizing and we will be interested in looking at other subsidies. We are looking to be viable within our industry and to keep oil as a viable energy source.
Mr McGuinty: All right. I have another question on another issue, and that is the environmental issue. I want to understand a bit more clearly. Mr McCagg was talking about these things. Are you telling me, Mr McCagg, that oil burns cleaner than the resultant byproducts and emissions which would result from all of the processes leading up to electricity coming into my home?
Mr McCagg: It would depend on how the electricity coming into your home had been generated.
Mr McGuinty: Maybe I can assist there. I was told during the last couple of days by a witness knowledgeable in these matters that electricity used for space heating is peak power and as a result 60% to 80% of that is produced from coal-fired generation. How do we compare that one?
Mr McCagg: As we are well aware, in the last few years there has been a lot of talk about acid rain. One of the byproducts of burning coal is sulphur dioxide, which causes acid rain. Ontario lakes have been suffering for years. I believe the environmentalists, who are represented here today, will probably be addressing that as well as ourselves. You are still burning a fuel so there is a residue or something that has to be got rid of, discharged into the atmosphere. But in regard to the other alternative, natural gas, the emissions of carbon in comparison, the difference between the two fuel sources would be negligible for gas versus oil.
Mr McGuinty: Are you familiar with any study which would provide me with more information in this regard?
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Mr McCagg: We do have that information available. I believe that Chuck has it in a guideline that the COHA presented prior to this meeting in Toronto to the Energy ministry.
Mr McGuinty: Certainly the committee would appreciate receiving a copy, if you have one.
Mr McCagg: Could we send those on to Toronto at the beginning of the week?
Mr McGuinty: Okay. Thank you.
Mr Conway: Gentlemen, I am very much interested in your presentation. I have two or three very quick points. First, would it be your expectation that in any government or Hydro program to shift the load away from electricity, particularly for space-heating requirements, to other forms of energy, that kind of fuel substitution program, particularly if it involved some public subsidies, either government subsidies or Hydro subsidies, would involve your alternative?
Mr McCagg: We believe it would. We believe our alternative is viable. We have participated in the past, as I stated before, with Ontario Hydro through the early dual fuel program that it implemented in the early 1980s. They are still, to my knowledge, running the EnerMark program, which is a subsidy program. A lot of that has to do with bienergy or dual energy, using heat pumps on oil-fired equipment and directly excluding gas heating equipment from that program already.
Mr Conway: So it would be your expectation that you would be included as an alternative eligible for subsidy.
Mr McCagg: We would like to think that we would be given consideration.
Mr Conway: But you have had no indication to date that you are going to be, from anyone in Hydro or in government?
Mr McCagg: No, we have not. We know what is going on in the province of Quebec. Quebec Hydro has embraced the oil industry. It is very ironic that when Marc Lalonde was Energy minister back in the early 1980s and implemented the Canada oil substitution program under the Liberal Party, money was being given out through the province provincially and federally in Quebec for conversion programs. Now Hydro is turning around and paying people to get off the very fuel source that it encouraged them to get on to.
Mr Conway: Just two quick things. "Irony" is a wonderful word, and I really have enjoyed your presentation. I was sitting here today, thinking there is just so much irony in this. I have been around the Legislature for 16 years, and to imagine today, a year after the bombs started to fall on Baghdad, that we would be here talking, among other things, about west Texas crude at $18.45 is positively breathtaking. I think I was in this hotel 12 years ago to hear the launch of the national energy program.
It seems to me that if we have ever had a poor batting average in predicting what the short and intermediate future is going to be, it is in the energy sector. You have cited one example. I would cite another that perhaps is a little less favourable to your industry. I mean, the assumption today is that we will have peace for a long time in the Middle East, and I certainly hope that is the case, but a year ago today I think your submission would have been a little more problematic. I am very happy that you are able to make your presentation today.
I would like, just quickly and finally, to ask a question around the current Quebec Hydro offering that involves the oil sector. Could you very quickly summarize, for my benefit and the benefit of the committee, what I would be eligible for across the Ottawa River today in the province of Quebec?
Mr McCagg: You will have to excuse my ignorance on the subject. We do not participate that actively in the Quebec market. I am aware of a few of the details of what is going on. Chuck, you might be able to help in this respect as well. Home owners are eligible for grants, as I understand it, up to, $1,500 to $2,000 for the bienergy program.
In the bienergy program, what we have is an oil-fired heating unit with an electric heating unit built right in. It is one comprehensive unit. Hydro and the oil industry put their heads together and agreed at a cutoff point of minus 12 degrees Celsius, at which time the electric heating section will cut out, and the oil backup -- at that point it really is a backup. The oil industry did not get as big a share as it wanted. We would have liked to have seen a higher cutoff point, around minus five, about 23 degrees Fahrenheit, but we did not get that. But it does switch over at that minus 12 degrees Celsius point, and the home owner is then on oil.
In some cases the expenditures are not that great because the home owner is already on electricity and has a 200-amp service already installed in the house. If they already have the 200-amp service in the house, it is a saving of about $1,500 to $1,600 for the home owner. In a house where, say, they are replacing an existing system, an oil system, and they want to go into the bienergy program, they have to upgrade the panel to 200 amps. It is a little more expensive. There is a scale as far as the grants go. It depends on the type of conversion, whether it is electric to a bienergy or oil to a bienergy.
Mr Morrell: You asked whether the oil association would be interested in getting involved in something that might help to alleviate the program with the hydro. We think it is our turn, because some people tried to put us out of business with the off-oil program a few years ago.
Mr Conway: One of the reasons this is an issue for a number of us who are in rural Ontario -- your presentation talked about it -- I think there is widespread support for some kind of sensible and reasonable fuel substitution, fuel-switching program. The concern some of us have around the policy in the bill is that it appears to be the case that rural consumers may very well find themselves seeing increased hydro rates, part of which increase will go to assisting an off-electric conversion to lower-cost alternatives that, in many cases, these rural consumers will never have. So the question for me at least is, what is an equitable policy to inform this fuel substitution? That is something we will continue to grapple with.
The Chair: I should tell people that somewhat more time is being permitted for discussion with this group. We have had some cancellations this afternoon, which give us that latitude, and participants in the Canadian Oil Heat Association had wanted to appear in other venues of this committee but had not been able to because of time restrictions. For that reason, we are spending a little more time. I hope that does not interfere with anybody else's schedule. If it does, please let the clerk know and we will try to make sure you are slotted at the time you were originally scheduled. We will not be that far out of time that it should be a major disruption.
Mr Jordan: Thank you, gentlemen, for taking time this afternoon to come and present your product and the advantages that you see that you could offer the people of Ontario.
I would like to go back to the purpose of the meeting this afternoon, Bill 118. My straight question to you is, is it necessary to have financial incentives to the marketplace to have people purchase the fuel they think is most economical and will do the best job for them? Do you really believe we are doing the right thing by getting into these cash incentives?
Mr Morrell: Just as a citizen making a decision myself, if I have a perfectly satisfactory heating system and it is working well and I spent money putting it in not long ago, I would need some incentive to pay out more money, depending on the payout that I would get by laying that capital out today. Yes, just speaking as a common citizen, I think you have to have some incentive to throw out or add to a system you already have.
Mr Jordan: If you think that the incentive is necessary, should it come from one energy or another, or should it come out of the government's general fund?
Mr Morrell: I do not think I could really answer that. I would say government, but that is all coming out of our pockets too. There has to be a benefit that we all as a group have to be sold on on where that money comes from. It is all coming from us.
Mr Jordan: So if it came out of the general fund, it would be more fair than coming on individual hydro bills?
Mr Morrell: I believe so.
Mr Jordan: You had mentioned an estimated cost of $2,400 to switch to an oil furnace.
Mr McCagg: If a whole-fuel substitution was done, yes. On a bienergy basis, it would be slightly more expensive.
Mr Jordan: We have a number of all-electric Gold Medallion homes that were built in the 1967-75 era. As you know, the baseboard heater is almost a lifelong unit. The element can be replaced and you almost have a new unit. What they do not have is the duct work. What price would I be looking at to convert my baseboard system?
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Mr McCagg: In a Gold Medallion home that you speak of, built in the 1960s -- those homes had slightly superior insulation qualities to other homes that were built during that period -- you would probably be looking at an expense of between $4,500 and $5,500; and again, we would have a bit of a problem with people who have finished the basements in their homes.
If I can go back just a bit to what you were mentioning about the incentives, right now we have a lot of Ontario taxpayers who are upset with Hydro in their forecasting. They were chastised on the news last night by one of the environmental groups, and there is a lot of mistrust. Nobody trusts Hydro's forecasts any more. We have people whom we converted to electricity during the Canadian oil substitution program five, six, seven, eight years ago who now want to get off it. They are looking for help, and one way you can offer them help is by supporting Bill 118. Whether it is for our industry or for the other alternatives we feel the taxpayers of Ontario deserve some kind of compensation for what they are going through now.
Mr Jordan: And as your partner has indicated, perhaps if this assistance is required it would be better to come from the general fund.
Mr McCagg: I would think that Hydro might want to review the current programs they have under way for subsidies, such as the EnerMark program. Maybe funds are available there from Hydro's purse. Ontario may choose to subsidize it as a provincial government as well, but I think that maybe it should be shared possibly through our industry as well as the province of Ontario and Hydro.
Mr Jordan: Thank you very much.
Mr Morrell: Excuse me. In the Quebec program, there is also an amount allowed of $900, I believe it is, for someone who has baseboard heating and wants to convert to the furnace-type system with ducts. There is a $900 amount in that program as well.
Mr Jordan: My concern is that we are going to see history repeating itself. You just mentioned the off-oil program; now you have irate customers coming back saying: "I was coaxed into this thing by an $800 incentive program. Now I am going to be coaxed into another program by perhaps a $2,000 incentive program, and then we'll come around again and something takes place where the deal is no longer a good one." Would it not be safer to let the marketplace handle the situation and stay out of it?
Mr McCagg: I think, from what we gather in the proposed changes to Bill 118, there is a problem at Hydro now with the supply of hydroelectricity. They want to reduce the peak loading on the system. So what we are proposing here is really of benefit to them. We are not coming here saying: "We have a problem. Help us out." We think it is you who have the problem and we are here to offer a solution, hopefully.
Mr Arnott: It was stated by one of you gentlemen that oil heating, space heating, is cheaper than electricity. I assume that natural gas is then cheaper than oil heating?
Mr McCagg: Natural gas, depending on the type of conversion, can be less expensive than oil heating.
Mr Arnott: I mean on an ongoing basis, if you could compare the cost of three typical heating bills on an annual basis or a monthly basis, something like that.
Mr McCagg: It really depends on the selection of the equipment the home owner has. We have operating efficiencies up to 93%, as do the gas manufacturers of the same type of equipment. If we took a home owner with a piece of gas equipment operating at 60% efficiency and compared it to a 93% efficient oil furnace, we could be heating the same-sized house cheaper with oil without any problem.
Mr Arnott: Yesterday, the chairman of Hydro rather took this committee aback with an announcement with respect to an update of the demand-supply plan. They were announcing that $6 billion would be invested in demand management over the next 10 years. Six billion dollars is a great deal of money. Could you tell me what your association would hope for in terms of demand management programs, or fuel switching, with respect to that $6-billion figure?
Mr McCagg: One thing that we would like to see and that we think will allow Hydro to better manage the peak load, or the demand load, is the bienergy program. We wholly support that. It still leaves Hydro with some of the pie as far as revenue coming in from hydro consumed. Again, as we mentioned about the Quebec program, heads would have to be got together to agree on what is a reasonable cutoff point for the equipment, the switchover. Hydro should know how much load it wants to shed. They should be able to give us those figures and we can tell them, or our engineers can sit down and calculate what is the optimum cutoff point for the type of system to achieve that for Hydro.
Mr Morrell: We read also that municipalities are looking at perhaps reduced funds, and I believe the municipalities have a piece of the action here, because they buy it on a wholesale basis and retail it to the consumer too. So you are going to have some of them coming in and making a presentation, I am sure, or wanting to, because if you are going to cut back on hydro use, you are going to cut back on revenues to the municipalities. There is another situation that will have to be addressed.
Mr McCagg: We think that conservation plays an important role in this too. It has been said before: conservation before conversion. Most homes we know of in our geographical area have taken advantage of the Canadian home insulation program that was offered by the government in the 1980s. There is only so much you can do in a home. You cannot economically rip down the walls and reinsulate them. You can do the attic and you can do the basement. Hand in hand with our equipment, we also have programmable thermostats that can better manage the heating system in a home so that when people are away they are not heating dead space. But we wholeheartedly would support a conservation program if Hydro chose to make that part and parcel of any type of fuel substitution program as well.
Mr Jordan: Just a quick question with regard to your remarks on the conservation program. Would your association or the company you represent feel a responsibility to share the cost of these conservation programs? Ontario Hydro in Bill 118 will be taking the phrase "electrical energy" out of the act and just putting in "energy." It will be providing, free of charge to the customer, which is really a charge on my hydro bill and your hydro bill eventually, to go out and do a conservation audit on all buildings regardless of the fuel source. Do you think it is time that all energies got involved in that costwise?
Mr Maguire: Bill, do you want to handle that?
Mr Francis: That is a fairly difficult question you have for us there, because we are only representing this one group and we know the margins we have to work with and so on. If you have some type of proposal you are thinking of, possibly it should be discussed within our industry and at that time we will come forth. A lot of independents, such as our association, buy from majors and so on, so we would have to get the majors, the Essos, the Shells, the Ultramars and all those within a group and get together with some type of deal that could help this industry.
As we go to majors they are also interested in natural gas and in all these things too, as you all realize. They become a player on both sides of this thing really, so I think we should. Yes, we would be interested in looking at things like that.
Mr Morrell: I think insulation has been fairly well addressed too. I think a lot of people took advantage of the program and I would say that homes generally are well insulated, judging by the grants that went out, and the newer homes are being built with a certain standard of insulation in them. I do not know if there is as much room in that area as there is perhaps in others.
Mr Jordan: Now that you mention that, I think I might go back to Ontario Hydro in the 1967 era and again in the 1975 era where, because of the cost of its fuel, it in fact was not competitive. The only way it could market the off-peak load at that time was by having a home designed, such as the Gold Medallion home that had the extra insulation, six inches in the attic and a minimum of three inches in the walls and so on, and two inches in the basement two feet below grade. Those were standards that were set by Ontario Hydro and eventually came into the building code. But it was because of the price of their fuel at the time that they were trying to get an off-peak load of the market. It seems to me that is still very important.
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Mr Morrell: Certainly. When I started in the oil business it was 17 cents a gallon. We did not put any insulation in. It was just put the oil through the house.
Mr Jordan: You were not really interested. You were marketing oil.
Mr Morrell: That is right. But it was 17 cents a gallon; now it is 34 cents a litre.
Mr Conway: Seventeen cents is now the differential per litre across the province in gasoline.
Mr Jordan: That is another subject.
Mr Francis: Just for the information of the people here, Medallion Homes have two meters too. There is one for the energy and one for the home use, so it is double-metered. That is my understanding of Medallion Homes. That is another thing that is in there. Those numbers are available, the costs. That is another thing I found out at one of my meetings recently. I did not realize we had double-metering systems back in 1965-70.
Mr Huget: Thank you for your presentation. I would comment that the demand management is certainly a complex strategy, and part of that strategy includes efficiency, conservation and of course fuel substitution. Part of fuel substitution is oil heat. I think the perception over the years has been that oil heat is somewhat dirty, somewhat inefficient, somewhat costly. I hear you gentlemen say that is not quite the case.
I would like to know from you, particularly in terms of the efficiency aspect and the cost-effectiveness of oil heat, what has happened? It is the same oil? I would just like to know where the improvements have been made? Where and why does it make cost-effective sense?
Mr Francis: I will let Rick pick up on that, but I will give you an overview of that. As a person who worked in the trade back in the 1950s, I worked through the trade and into there and I know what you mean. But oil has evolved. Oil has not sat back in the past few years. Oil has a new generation of equipment. We have high efficiency there. We have not got all the problems solved yet but we are working on it. We need it. The Canadian Oil Heat Association is very involved in these things. This is the survival of the oil dealer, the small dealer up through the valley and all through the countryside and dealers like myself in Ottawa who also serve some of those markets.
We need customers. We need the base. We sat down through the cooperation of this eight-year-old association. We have strived. We have also now gone across Canada. They have seen what we have done in Ontario and we are into Vancouver. We are out into the maritime provinces. We have talked to them and so on. We are very concerned. Now down to details and I will let Rick McCagg talk to you, but I thought I should give you that overview.
Mr McCagg: As I mentioned earlier, in the 1970s the oil industry put a lot of research into the flame retention head burner, a burner that would give a more complete combustion of the fuel and provide little waste after the combustion had taken place. In the 1980s and the 1990s we developed technology using heat reclamation and secondary. In some cases we have one, two or three heat exchangers in systems where we are scrubbing heat off before letting anything go out.
The reason they are called condensing is because once the flue gas temperature gets below a certain point it releases the moisture that is in the gas. That has to be reclaimed. That was an environmental issue at one point in time because of the acidic content. Neutralizers were developed to neutralize the acidity of the waste from that. That is basically what has happened in the technology with oil. We can now take a litre of oil or a gallon of oil and burn it much more efficiently than we ever could in the 1950s and 1960s and leave a very low residual byproduct to be released into the atmosphere.
Mr Huget: A large percentage, I think, of Ontario's energy users, are rural and some of them do not have access to many of the forms of energy. What percentage of your customers would be rural? Is it a high percentage or a low percentage?
Mr Maguire: Speaking just for the Ottawa area, a percentage of about 19% of our total customer base would be rural customers.
Mr Huget: Have you been working with that customer base -- I am concerned more about rural, but urban as well -- in terms of dealing with the efficiency question of some of that older technology around the oil heating equipment, some of the equipment that was referred to that may have been around since the 1950s? Is there an active sort of strategy to upgrade that equipment and make sure that people are using efficient equipment?
Mr Maguire: Through various forms of media advertising we do that. One of the programs all suppliers and sellers of furnace oil are involved in is maintaining customers' heating equipment. You actively solicit and impress upon your customers when their equipment is in poor shape that it is time for change, basically for the economics of it for the customer.
As far as the electric customer is concerned in the valley, I live in the valley here in Ottawa. I live in a small town called Almonte, and several of my friends are on electricity. They are just flabbergasted at their heating bills at this point in time and they are looking for alternatives. They are really concerned.
Mr Huget: Thank you. Mr Dadamo has a question, Mr Chairman.
Mr Dadamo: I do and I have been waiting a long time. I can tell by the questions being thrown to you that we have waited for you all week. Thank you very much.
The Chair: You were waiting a long time.
Mr Dadamo: We waited a long time.
The Chair: You have been waiting for your turn.
Mr Dadamo: Yes, sir, I was.
When I was a little-guy socialist growing up in Windsor, I remember a lot of the neighbours had oil. Looking at it for the first time, it looked to me like it would be a messy proposition. I guess I am wrong. We have had people who have switched from oil to electricity. Are we in some respects going backwards? Are we going full circle?
Mr Francis: The new-generation equipment is here. Our oil tanks do not look the same as they used to, that oval tank, likely, in your mind. We have round tanks that sit up in the corner of basements. We have changed things. I am trying to upgrade my fleets. We are doing all these things. We have better pumping, better control. We need efficiencies in our organization too. But we also need customers and we need to be there and do a professional job while we are there.
We are dealing one to one with the consumer. We mostly know them all by name as they come in to our counters, or their mother or their father. In my business of 60 years, my father dealt before I did and my sons and daughters are in there today. That is the way we survive and that is the way you find a lot of the industry. Sure, we have the majors like Petro-Canada and Esso Home Comfort centres in Ottawa, and we have various others, but a lot of the industry is built on individual-type firms similar to mine. I have grown a little larger within the market I am in, but there are a lot of them. I was small at one time. I started with one truck in 1959 and I have built it, and a lot of us are similar.
We were there. As I said, a lot of the technologies were there back in the 1950s and 1960s, but at 17 cents a gallon for the product, it was not worth while to build that high efficiency. A lot of the stuff we have today was already on drawing boards. It was there. I say Canadian Oil Heat has done it. We have developed it. It was already there. If some of you go back, there used to be Timken silent automatic burners and there were low-pressure burners and there were various things that mixed air and oil together which were very high-efficiency, but you needed servicemen who knew how to handle them and service them and look after them and this was very difficult. As we go out today and look at equipment, we need to make sure that it is available to be serviced by all technicians in all areas throughout the country.
Mr Dadamo: They say that in order to sell somebody on a particular product, the awareness factor has to be at a relative high. I know you would have many professional people who are doing a good job for you in the public relations department via pamphlets, and I like the idea of the pamphlets because they spell it out quite easily for us. What are you doing with the distribution of this and how are you getting the word out to people?
Mr Francis: The pamphlets you have today are just recently off the press, within the last two to three weeks. I bought 4,000 last week and you got a few of them today type deal. We will see what happens. I am planning to go to real estate people, real estate boards, people who are in the sales of real estate. I am trying to create programs for my organization and in turn I pass it on to Canadian Oil Heat and we do it all across Ontario. I am not selfish. I work for the industry. Oil has been good to me. Anything I have that works for me is known across Ontario through the Canadian Oil Heat Association. We go with things like this. We are doing a marketing program. We will try to talk to real estate people if they want us. We will be writing in real estate magazines. We will be doing everything to spread the news as long as the news is the news that is there, and I feel that folder is fairly factual. I have a couple of comments in a couple of areas there, but they have done a good job on it. I am sure that anybody looking at that likely has a couple of comments, but you have got to take things and try to coordinate altogether and come up with a brochure. I think the Canadian Oil Heat Association has done a pretty good job on those oil versus electricity facts.
Mr Dadamo: Are people relatively comfortable with the idea that there would be oil supply for many, many years, that if they were to make the switch there would be this abundant supply and then they would not have to worry about running out?
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Mr Francis: I guess it all depends on world prices, world situations, but I think everyone in this room and everything we do in life depends on that, no matter how sure we are of what. Oil is there today; oil is viable, I am told by vice-presidents and people I talk to in major corporations who deal with fuel oil and gasoline and all that. It will be there. There will be a niche in the market for the fuel oil dealers, so they feel, but they are all just people forecasting.
There are special crews and there are special people out analysing markets and you have got to listen to them. You are listening to us here today to get our point of view and away we all go. We all pick. That is where a lot of my stuff comes from. I am in meetings with some of these people and get the feeling of the market. There are special people out doing it and they come through with it.
Mr Dadamo: It has been an informative hour. Thank you very much.
The Chair: Mr Cleary, since you had only one very short question, please.
Mr Cleary: I will do my best, Mr Chair. Thank you, gentlemen, for your presentation. In your pamphlet here you refer to a 1,200-square-foot house. I think I heard two little bits of different things here. If I were building a brand-new 1,200-square-foot house, what would the best 1992 model of oil installation cost me?
Mr Francis: For Rick to answer this, are we going to give you a standard furnace and duct work? Are you looking at electronic air cleaning, humidification, air-conditioning, the various parameters? What are you going to do? Do you just want a basic oil system, nothing else attached, a high-efficiency type?
Mr Cleary: I want as good an installation as you have.
Mr Francis: If you came to me, I would say, "Do you want some air-conditioning or do you want to just have a basic heating system and that is all you want?"
Mr Cleary: A basic heating system without air-conditioning.
Mr Francis: Humidification? Air cleaning?
Mr Cleary: Yes.
Mr Francis: Air cleaning? Are you going to be in an R-2000-type home, a sealed home? Are you going to have air changers in your system while we are looking at this?
Mr Cleary: Probably, yes.
Mr Francis: Are you ready to pick up on that then, Rick?
Mr McCagg: Bearing in mind that you have contracted with the builder to construct this dream home for you and the duct work is already in place, what we would be doing is coming in and installing a furnace and an oil supply tank for you. To go into state-of-the-art equipment, for a high-efficiency unit vented through the wall requiring no chimney, thus giving you a saving in the construction of the house as well, we would forecast a price, furnace and oil tank connected to your existing duct work, probably in the $4,000 range for that piece of equipment, including the oil storage tank. Humidification would add, say, $150 to that. HRV, if it is an R-2000 home, would be supplied by your builder because it is mandatory under the R-2000 program, so there is no need for us to include that in the pricing of this product. Electronic air cleaning can be done anywhere from $200 up to the $600 range, depending on the quality of air cleaner that you want.
The Chair: Good question, Mr Cleary.
Mr Conway: Mr Chairman, can I just --
The Chair: Mr Conway, a committee can do anything it wants.
Mr Conway: I would like to ask a very quick supplementary to Bob Huget's question.
The Chair: You would like to and you are going to.
Mr Conway: I am going to take the direction of the Chair.
The Chair: Go ahead.
Mr Conway: I want to just follow up on the market share in a rural township. Can you guess at or tell me from data what kind of market share the oil business would have in, say, a rural township in this part of eastern Ontario, keeping in mind that I am talking about a township where there would be no natural gas? What would your guess be today, in this 1991-92 season, as to what the oil heating business would have as a market share?
Mr Maguire: I do not have the facts, but as a guess I would probably say, and I think I would be pretty close here, that we would be looking at between 75% and 80%.
The Chair: Gentlemen, I want to thank you very much for your interest in the matter and for coming here this afternoon and participating in the process. Your contribution to the hearing has been a valuable one. We trust that you will keep in touch with your own MPP, and I am confident that the committee will keep you advised, by way of Hansards and otherwise, of the progress of the bill. Take care. Yes, sir?
Mr Maguire: One question, if I may: Mr McGuinty asked for a copy to be mailed. Do you want it mailed to this committee or mailed to you personally?
The Chair: You can mail it to the committee and to Mr McGuinty.
Mr Conway: We are a collective.
The Chair: That is an interesting comment from a member of that caucus.
Mr Conway: I mean the committee: all for one, one for all.
CONSUMERS' GAS
The Chair: Good afternoon. Please be seated. Tell us who you are and your status with Consumers' Gas, and briefly present your comments so that we can engage in some conversation.
Mr Nubel: Thank you, Mr Chairman. I do feel a little lonely up here. My name is Jim Nubel and I am the regional sales manager for Consumers' Gas's eastern region. I do thank you and the committee for the opportunity to address the standing committee on resources development.
Let me start by saying that natural gas represents one of the most cost-effective means of meeting our energy needs. The natural gas industry plays a major role in the provincial economy and helps fuel local economies, providing a safe, secure supply of low-cost energy to the public. As the cleanest burning fossil fuel, natural gas can play a major role in improving the environment, and when used in place of other more polluting energy sources, it serves to minimize some of our most serious environmental problems such as urban smog, acid rain and global warming.
Because of the economic and environmental benefits, natural gas is the fuel of choice for many enterprises, institutions, industries and homes. We firmly believe that this abundant and versatile fuel can play a more significant role in meeting our energy needs in the future. As such, Consumers' Gas sought to put forward its views to the committee on a concept of fuel substitution, one of the key issues addressed by the government in Bill 118.
In particular, I want to address the following areas: First, the role of natural gas and Consumers' Gas in Ontario, and in particular eastern Ontario; second, a brief review of fuel substitution, its economic and environmental benefits; third, I will review some of the initiatives undertaken by Consumers' Gas to encourage greater efficiency and conservation in Ontario; and finally, I will review how the natural gas industry is well positioned to meet any increase in demand for natural gas resulting from fuel substitution and Bill 118.
Consumers' Gas is the largest natural gas distribution utility in Canada. More than one million residential, commercial and industrial customers depend on us for reliable delivery of service. Our distribution network includes Metropolitan Toronto and parts of central Ontario, the Niagara Peninsula, eastern Ontario, western Quebec and northern New York state. Our pipeline network extends more than 22,000 kilometres, delivering about 10 billion cubic metres of natural gas a year.
We are a company of over 3,000 dedicated individuals. Our philosophy is good corporate citizenship and community involvement. By measures such as pipelines or net worth we may seem big, but we have our roots in a heritage of responsible service to meet the changing needs of today's energy consumers. We live and work in the communities we serve, and we have a vested interest in the wellbeing and prosperity of these communities.
The eastern region of Consumers' Gas provides a range of services to more than 136,000 customers in Ontario. As the attached map shows -- there is a map at the very last page of the package -- the Ontario distribution area extends east to Hawkesbury, north to Deep River and south to Brockville. We service customers in 66 municipalities within the counties of Renfrew, Leeds and Grenville, Lanark, Stormont, Dundas and Glengarry, Prescott and Russell and the regional municipality of Ottawa-Carleton.
Natural gas has been available in this area since 1958, when it replaced the manufactured gas distribution system which had been in place for over 100 years. Today, many different enterprises in the region use natural gas for such energy needs as space heating, water heating, cooking or manufacturing processes.
Here in Ottawa natural gas is utilized in many important buildings, public attractions and hotels. For example, natural gas is used for steam boilers at the Cliff Street heating and cooling plant of the Department of Public Works, which serves many government buildings, including Parliament Hill. In the growing communities surrounding Ottawa, from Orleans to Barr Haven to Kanata, about 95% of new homes and many commercial establishments also use natural gas.
As well, natural gas-fired equipment helps industries in the eastern region produce quality products that are cost-competitive in North American and world markets. In Kanata, sometimes called Silicon Valley North, most high-technology firms use natural gas. These firms produce computers, telecommunications components and systems, electronics for scientific use and satellite systems.
Since 1973, approximately 60,000 customer additions have been captured in eastern Ontario from other fuels. In the past, most of these conversions were from fuel oil. The mid- to late 1970s conflicts in the Middle East and the corresponding oil supply shortages and intermittent price fights caused many of us to rethink our energy strategies. Most of us understood that we had to take some of our eggs out of the oil basket, begin investigating different energy alternatives, and get serious about energy conservation and efficiency.
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During that time, the federal government provided financial assistance, stimulating the substitution of natural gas for oil, both in existing and new markets. This was an early, successful example of fuel substitution and it had important economic benefits for many businesses and citizens in eastern Ontario. Our rate of growth in eastern Ontario is now approximately 8,000 customers per year, and recently there has been a noticeable increase in the capture rate and the requests for conversion from electricity to natural gas. Much of this may be attributed to the difference between natural gas and electricity prices and, in particular, some concern by electricity customers about the prospect of double-digit rate hikes over the next few years to pay for existing generating facilities.
Over the course of the 1980s environmentalists began to demonstrate that our ever-increasing demand for energy of all forms was taking a huge toll on our environment as well as our pocketbooks. Once again, energy conservation and efficiency were cited as key means of reducing the negative environmental impact associated with the use, production and transportation of energy.
Today many energy industries and governments have taken these lessons of recent history to heart and begun to entrench the ideas of conservation and efficiency in both corporate and public policy. Certainly this is true of the Ontario government, which has recognized that balancing energy demand and supply is central to achieving gains in conservation and efficiency. One of the ways this government is trying to foster the wise use of energy is by pursuing a policy of fuel substitution.
The very nature of gas and the fact that the energy is released from natural gas at the point of use makes it efficient. In fact, natural gas is more than twice as efficient to use as electricity when production, transmission, distribution and end-use losses are all considered.
Today fuel-switching savings are already being realized in public housing facilities across the province. Many of these public housing units, subsidized by the Ontario government, still, however, use electric resistance heating. Ontario's natural gas utilities are working closely with the Ontario ministries of Housing and Energy to convert electric heaters in social housing facilities and to ensure that all new facilities use natural gas. As well, a program offered by natural gas utilities finances capital costs for conversion to gas using the energy cost savings resulting from these conversions.
In terms of how fuel substitution will impact on Ontario Hydro, it is very simple. When the electric utility encourages the use of natural gas over the use of electricity for targeted applications, it will save megawatts and simultaneously decrease its electrical load. This serves the best economic interests of both Ontario Hydro and electricity consumers, because by decreasing its electrical load, Hydro can successfully defer the need for new, large and very costly electricity generating facilities. It will also improve natural gas utility efficiency by improving utilization of our facilities, and society generally through reduced energy costs and reduced emissions from energy consumption.
Fuel switching will ensure that consumers will continue to have their energy needs met and in a more efficient way. In addition, the activity of energy substitution will provide a much-needed economic stimulus to Ontario manufacturers and the construction sector.
There are environmental benefits whenever and however energy is saved. Producing and using natural gas are not without environmental impact, but given our present situation and the unique qualities of natural gas that I described at the outset, including significantly lower carbon dioxide, sulphur dioxide and nitrogen oxide emissions than current electricity sources, it is widely recognized that natural gas can and does play a significant role in combating some of our most serious environmental problems.
As I indicated earlier in my remarks, the overall trend towards the more responsible use in our energy resources started in the 1970s. Certainly you can trace our commitment to the wise use of energy back to this period.
Recent public and government focus on the concepts of sustainable development and environmental protection are not new to Consumers' Gas. Our company mission and goals specifically state that the company will promote the use of natural gas as an environmentally preferred fuel and continue to invest in the development and demonstration of technologies to improve its efficient utilization.
Consumers' Gas has been involved in the research, implementation and communication of energy conservation and efficiency measures for many years. As a responsible corporate guardian of a non-renewable natural resource, the company takes its role seriously. Indeed we have been able to use our high profile in the community to serve as a role model for efficient use and to educate our customers and the public about the benefits and how-tos of energy conservation.
Company research, products and services are all directed towards achieving optimum energy efficiency. For example, our regional utilization advisers are always ready to assist managers of institutions, enterprises and industries to reduce energy costs, enhance productivity, operate more efficiently and learn about new technology and equipment to meet various needs and requirements. In addition, we have established two highly successful subsidiaries with the mandate to share our expertise with the domestic and world markets.
I am sure members of this committee will not have failed to notice that my remarks today indicate clearly Consumers' Gas's support for fuel switching. Ultimately fuel substitution will benefit the gas industry in Ontario. But more important, it must be judged as in the best interests of the Ontario public because, as I have demonstrated, it will bring significant economic and environmental advantages to the people of this province, its government and Ontario Hydro.
We support fuel substitution and the switching from electricity to natural gas only where it is economical to do so. Within the five counties and the region where we distribute natural gas in eastern Ontario there are still a number of communities where natural gas service is not available. As the demand for natural gas conversion increases, the ability to reach these smaller communities within the economic feasibility of our industry is improving.
Consumers' Gas was able to service Deep River during the fall of 1991 and we are currently commencing the distribution of natural gas to that community. As well, we are now looking at the conversion of a number of communities to the east of Ottawa.
Within the cities, towns and villages where we currently distribute natural gas there are electrically heated homes, and in some cases subdivisions, where all of the homes are electrically heated. We are fully prepared to handle this expansion when we can meet our economic feasibility. However, our ability to service these electric subdivisions and new communities where all construction for the most part in the last 10 years has been serviced by electric heat could be advanced depending on the passage of Bill 118 and on how Ontario Hydro will manage its fuel substitution resources.
Our history of residential conversion indicates that a substantial inertia from the point of economic savings is required to cause customers to change to a different energy source prior to total failure of their current heating plant.
The current differential in energy prices would appear sufficient for the conversion from electricity to natural gas to take place. However, the conversion to natural gas could be greatly speeded up by assistance in the expansion of the natural gas distribution system to those streets and subdivisions where it has not been cost-effective to lay gas lines to date, basically due to the large percentage of electrically heated dwellings.
Let me conclude by assuring members of this committee that Consumers' Gas is well prepared to accommodate an increased role for natural gas in the eastern Ontario economy. There is an abundant supply of natural gas in Canada, it is competitively priced, and there is an excellent pipeline system in place to secure the delivery of a greater volume of gas to our market area.
As well, we have the expertise, supply and service capability to meet any future conversion growth available to us. In the eastern region we have a staff of over 300 and an infrastructure in place where all main and service construction is completed by contractors, all furnace and other appliance installations are completed by authorized dealers and service work to these appliances is performed one half by employees and one half by service contractors.
In the future we hope to continue to work closely with the government, with Ontario Hydro, with our customers, with the environmental community and with all other interested parties to meet our energy needs in a cost-effective, environmentally friendly manner.
Once again I want to thank the Chairman and members of this committee for the opportunity to submit our perspective on some of the important energy and environmental issues facing our province. I would be pleased to answer any questions.
Mr Jordan: Thank you, Mr Nubel, for your presentation, which is certainly informative and interesting. I certainly appreciate the time you are taking to bring us up to date on the improvements in your equipment, the improvements generally as far as the customers are concerned.
I would like, however, to try to stick to Bill 118, which is really the purpose of these hearings. We had some concern yesterday with the announcement that fuel switching was going to take place, and I hope our discussions as we go through these hearings will be heard by the government and will have some effect on its decisions relative to amendments to Bill 118.
You have stated very clearly that due to the service you are equipped to provide your customers and the price at which you can provide it, you are taking on a large number of new customers. Is that correct?
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Mr Nubel: Potentially we can take on a substantial number of new customers, yes.
Mr Jordan: And already the demand is showing up.
Mr Nubel: Yes, sir, it is, very much so; requests from outlying communities and even within Ottawa. We have not completely covered the city of Ottawa; our saturation here is about 85%. We get frequent requests from prospective customers to supply natural gas and we are doing our best to respond to that.
Mr Jordan: Basically one good reason is your competitive price and the type of service you are prepared to give.
Mr Nubel: Yes, sir.
Mr Jordan: Would you care to comment that Ontario Hydro will enjoy fuel switching through the natural marketplace because of the position your company is in?
Mr Nubel: I might best answer that with examples. At this time we are canvassing the communities of Russell, Casselman and Embrun, and that is largely being driven by getting customer requests. But what we have learned is that the majority of those communities are supplied by electricity, and I guess in part the price they are paying for that power is driving them towards an alternative fuel and a less costly one.
I think the other thing, from my experience and what I find, is that many of these communities want to attract business; most that I have come across want to or have developed or have started to develop industrial parks and the like. I think from their experience, if they find companies that are situated in Toronto and want to move away from the big city and come to an outlying community, they are looking to reduce their costs. Obviously they may in fact have been gas customers or they may not, but they know the benefits of gas so they ask for it. The community says it cannot provide it. I guess what I am saying is that by providing an alternative, that has some stimulus to that community to attract more business and grow.
The Chair: We have to move on, Mr Jordan, so one more perhaps.
Mr Jordan: Perhaps my colleague Ted Arnott would like to ask a question.
Mr Arnott: Thank you for your presentation, sir.
The Chair: Mr Arnott is going to ask you one more.
Mr Arnott: On Monday in Thunder Bay the Minister of Energy, the Honourable Will Ferguson, presented to this committee, and I would like to read you a portion of his statement. He was talking about fuel switching, which is of course one of the main parts of Bill 118.
"There will also be savings for the consumer. The cost of natural gas for space heating is about one third of the cost of electricity. Oil costs about two thirds of the electricity cost. Let's say you live in a typical two-storey detached home. Over the life of that home you could save as much as $15,000 by using gas instead of electricity for space heating. You would save $7,000 by using oil."
If what the minister is telling us is correct, why on earth should Ontario Hydro or the Ontario government have to provide incentives to people, pay for part of their new equipment, for example, with the $6-billion program that was announced yesterday? Why is that required? Why is this market pricing not enough?
Mr Nubel: I would say what we are addressing here is market-driven. It is what the marketplace is saying and what the public at large, I guess, is asking for. It is in response to that.
We are a regulated company, so there are some limitations provided by that. As I stated in my address, we are looking more at targeted areas. It should be economic and it should be beneficial to the community. I do not think we are saying we want to go to each and every one. If it is economic and it is appropriate, then we would do it. What we are finding in our experience is certainly the lower-cost energy but the higher cost of providing that service. Feasibility is very hard to attain in some situations. Some support towards that feasibility and attaining that economic benefit then would allow us to get into that community or subdivision. I think that is essentially what we are saying.
Mr Wood: Thank you very much, Mr Nubel, for the excellent presentation you have brought forward to us today. I am just wondering how you would think when we get into fuel switching. I am concerned that Hydro will say now there is not an urgent need for any more large nuclear plants to be built, with conservation and in the future fuel switching. Some of the savings we are conserving through switching or one thing and another that could be used for economic growth in the province -- would there be a problem with using some of those savings that they are not going to have to use on large expansion projects to encourage low-income and poor families or this and that who have electric heating now to get into a system, to encourage them to switch to natural gas or to oil or to wood or some substitute for electric heating or electric water heating or whatever? I just want to know your opinion.
Mr Jordan: This is not a social program.
Mr Wood: You had your turn.
The Chair: Please. Sometimes there are some murmurings around, and it is distracting, but please go ahead, sir.
Mr Nubel: If you are asking whether as a company we would be in favour of using those funds to support expansion of a natural gas system, I guess the answer is yes.
Mr Klopp: Thank you very much, for your interesting comments. You mentioned, I think, that the intent of Bill 118 follows along the lines that any conversions or whatever need to have economical but also environmental advantages. I think we get away from that sometimes when talking about how much the subsidies will be or whatever. But as we are all aware, electricity, until this point in time anyway, has only been produced by changing a source of energy that we have around to electricity. Unless someone has figured out a way to grab that stuff that comes out of the sky, we still have to do that.
One of my constituents said to me, right after I got elected actually, "I hope you guys take on the idea that we just don't have to be sold on nuclear power to produce electricity." I said, "Well, you know, I live in rural Ontario, and we don't have natural gas lines going all over up and down the roads." I do not think economically it is possible; maybe some day it will be. Who knows? But the fact is that we save electricity through power, through whatever, but still need electricity. I will make that assumption. I asked the chap, "What other areas can you look at?" He said: "Natural gas. Build generating plants of natural gas. They are a tenth of the cost." I said, "Thank you very much."
I have you here today. If you have the answer or whatever, I would love to get to this group here over the next period of time that question. He said, "A tenth of the cost." Is that a reasonable assumption?
Mr Nubel: I am not sure of the cost. I am not that close to those kind of projects. But I think what he may have been alluding to was the whole concept of -- one of the concepts that I am aware of is cogeneration, where you can use one fuel source to develop thermal energy and electric energy, and natural gas can be that source of fuel. In fact, there are developments in that area now. I know of two projects in the city of Ottawa that will be up and running within the next year using the concept of cogeneration. So he may be talking about displacing or at least providing that energy based on a natural-gas-sourced fuel to produce electricity.
Mr Klopp: I think he was talking about instead of building a Darlington with a nuclear fuel creating electricity, you turn on turbines or something that run on natural gas. I think we need to hear some of this stuff and find out what these costs are. He said one tenth.
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Mr Nubel: I am sorry, I do not have those kinds of costs in comparative figures but I am sure we could get you something that would give you some indication.
Mr Klopp: I would like to have that stuff, if I could, down the road. We are a committee that works for a number of weeks.
Mr Nubel: I will pursue that.
The Chair: Mr Conway, if you wish you can leave Mr McGuinty some time.
Mr Conway: I shall always be restrained, Mr Chairman.
I appreciate the submission, Mr Nubel. I have two or three quick points. First, in a couple of places in your submission you touch on the constraints you must work with as a natural gas company. That is to say, if I wanted to take one of those communities you mentioned in Russell county or perhaps one of the ones in Lanark or Renfrew that I or my friend Mr Jordan could cite -- there was a great deal of enthusiasm out in Casselman -- you are just not allowed, as I understand the rules under which you operate, as a regulated company to go willy-nilly and meet that demand. Am I not correct in that?
Mr Nubel: You are quite correct.
Mr Conway: Could you very quickly and generally summarize the Ontario Energy Board rules under which you operate, particularly around economic feasibility?
Mr Nubel: I guess we could call the OEB the watchdog, so to speak, of the natural gas industry. All rates are approved by that regulatory body: the rate of return, and of course, all that falls out of that, the cost of gas, the cost to provide service, those kinds of things to provide that rate of return certainly to our shareholders. To prove feasibility, it must meet those parameters that have been established and approved by them.
Mr Conway: As I understand it, one of those parameters is that existing customers should not be paying for a certain kind of program expansion. Is that generally correct?
Mr Nubel: We have taken the position that existing customers should not subsidize the cost of providing service to new customers.
Mr Conway: Is that a company position or is that a company interpretation of the OEB rule? I ask the question quite innocently.
Mr Nubel: From my experience, I would say that the OEB has taken that position.
Mr Conway: That is my understanding as well. That leads me then to a community in my constituency, and we have in the back row the chief magistrate of that community. He may want to comment on this a little later because we have been involved with the Deep River project, to which you have made reference. That expansion has taken place. The pipe was laid.
Mr Nubel: Yes.
Mr Conway: Was that in the end done entirely by your gas company, or was it done with the expectation of some assistance under some kind of Hydro or government fuel substitution program?
Mr Nubel: The shortfall was essentially funded in two parts: First, by assistance from Ontario Hydro, and second, a loan charge that will apply to those customers who convert, which in effect will reduce that shortfall.
Mr Conway: Am I right in thinking that the Deep River project is one of the first of a new series of projects under a fuel-switching program that may relate to this current bill?
Mr Nubel: I believe you may be referring to what we call stage 2 feasibility analysis. The initial application we made for Deep River clearly indicated what I would call some problems with the feasibility parameters then in place. That hearing resulted in a subsequent hearing conducted by the OEB and involving all Ontario utilities to evaluate the feasibility parameters then in place and whether there was something that needed to be brought into place to recognize the problems that exist today. That in fact occurred.
When we went back to Deep River we applied those stage 2 parameters. It met the feasibility parameters and we showed it to be feasible, but the OEB took the position that there should be some subsidy or support towards this project from some other source. They did not identify that. They essentially left it to us to determine what that should be and who it should come from.
Mr Conway: That is my understanding, that in the end there were two sources identified: the loan portion you mentioned and some kind of subsidy from Ontario Hydro.
Mr Nubel: We went to all sources we could think of that were reasonable. There were discussions with government. There were discussions with the community. There were discussions with Ontario Hydro when I think at that time there was this movement to the whole question of demand-side management. What we ultimately came up with was, first, this support that was given by Ontario Hydro, and second, the loan charge. We took it back to the OEB. They approved it. We have applied it and it seems to be working quite successfully.
Mr Conway: Do you know out of which envelope that Ontario Hydro support from and what amount it was in the end?
Mr Nubel: To your first question, no, I do not. To the second, it was approximately $180,000.
The Chair: I do not know what you did to Mr Conway, but he did not leave you very much time, Mr McGuinty.
Mr McGuinty: I was interested in one of the points raised by my colleague. It is my understanding now, and you can correct me if I am wrong, that the natural gas industry is prevented by OEB rules from subsidizing the costs of bringing people who are not on gas on to gas. Is that correct?
Mr Nubel: We have to prove feasibility. For any large project, we have to take that application to the Ontario Energy Board which must approve it.
Mr McGuinty: What comes to mind is the two different approaches that we have here. On the one hand, we have a law governing the gas industry which provides that you cannot go forward with gas lines unless you can prove feasibility. On the other hand, we have a law here, a proposal in any event, which would have Ontario Hydro proceed with subsidization. Would you know what is the rationale behind that OEB rule which prevents you from going forward without some kind of feasibility test?
Mr Nubel: This could get into a lengthy discussion. It goes back to the whole concept of the regulated company establishing allowable rates of return. It is the whole financial package which is really regulated. I do not know how else I can summarize it without getting into some kind of a deep discussion.
Mr McGuinty: Does it serve some kind of protection for existing customers?
Mr Nubel: Yes.
The Chair: At this point it is my pleasure to thank you for taking the time to come here, for sharing your views with us. As with the other participants, I am trusting you will be kept advised of the progress of this matter and I urge you to keep in touch with your own MPP and with other people who are seated here to have an ongoing dialogue about these matters as they develop through the committee and through the Legislature.
TOWN OF DEEP RIVER
The Chair: We now have his worship Lyall Smith, mayor of the town of Deep River. Welcome. We would like to hear what you have to say. If those comments are put in a sufficiently brief period of time, we will have time for questions and dialogue.
Mr Smith: I am delighted to be here today and I understand I was to have about 20 minutes. I am thrilled to see your generosity.
The Chair: A habit I picked up along the way.
Mr Smith: I will try to be brief. In fact, this short presentation was on the basis that I would have some time for questions.
First of all, I would like to say I am delighted to be here. As mayor of a community which came into existence because of Canada's need to understand and harness the peaceful uses of nuclear energy, I am honoured to have been invited here to speak to this committee, and I hope to contribute to a rational and sensible discussion on Bill 118, An Act to amend the Power Corporation Act.
Bill 118 does very little to respond to current concerns about sustainable -- I underline that -- electrical supply. It does, however, go to a great length to reflect the policy of the current government of Ontario without regard for its long-term effect on the electrical needs of Ontarians. I see very little need to change the Power Corporation Act. Ontario Hydro works. Its people do an excellent job of using its facilities and resources to provide local utilities and major power users with reliable -- again, that should be underlined -- electrical power.
What concerns our local utility is that power at cost is no longer the mandate of Ontario Hydro. The amendments proposed in Bill 118 will only exacerbate current costs. In my opinion, unless the provincial government suppresses its desire to make Ontario Hydro a social service agency, abandons its mission to destroy the nuclear option and begins to look realistically at the long term, the future of Ontario, let alone the future of Ontario Hydro, looks very dim indeed.
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As you have probably surmised, our municipality and local electrical utility are less than pleased with Bill 118 and the direction this legislation would take Ontario Hydro. Given the limited time today, I would like to make the following specific recommendations:
That the government of Ontario lift the moratorium on nuclear power development. This moratorium was implemented by the current government without responding to the serious concerns of Ontario's electrical utilities -- and you are going to hear from one in a moment or two -- or inviting public debate. This action prejudices the outcome of the current demand-supply hearings -- and I do not know why you are here, to be honest with you; it has already been decided -- and jeopardizes recent interest by other countries in expanding their existing Candu facilities. The Candu system is an 85% made-in-Ontario product. It is a high-tech product recognized as one of the finest electrical generating systems in the world today. Given the current recession and unemployment problems, I am shocked that members of this Legislative Assembly would sit idly by and watch the demise of this fine Canadian scientific and engineering achievement.
Concerns have been expressed regarding the impact of electrical generation on the environment. All types of generation impact on our environment, some more than others. Nuclear electrical generation is one of the most benign forms, yet we still hear politicians and special-interest groups expressing their concerns regarding the management and disposition of the resulting wastes. It is well known that the wastes are small compared to other sources, very identifiable, and managed to a great extent with existing technology.
I am also pleased to inform you that my community, the town of Deep River, along with other communities in Ontario, is involved in a federally driven process to resolve the disposition of low-level radioactive wastes, particularly those historical wastes around Port Hope, Ontario.
The management of used Candu fuel bundles and their ultimate disposal is currently being investigated. Given known technologies, I am confident that these fuel bundles can be safely disposed of and, if need be, recovered.
Alternative fuel substitution such as natural gas -- we have just heard a lot about that -- has been suggested as the solution to our long-term electrical needs. While it is true that natural gas will more than likely be needed by Ontario Hydro for coping with peak electrical demands, we would caution against any long-term commitment to this valuable, non-renewable resource being part of the base electrical load in Ontario. Natural gas is an efficient fuel for home heating, cooking and industrial processes etc, but becomes substantially less so when used for electrical generation.
Experience suggests that grants by Ontario Hydro to encourage conversion to other fuels in order to avoid the construction of electrical supply should be discouraged. When this is done, the marketplace itself becomes unrealistic and the real cost is avoided. Grants themselves are a reasonable method by which governments can assist certain areas in their development, but I feel these grants should come from the Minister of Energy's office, not from Ontario Hydro.
In conclusion, the mandate of Ontario Hydro should be simple and clear. Bill 118 should note that Ontario Hydro's mandate is to produce power in Ontario for all the people of Ontario with due regard for the environment and at cost. Ontario has no significant undeveloped fossil fuel resources and only limited undeveloped hydroelectrical resources, but it does have sufficient uranium to meet our electrical needs for decades. This, with sensible support and accountability by the government of Ontario, will allow Ontario Hydro to provide for the growth of industry and the economic wellbeing of all the citizens of Ontario for generations to come.
I would be delighted to answer any questions you have. I would like to note that there is an appendix that was given to the Honourable William Ferguson, the Minister of Energy, when he came to our community. We were delighted to have Mr Ferguson there. The brief that is attached is entitled Ontario Energy Policy: Some Comments and Concerns. It was on behalf of the Chalk River branch of the Canadian Nuclear Society and prepared by Dr Andrews of the Chalk River branch. I would recommend you read it. Thank you.
Mr Huget: Thank you for your presentation. I guess I would want to start by looking at the nuclear situation in the province currently, and particularly at Darlington. If you look at the original estimated cost of Darlington, some $3 billion to $4 billion when it was originally thought of, if you look at a cost of about $13.5 billion so far and if you look at the efficiency of the nuclear system that we currently operate, I am wondering how you could justify the expenditure of the types of dollars that are obviously going to be required for those types of nuclear facilities or any other nuclear facility. By the way, the price will only go up, not down, as we build them up. How can we justify that to the people of the province?
Mr Smith: Perhaps I could give you a little statement about that. This is an article from Electricity Today which explains why the Darlington plant cost so much more than estimated:
"Press articles and comments about cost overruns in the construction of the four-by-nine 50-megawatt Darlington plant recently prompted Ontario Hydro to distribute figures to put the estimate of the costs of the plant at $13.5 billion by 1993 into perspective.
"Since 1981, cost increases have amounted to $6.1 billion above the estimated cost at that time of $7.4 billion. However, some 70% of this cost increase is associated with schedule delays and financial policy changes, and the balance is associated with scope changes mainly due to more stringent regulation requirements. Interest charges alone amounted to $5.5 billion, over 40% of the total. The figures show that the biggest cost increase was in 1983 when the project cost estimate rose by $3.7 billion, due primarily to the imposed two-year deferral of units 3 and 4.
"When the plant is in full service in 1993, it will produce sufficient electricity for two million people at about four cents per kilowatt-hour. Ontario Hydro notes that this compares favourably with other new sources of base-load generation such as coal-fired stations."
That is the only answer I can give you and I concur with that.
Mr Huget: Thank you for that opinion, but either way you cut it, they are pretty big numbers.
Mr Smith: Absolutely.
Mr Huget: When you look at a nuclear moratorium that examines the feasibility and possibility of using the energy we have more efficiently and conserving energy in general and look at alternative sources of energy in perspective in terms of being cost-effective and able to deliver the energy we need in the province, I think it is a sound decision.
The second thing I want to ask you is, how do we deal with the environmental issue, particularly with something that has about a 500-year half-life?
Mr Smith: First of all, I disagree with you. What happened yesterday is not a good decision. As I said, I think it is very poor. Just two years ago, we had a supply-demand hearing where we were looking at things. It has all been usurped by government, which has decided: "To hell with you people, the public. We don't want to hear from you. We'll decide for you." I am a Hydro commissioner. It is my phone that rings, not yours, with all due respect. I am the guy they are going to be calling when the lights go out. You fellows will be long gone. So I am just upset about the whole idea.
We, the Municipal Electrical Association, who are behind us here, are trying to tell you something, but you are not listening. You are on to issues like the $9 billion, which everybody thinks is a lot of money -- and it should be -- but I suggest to you, what are you going to do in the year 2009 when you decide you do need nuclear and it is going to take you another 14 years to produce a plant? What is that $9 billion going to look like? I suggest to you it is going to be a lot more, and where are you in terms of the Ontario economy and everything else by then?
I think it is very shortsighted. In fact, I am shocked that this decision has been made. Ontario Hydro is under the gun of the province and so it should be, but not to the extent where now you are telling them what to do, unless you people are Hydro commissioners. Are you? Are you experts? The MEA is here. I will let them speak to it. I am very upset about it. I think it is very short-term planning and politically astute. I would agree with you. Everybody is out to save money. God knows, I run a little community and I am trying to save a buck too, but I think you have to look a little beyond two years and that is all you have been looking at.
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I am very upset. I do not think you can sit here today and discuss a $9-billion saving. I think you might be looking at a lot more than a $9-billion saving; you could be looking at billions of dollars in lost costs. I mentioned the fact that this is an Ontario product. Why are you people not out promoting it? We just had, I understand, Wolsong 2 and 3, two more units for Korea.
Mr Klopp: How much were they subsidized by the government?
Mr Smith: Realistically, what are you going to tell the people who produce these things, Babcock-Wilcox, the plants in Arnprior? Sure, Canada has always been involved in some international trade and it is good business, unless you want all your people unemployed.
Mr McGuinty: Thank you, your worship, for making the trip into town on such a cold day. I really appreciated your comments with respect to the kinds of dangers we can get into when a government, any government, begins to tinker with Hydro. There is no doubt that Hydro has its failings and in the past those have resulted, in retrospect, in rates which were not really justifiable. As a ratepayer -- and I think that is who we have to keep in mind here -- whether I am mauled by a wild Hydro tiger or by a tiger that is tame, under the control of the government, it does not make any difference to me. A mauling is a mauling is a mauling.
Mr Smith: I think it is called mugging.
Mr McGuinty: A mugging is a mugging is a mugging. Again from my standpoint as a ratepayer, what is it you think should be done to ensure that my rights will be kept first and foremost in the minds of the board of directors of Ontario Hydro and in the minds of the people sitting in the Legislature?
Mr Smith: Thank you for that. I think, despite my great support for the nuclear option, I could concur that Hydro needs to be constantly monitored. I talk about terms of the MEA -- we love to kick them around; in fact, we are entitled to it. Some 70% of the power bought in Ontario is bought by the utilities and the other 30% by the major power producers. I think we have a right to give Hydro a hard time. You have a responsibility to keep an eye on them. There are a lot of problems in Hydro. We all know about how well they are paid, for example. I think all of us concern ourselves about the costs of running this utility. I think Hydro itself is very concerned about it.
But on balance you have to realize that they have a responsibility to ensure that the province of Ontario has a good supply of power, and to that extent you are going to have to meet them halfway in terms of their costs. If you studied the problems they are having now, you would know they are more of an engineering type. Everybody's whipping boy is Darlington. There are some engineering problems there, and they are getting there. I understand Darlington II is at 80% today. There are problems in terms of the actual technology and in fact the costs of that are what happens when these things are not properly researched in terms of their own engineering. The best-laid intentions of the utility can come down and hit them. It is not only in the nuclear field, it is in the coal field, hydraulic problems and the whole thing.
To answer your question on accountability, and I think that is what it was, I think the Ontario government should play a major role in keeping an eye on it, but I do not think you want to take that extra step and tell them how to do their business. If you are concerned about the costs, their employee costs, their downtime, why they are not more efficient, that is a constant role the government of Ontario can play. You will avoid the muggings you seem to get when these Hydro costs and the utility rates go up. I think you have to keep a better eye on them, but not to tell them how to do it to any great extent.
Mr McGuinty: On a related matter, you made reference to the revisions made to the demand-supply plan yesterday. What do you make of this business? I think it was just two years ago that Hydro said we would need 10 new nuclear reactors by 2014, that we would have to build the first one by 2002 and that our conservation estimates were, I think, around 5,700 megawatts. Two years have now passed and we are apparently able to save some 9,900 megawatts. We have been able to defer construction of any large generation facilities by some 17 years.
Mr Smith: Do you believe that?
Mr McGuinty: I have some serious questions about that.
Mr Smith: So do I. In fact I have not seen how they arrived at this. The chairman, Mr Eliesen, made these announcements to that effect. I would love to look at those figures. I do not know where they are coming from. I am not suggesting he is wrong either; I just do not know if they are correct. On the fact of conservation, if I could just mention that for a minute, we in Deep River have done some very unique things, as you might expect from our community, including getting some natural gas. I might point out our community currently is 62% electrically heated. There are not too many in Ontario who can claim that.
The savings we manage to incur at Deep River are strictly passive. I hope you know what I mean when I use the word "passive." It is not a social change we are asking you to do. We are controlling your water tank. If I turn off your water tank for an hour during the peak period you are not likely to hurt me, but I tell you, you will get very aggressive with me if I turn it off for more than an hour if you are using a lot of water. You want that to come back on. Those are passive things. This is done by FM load control, frequency modulated systems that effectively code out and turn off the unit. That is sensible and that is passive.
But I have not come to tell our residents they have to do their washing at 11 o'clock at night. That is what is going to come down the pipe here and that is what you people had better be prepared for, because I think we saw Ontario Hydro saying just less than a year ago, "Whoa, folks, we've got a power peak problem here." Do not be misled by numbers, because I think you have a responsibility to look at that.
Conservation: I think it has been mentioned that it is a law of diminishing returns. You can get so much and now you are dealing with an inelastic kind of economics. It is like cigarettes. There is a point where you can tell people to conserve and conserve, and then finally they will fall back to their bad habits. I wish it were otherwise, but that is what happens.
It is not that this is new; it is not new. It has been tried in England, it has been tried in the southern United States. We are well aware of some of these more socialistic changes where they would all fall back and, "Price will get you so much," but people ultimately want the damned light to come on. If it does not, you are going to have a problem. I would suggest you look carefully at the numbers. I am not suggesting they are not true at the moment; I just do not know.
I think one of the reasons they are saving is that when you whack the rates up by 12%, people will be a little bit more astute. How long you can get away with that I do not know, but I do think, though, that the cost of power is not something where you can say, "If we threshold it out at a certain price, people will use less." I think people expect it. It is a very essential utility. I do not think you are going to get a lot of savings beyond the point of a threshold and then they will fall back to their old ways.
I do not know if I answered your question.
Mr Conway: I have rarely seen my friend the chief magistrate as exercised. I certainly commend him for the vigour and pointedness of his presentation.
I want to come back to one specific point, the Deep River fuel substitution proposal, about which I want to know more. I do know something, and I certainly want to commend the community there, because this was a situation where I think there was a lot of interest. The natural gas pipeline runs right by your door. It is in fact being double-tracked as we speak.
Mr Smith: That is correct.
Mr Conway: It was not felt to be very fair not to have any access to that. I am interested in what happened there. You may not be able to help me beyond what Mr Nubel did. I just want to say that for the benefit of the committee, I hope people understood what the gas company representative said here. It is no secret to anyone who knows anything about how the gas industry is regulated. The OEB has made it plain that new customers cannot be brought on at the expense of existing customers.
The great, delicious, perverse irony for me in Bill 118 seems to me to be this: I am one of Consumers' Gas's customers, so I want to put my interest right on the table. I made my switch a few years ago.
As I understand it, the gas company, which will to some considerable extent benefit from the fuel substitution policy that is part of this whole proposal, which will be made possible in part by increased hydro rates, part of which will go to pay for this off-electric program, if the situation were reversed, could not itself do that. If we as a Legislature tried to increase the gas rates, a part of which would go to expanding electric use, the gas company would be hauled before the OEB and told that this could not happen under the existing rules. But under the plan we have before us, the policy that is part of Bill 118, the gas company is going to benefit by a fuel substitution program that is going to be paid for in part by increased hydro rates.
My question to you is essentially one I asked Mr Nubel, who indicated that some $180,000 of Hydro money was paid to bridge the gap that the OEB indicated was there in terms of the Deep River proposal. Do you know out of which Hydro envelope that $180,000 comes, has come or will come?
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Mr Smith: I think I should table for the committee the resolution of the town of Deep River. Would you like to see that? You must understand that I have not seen $180,000 of anything, to begin with. That was to come to the corporation, if it went anywhere. I should say that Consumers' Gas are good people who really tried desperately to find a way of assisting this marginally uneconomical community in terms of providing it with gas. Is that not a nice statement? "Marginally uneconomical" in the sense that the payback period to meet their criteria was not there over a period of time. As you know, capital installations have to be paid back or the Ontario Energy Board says, "No, you don't get it."
They did try everything. I admired them for their tenaciousness. They really stuck to it. We think very highly of consumers in our community. As I said, a 62% electrically heated community will get you a little action somewhere else. The answer was to try to get some method of assisting the town of Deep River, for all the reasons Jim said to help our competitiveness for us to attract those industries that require that. We hit a stone wall. The Minister of Energy: no. The federal government: no. These were grants of course that went to southern Ontario when there was the off-oil program before and people switched to gas. We could not get them.
There was some chat about whether Ontario Hydro could help. As you know, we argued, as we all have and as they do, that a kilowatt saved is a kilowatt you do not have to produce. To some extent there was some effort to try to offload that electrical loan, thereby saving construction costs for Hydro. It made some sense. The problem was that we were having difficulty as a community or as a council even to say should Hydro be paying that or should it not come as a sort of direct grant from the Ministry of Industry, Trade and Technology somewhere. But it has not come, to answer your question.
Mr Conway: That money has been identified, but to the best of our knowledge it has not been paid over yet.
Mr Smith: Unless they know more than I do, I have no answer to it. If I could reflect on the position of the president, I do not think I am going to see it tomorrow either. I think they are having difficulty with it. I think the oil industry out here is probably one of the reasons. How do you treat the family, in all fairness? The only upside of that whole problem to try to get this installation successful is that the community itself has attracted more conversions than I think even it expected. That is done because of price alone.
Mr Arnott: Thank you very much, Mayor Smith, for your fine presentation. The first question I have is with respect to the issue of accountability. The government keeps telling us that Ontario Hydro needs to be more accountable to the government. If Bill 118 talks about policy directives, it must be binding. Do you think Ontario Hydro should be more accountable to government?
Mr Smith: Yes, I think so, simply because of the dollars they seem to be expending, the interest charge and everything else. It is a great worry to the Legislative Assembly, and I think it should be. I think a lot of that can be done with the last part of my speech in terms of just being a little bit more attuned to your concerns. They are not a law unto themselves. I know there was an old expression. My historical reference just disappeared here a moment ago, but Sean would tell you there was a famous chairman who said to the Premier of the day, "You run the province, I'll run Hydro." I do not know who he was; I can't remember the name. I thought it was rather indicative of that kind of arrogance.
We, as member utilities of the Municipal Electric Association, are very concerned as well. I think one of the points this group of legislators should realize is that in the last 10 years Ontario Hydro only hit its projected costs once, as I understand. That shows you to some extent the kind of problem we are having, where it is difficult, as someone said, to project these costs to project revenues and sales. To some extent the MEA has said every year that is happening.
Darlington seems to be the whipping-boy. Let's be honest about that, folks. Let's be honest with the public. There have been costs in the rate increases in the the last years for Darlington. It is not new. Hydro knew it was going to have to pay the bills. The MEA would have liked to have seen a little bit more on that bill, but it has not. They do not really listen to us either. I will let my colleague speak more to that. It is just not reasonable to let Hydro go do its thing without somebody kicking it around and saying, "We have a right to do that."
Mr Arnott: Can you describe the effect on your community if the nuclear moratorium is continued as it has been projected?
Mr Smith: I even hate to surmise that because I think if I were to say something negative at this point, everybody would say, "There's a very positive mayor, isn't there?" I think I would look at the positive side. We of course are a research and development community, and I think we have a role to play. We will constantly have a role to play.
Someone seems to think that now you have developed Candu there is nothing else. Gentlemen, there is something else. You constantly have to keep improving your technology. Fortunately in the business I am in I get paid to say, "I told you so," and I think to some extent that is what the research and development about this industry is. Our striving for excellence, striving for continuous quality, is to force more research into improving these things.
I am very proud of our community. When NASA comes to us to ask how to put it back into space, that is quite an honour for a little group of people in the hinterland of Ontario. So I think we have a role to play. I think the research that goes on at Chalk River, which is the primary industry of our community, will continue.
I am worried, though, about the larger question for Ontario, which is what is going to happen to this industry in Ontario and what is going to happen to Candu right at the moment. As you know, the Candu 3 program, which is the next generation, is being actively sought by Saskatchewan. It now sits in Mississauga. I do not know why the government of Ontario is not jumping up and down about that and trying its best to keep it at home. I do not think people want to move. Saskatchewan is a nice place, but I think Mississauga is quite nice too.
The point is that we will continue to play a role. I wish it could be a more active one because I think we like solving problems. In fact, the reason we can solve them is that the scientists and good people at Chalk River are there because they are excellent in their science worldwide. They are just not waiting for our Darlington problem. The fact they can solve a Darlington problem is because they are there. If they are not there, where is Ontario? Where is Ontario going to be when it wants a reactor down the road? The Yankees are going to be around, I am sure. The French are expanding their program. The Swedes have discovered they cannot do without it. In fact, there has been no real technology breakthrough for the last 50 years.
Despite all the questions you may have about natural gas and oil, those are very transportable energy supplies. They are excellent for their applications, no question about that.
Uranium reactors -- and do not call them nuclear reactors -- are uranium-fired boilers, that is all they are. It is the same process, whether it is coal-fired or what. I think the greatest thing you could do as a committee is to try to educate the public in the fact this is not something to worry about. You are sitting, all of you, kicking off potassium 40 if you had a banana today. Ontario has spent a lot of money trying to explain this. So please help me and we will all help ourselves.
I think Ontarians are pretty bright people, but the way they react to some of this, you really wonder whether we wasted money on them. It is something that the public has just got to sit down and say, "This is nothing to be afraid of," and it should not be. But the media will not listen to me because I have grey hair. I am not an anti-nuke, so they are not going to listen to me. I do not know where I am on this question, but I feel badly that we just seem to be putting this province down daily and nobody is standing up and saying, "Enough is enough." I expect you gentlemen to do that.
Mr Jordan: Just two quick questions, your worship.
Mr Smith: I will try to answer them.
Mr Jordan: Certainly I also want to express my thanks to you for coming from Deep River today to make such an informed presentation for this committee, because you do have the information. You not only have it academically, but you have it by actual experience from your location. This question, I hope, is fair. Do you see any need for this Bill 118 other than to smother nuclear development?
Mr Smith: I think we are here to be honest and frank with each other and I will be perfectly frank with you. We have had some very distinguished members of the Legislative Assembly come to our community. I mentioned that the minister, Mr Ferguson, was there. Prior to that, we had members like the Minister of Labour, Mr Mackenzie, Mr Charlton, very fine gentlemen all of them. We cornered Mr Mackenzie and Mr Charlton in the legion hall in Pembroke in a snowstorm. They could not go too far. We asked Brian in particular: "Are you people anti-nuke? This is a labour movement, this is Local 1568 of the Canadian Labour Congress, and we want an answer." Brian seemed to think it had a role to play, but he would not go so far as to say he was anti-nuke.
The perception we see in terms of party policy of the government of Ontario has been that the tablet was engraved in stone many years ago, it has come down from the mountain and all members who are New Democrats have to say, "Yes, we're anti-nuke." The public's perception and our community's perception is that we look upon Bill 118 as a bill to put down the nuclear option.
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Mr Jordan: Would you care to give an opinion on the $7-million programs?
Mr Smith: I would love to.
The Chair: I think he is inviting you to.
Mr Smith: There is an ad on radio and television, and you have all heard it, which says, "Brought to you by Ontario Hydro and your local utility." I never had a damn thing to do with that. I deny having any need for it. In fact, that is the greatest waste of money I have ever seen. To answer your question, we are offended that Ontario Hydro would say, "Brought to you by Ontario Hydro and your local utility." I do not know who brought you that program. Did Ontario Hydro do that or was it the government?
Mr McGuinty: It is hard to tell.
Mr Smith: Realistically, it has not been good economics. In fact, a lot of those bulbs went into 40-watt fixtures rather than 60-watt as they were intended. I think this is the type of program we are talking about, where you get away from these decisions that seem to say, "Boy, we're going to force this conservation on people whether they want it or not." I am all for education, but it has to make sense. It has to be gentle and, more important, well informed, because this kind of thing can destroy any future conservation program. That is what you have to watch. That is where you people have a role to play, to say, "Come on, get sensible here."
The best way to get people to switch off electricity is to train them, "At 5 o'clock, do us a favour." Either that or we will have to be more passive, we will have to do more load control. We can do that. We can take 1.5 megawatts off a 16-megawatt peak with 75 or 80 controllers. It is not a new technology. My Lord, that is frequency modulation. Anybody can do that.
Watch the programs because they are deadly. People are quick to see that it is foolishness.
Mr Jordan: There is $6 billion slotted for this type of program. There are different ones they have under test, so-called, at the present time. That amount of money, $6 billion, is being allotted for conservation programs. One comment that was made to me was that it was impossible to use the money allotted for 1991 in any sensible manner, but that was still the directive. That money was there for that purpose.
Mr Smith: Yes. We have ideas on how to conserve electricity. The MEA has some very good ideas. I wish the government would listen more to the utilities and the major power producers, especially the major power producers. They are worried sick, because they see these kinds of programs doing nothing more than delaying the day when we will have to get some more power.
You will notice that I emphasize "in Ontario" and "for Ontario." We all exchange power, from Quebec to Manitoba to New York state, but realistically, what was so damn terribly wrong with having a 25% subsidy? The rates were low, we sold the power and now we are going to run on the hairy edge. It is like driving your bloody car down the middle of the road, feeling very comfortable. Now you have decided you are going to drive on the shoulder. You are not far from the ditch, so watch this one. That is not to get you excited; that is just the reality.
Mr Jordan: Going back to your controllers for a minute, you will probably start to control your baseboard heat the same as you control your water heat. It is quite feasible to do it.
Mr Smith: That is more than passive.
Mr Jordan: I realize that but --
Mr Smith: That is where you are now starting to turn your heat off at night. We would prefer not to do that.
Mr Jordan: No, but I mean the short time.
Mr Smith: Yes, we could do that for a few minutes. But that becomes more and more difficult, if you follow me. Sorry, Mr Chairman, I have probably taken your time.
The Chair: No apologies, Mayor Smith. We want to thank you for coming and expressing your views. You have not hidden your light under any bushel, that is for sure. You have been most articulate in letting us know where you stand on these issues, and you have been helpful. We appreciate your involvement and I trust you will keep in touch with various members of the committee on this issue and others.
Mr Smith: I would like to compliment you, Mr Chairman, and all of you. You have been very well behaved. I do not know why you cannot do that during question period.
The Chair: It is the provocation that inevitably erupts.
OTTAWA HYDRO
The Chair: The next participant is Ottawa Hydro. Come on up here, please, sir.
I want to explain once again to people that we have gone well beyond the original time periods scheduled for participants. If that has interfered with the agenda of anybody left to make a submission, please let the clerk know right now. The reason we have done that is that the dialogue appears to have been particularly valuable and none of the members of the committee raised any objection to that. All members of the caucus have engaged in the extra time frames permitted for questioning and really, by estoppel, they have demonstrated their eagerness to sit until 5 o'clock or 5:15 tonight, as compared to merely 4 o'clock. If committee members wish otherwise, they should instruct me in that matter and demonstrate their eagerness to participate in the time frames provided.
Mr Kropp: I am Carl Kropp. I have been in this industry for 34 years. The first five were spent working with a utility in the province of Quebec and the last eight have been spent as general manager and chief engineer of Ottawa Hydro. I spent 12 years as well during that time as adjunct professor in the faculty of engineering at Carleton University. Professionally I am a member of the Association of Professional Engineers of the Province of Ontario and the Institute of Electrical and Electronics Engineers. As well, I am the past president of the Municipal Electric Association and currently vice-chairman of the Canadian Electrical Association.
Against that background, I will move directly into my brief, whose purpose is to basically support the position of the Municipal Electric Association in two areas, but first I would like to give you a very brief introduction to Ottawa Hydro.
Established in 1916, the commission today serves 133,000 customers in the city of Ottawa, the city of Vanier and the village of Rockcliffe Park. Peak demand in 1990 was about 805 megawatts, down from 845 megawatts in 1989. This reduction in demand was due to unusual weather patterns, the recession and energy management on behalf of our customers.
The commission supplies some 26,000 electric space heated customers, notwithstanding that we did not actively support the Ontario Hydro "Go Electric" campaign of the early 1980s. We have picked up our share of the off-oil conversions. I believe that to some degree this reflects the confidence of our customers in the commission and the hydro system in general in Ontario. About half, that is about 65,000 of our customers, heat their domestic hot water with electricity. Of these 65,000 hot water tanks, some 35,000 are owned by Ottawa Hydro through a rental program.
In particular, I would like to bring to the attention of this committee that for a long time Ottawa Hydro has had as one of its objectives "to promote the wise and efficient use of electricity throughout its serviced territory."
Now let's get on to Bill 118. In legislative drafting, the issues and the words are chosen with great care so as to achieve some particular objective. As such, I agree with the MEA when it flags government directives to the Ontario Hydro board and fuel substitution incentives.
In respect of government directives to the Hydro board, under the proposed legislation the government can order the Hydro board to carry out all government directives and it thus makes the Hydro board unaccountable for the consequences. No restrictions are placed on the government's directives to the Hydro board. Clearly this is unacceptable.
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As Mr McGuinty, our local member for Ottawa South, who is sitting here, said so eloquently in the Legislature on September 23, "Without any kind of restriction, this government could order Hydro to build an amusement park, fund cancer research, make a contribution to the government pension fund, give money to any body or group of people, all of which have nothing to do with supplying electrical power to ratepayers. In short, without restriction government can effectively change Hydro's mandate in a blink of an eye, and without the change being subject to debate in this House. What it really means is that Hydro's traditional and cherished mandate, that of providing power at cost, is being threatened."
The fiduciary responsibility of the board to the electricity consumers, who are essentially the shareholders, will be bypassed. Simply put, the board is authorized to act in a way that may not be in the best interest of the electricity consumers in Ontario. In my view, the principle of fiduciary responsibility of the board must be respected by the legislation.
It is my understanding that the Minister of Energy has reacted to these issues and has assured the Municipal Electric Association that under the changes to Bill 118 any policy directives issued to Ontario Hydro will not be able to change the mandate of Ontario Hydro. Further, any policy directives issued must be consistent with Ontario Hydro's mandate under the Power Corporation Act. These are critical issues and if the revised legislation falls anywhere short of the assurances given by the minister, there will be a massive protest, I am sure, from the municipal utility commissions on behalf of their customers.
Next, fuel substitution incentives: the present act prohibits Ontario Hydro from lending money or providing incentives or assistance for the conversion of electric space heating systems to other fuels. Removal of this clause is of significant concern. Apparently, the government has already made up its mind that Ontario Hydro will provide incentives for switching off electricity.
On September 23, the Minister of Energy said in the Legislature:
"Hydro will be able to provide incentives to promote the substitution of other forms of energy for electrical energy where it benefits the corporation and the customer.
"This will lead to fuel switching away from electricity in cases where the market would not make the switch occur but where it is cost-effective in the long run to do so."
There is perhaps some comfort in the words "benefits the corporation and the customer" and "cost-effective in the long run." However, given the perception that the government is determined not to commit to a major new supply and the dictatorial powers discussed above, this comfort level is simply not adequate.
Fuel substitution is a complicated matter with many unknowns, as anyone who has attempted to draw up an economic balance sheet or an environmental balance sheet knows. Ten years ago, the federal government provided an incentive for conversion of oil to electricity or gas. Obviously to include electricity was not a wise choice, which simply underscores the complexity of the fuel substitution issue.
Market forces are already acting strongly in favour of fuel substitution without incentives. In 1991, Ottawa Hydro, in its rental program, lost 1,354 hot water tanks to gas, up from 788 conversions the year before. You might note that we rent about half the hot water tanks within our serviced territory, so if you scale this up, it means that some 2,500 hot water tanks went off electricity to gas in 1991 and probably some 1,500 the year before.
Further, my calculations show that for the conversion of space heating from electricity to gas, the customer will benefit after four years without incentives. Already, consumers are reacting and making the change.
Let me just quote to you from the paper just given by our associate here from Consumers' Gas, where he says:
"And recently, there has been a noticeable increase in the capture rate and the requests for conversion from electricity to natural gas. Much of this may be attributed to the difference between natural gas and electricity prices, and in particular some concern by electricity consumers about the prospects of double-digit hikes over the next few years to pay for existing generating facilities."
Market forces are acting very nicely, thank you.
In addition, when you talk about space heating conversion, we just did a study on the office building we occupy and if we change our electric boilers to natural gas, we will save $65,000 a year and get a 2.15-year payback. Again, thank you very much, market forces are really being quite effective, so why does a minister leave the impression that Ontario Hydro must pay incentives?
Another question: Why should Hydro pay the incentives in the first place? The gas utility or the oil company will also see a benefit through increased sales. Should the gas utility or the oil company not pay all or at least some of the incentives if an incentive has to be given? Is the reason that the government can more easily control Hydro? If Hydro pays the incentive, not all customers will benefit to the same degree. What about the customer in areas where gas is not available? What about the customer who is reluctant to have gas in his home? This was one of the factors which influenced some of our customers during the Canadian oil substitution program years to switch to electricity. Simply put, if Hydro pays an incentive for off-electric conversions, it is impossible to level the playing field from the customer's perspective.
The playing field is also not level from the utility perspective. In Ontario, all hydro commissions, by statute, have an obligation to serve. Accordingly, a municipal utility could be faced with a significant investment to supply an all-electric load, only to find that the load is converted off electric in a couple of years, possibly with an incentive when gas becomes available. The imbalance here is that the gas utility does not have an obligation to serve and it seems only reasonable that the government should undertake to extend the obligation to serve to the gas utility to help level the playing field. Indeed, that discussion has come up a couple of times already this afternoon.
The committee should also note that with off-electric conversions, the electricity rates will probably rise in the short term. The municipal utility will have to write off the sunk costs of plant, which are uneconomical to recover, against declining revenue. Also, apparently Ontario Hydro has sufficient capacity to supply the provincial load to the year 2000. Accordingly, there will be no avoided supply costs so there is no credit for avoided supply. Essentially then incentives, if granted, simply aggravate this situation.
Finally, the environmental balance sheet remains to be worked out. At the end of the day will CO2 and NOx emissions be reduced? Certainly if we cut into the nuclear base I suspect not.
In summary, Hydro incentives for off-electric conversions are questionable and it is a concern that the minister may have already made up his mind. I hope this committee is in a position to encourage the minister to keep an open mind on the issue of incentives and fuel substitution.
The Municipal Electric Association has a task force working on fuel substitution of which I am a member. I can assure you it is not a simple issue. In the meantime, before the reports of the association and of Ontario Hydro are completed, it would be wrong in my view to assume that fuel substitution incentives is a sweetheart solution to the demand-supply equation.
Finally, then, if I may summarize all the above, first, the principles of fiduciary responsibility of the Hydro Board should be respected. If the government insists on issuing directives, the legislation must assure that such directives are consistent with and limited to Ontario Hydro's mandate under the Power Corporation Act. Also, any such directives should be finalized only after public consultation.
Second, if the clause which prohibits Ontario Hydro from providing incentives for off-electric fuel switching must be removed, let's not assume that the off-electric incentives are first of all required and second that fuel switching with incentives is a sweetheart solution to the demand-supply equation. I am saying there are market forces that are acting very well.
Also, and finally, help to level the playing field by giving the gas utility the obligation to serve, as is the case for the hydro utilities. Simply put, if it makes overwhelming economic and environmental sense for an end use to be served by gas, then it should necessarily be so.
Mr McGuinty: Mr Kropp, you probably know that my office has been attempting to make an appointment to see you for some time. Perhaps we can engage in some kind of discussion here and now and postpone other elements until later.
Mr Conway: Happily you are reading each other's speeches.
Mr Kropp: He is also my neighbour, so be careful.
Mr McGuinty: Mr Kropp, how long did you say you have been involved in the energy field?
Mr Kropp: I have been 34 years in the utility industry.
Mr McGuinty: I am heartened by the comments you have in here, and to know that someone with 34 years of experience in your field has some reasonable doubt about the approach being taken by Hydro and the government with respect to the new energy policy. We are being told that Bill 118, and particularly fuel substitution, will be a good thing for existing ratepayers and that even if I do not have access to an alternative fuel my rates will somehow benefit as a result of this fuel substitution program.
I am just a recently appointed Energy critic. I have only been here for one year and prior to that my closest association with electricity was when I paid the bills. My concern is that it seems to me we should have some type of empirical data, some kind of scientific explanation, to account for the opinion held by the minister and by so many people whom we might call "environmentalists." There is no doubt that energy conservation is a good thing. It is an idea whose time has come. We are wont, I think, to embrace that kind of concept without reservation, perhaps because it is somewhat fashionable. But I feel we in the Legislature have a responsibility to ensure that if we are going to get into fuel substitution, we had better make sure we have all the facts before us. Hydro is making this projection now. As I have said several times, they have been known to be wrong in the past and we ought to explore it. Would you care to comment on that?
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Mr Kropp: As I said near the end of my presentation, I think it would be very wise to wait for the Municipal Electric Association's findings to come out, and also those of Hydro and perhaps those of the minister, because I think there you will get the best opinions available in the province on this whole issue. At the association we have been working quite hard on this. It is no simple task, I can assure you, and we have really just started into the study now and are collecting a lot of information. Rather than pre-empt what I think the results of that study might be, I think it would be better to wait for that as clear evidence.
Mr McGuinty: When do you anticipate having that ready?
Mr Kropp: I hope we would have it out in a couple of months, maximum.
Mr Jordan: Thank you sir, for taking the time to come and give us an informed presentation. I am sorry I was absent for the first part of it. My concern with these hearings and with Bill 118 is that the government seems to be moving ahead not only before it hears from the Municipal Electric Association, but before this committee has actually been able to function and write its report. Do you have that observation?
Mr Kropp: Indeed I do. That is why I said my concern with the removal of this clause on incentives has to do with the fact that it appears as though the government and the ministry have already made up their minds where they want to go. I have some difficulty with that because it is not a simple issue and I think we have to be very careful.
Mr Jordan: Have you seen the revised --
Mr Kropp: I have not seen that. I just received it today. I understand there is a statement in there to the effect that they will proceed with fuel substitution, with incentives.
Mr Jordan: That is my understanding.
Mr Kropp: I have not had a chance to read it, but that is the concern I have with the removal of that clause. It seems that somebody has already made up his mind.
Mr Jordan: That is my concern as a member of this committee, because to me that document, the larger one, is an official document that is being presented to the environmental hearings in Toronto, and now it is no longer dependent on the Power Corporation Act; it is dependent on the Power Corporation Act as it is to be amended through Bill 118. To me there is some conflict here.
Mr Kropp: I agree, and indeed, as I say in my presentation, I hope this committee will have some influence on the minister. That is about the only opportunity we have to speak to the government at this point in time, at least people like myself out here.
Mr Jordan: The other point that comes to my mind is the commitment that any directives issued to Ontario Hydro will not be outside the Power Corporation Act. Are you in MEA and we assuming that these directives will be within this Power Corporation Act or within the new one as amended by Bill 118, which allows fuel substitution, which allows incentives, which allows the many things that are questionable?
Mr Kropp: I would assume within the Power Corporation Act you hold in your hand. Let's be clear. I am not against fuel substitution. I am saying let market forces prevail.
Mr Jordan: Exactly.
Mr Kropp: What I am against is automatically saying that incentives are a good thing. I am also concerned with the level of the playing field we are dealing with here.
Mr Huget: I want to touch on a few of the points you have made. On page 2 you quote Mr McGuinty, my learned friend from Ottawa South, and you refer to how the "government could order Hydro to build an amusement park." First of all, I regret very deeply that my colleague chose to use those words in the House. None the less, I think you know that there have been amendments proposed directly as a result of discussion and dialogue with the MEA. My understanding is that those amendments have alleviated that concern. Am I right or wrong on that?
Mr Kropp: I do not think you are either right or wrong. We have not seen the amendments. We have only seen assurances by the minister which he repeated in Thunder Bay. The point of this presentation is to say that if the legislation he brings falls anywhere short of that, the protest is not gone; it will remount in vigorous terms. I am not saying that to be threatening or anything, I am just saying that is a fact of life. We appreciate the assurances by the minister, but I guess I am waiting to see the package delivered.
Mr Huget: I think you would probably support the view that after a discussion with the MEA and after assurances over the last few months any number of times, your concerns are being considered carefully and he has committed to alleviate your concerns. Would you not agree with that?
Mr Kropp: Yes. I commend the minister for having given this assurance, but I think we still have to wait. The proof is in the eating, right?
Mr Huget: You mention on page 4 about the government not being determined to commit to a major new supply. I assume from that you mean nuclear supply; I am not sure.
Mr Kropp: No, I just said "new supply" on purpose.
Mr Huget: Why would we or anyone else commit to new supply, whether nuclear, fossil fuel or any other type of new, major megaproject, if it was not required?
Mr Kropp: I guess one has to examine some of the background here. We had a plan in 1989 that anticipated a new supply would be required around 2000; I cannot remember the date exactly. We then had a change of government and a new chairman of Ontario Hydro who announced a number of new conservation targets -- I am not sure whether they came from Ontario Hydro or whether they were given to Ontario Hydro; I am not sure in which direction that flowed -- which obviously changed the concept of when a new supply was required.
There are some concerns with this. You have $6 billion going into a new technology -- energy conservation is a new supply technology -- in terms of energy conservation and wise use. There is no public process for deciding whether this is good, bad or indifferent. It does not come up under the Environmental Assessment Act in the submission of the demand-supply plan because it is beyond the competence of that group to look at. On the other hand, we have people like Pollution Probe and the Ontario Energy Board saying that this is not an effective investment, that it is not working. So I have some concerns about whether this is going to work or not.
On the other hand, I look at the Energy Supply Review, a well-respected magazine published, I believe, by McMaster University, and I read a survey of 24 American utilities that have done some new work in strategic planning and integrated resource planning, clearly come out and say the solution is on the demand side and the supply side, not on one side or the other, to this whole business of how to provide electricity most economically and to the greatest satisfaction of the customer in the future. I read a quote from a professor from Tufts University who was former environmental commissioner for the state of Massachusetts and he says the same thing. The solution is not on the supply side; it is not on the demand side; it is on both.
I then see a new plan come out called Providing the Balance of Power, which comes out after the new government goes in, and the supply side is now beyond 2014. You are talking about bringing a couple of megawatts of hydraulic generation on by fooling around with Sir Adam Beck and a little hydraulic in the north. I am wondering why all of a sudden the supply side thrust is way out there. It gives the perception that the government does not want to commit to a new source when the American people, who have been through all this ahead of us, are coming to the conclusion that the best solution lies with a balanced program on both sides. I do not know if that answers your question or not, but that is one of my concerns.
The Chair: It was a very forthright answer, Mr Kropp.
Mr Kropp: I could go on, but I realize we have some time constraints here, too.
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The Chair: Thank you, sir, for coming here this afternoon. You have responded candidly to the questions put to you and we appreciate your taking the time both to prepare your submission and to appear here. As you have undoubtedly heard me tell others, I am confident you will keep in touch with your own MPP, along with others who are involved in this process, to make sure your input is an ongoing one.
ROSE TECHNOLOGY GROUP LTD
The Chair: Rose Technology Group Ltd, please tell us who you are, give your status and proceed, with your comments being as brief as possible. We have your brief. It is going to be an exhibit and form part of the record, but we really want to engage in the sort of dialogue you have seen and heard this afternoon. It is a valuable part of the process.
Mr Youell: My name is Larry Youell, president of Rose Technology Group. I want to thank the committee for the opportunity to appear before you to present our views on Bill 118.
Based in Ontario, with offices in Toronto, Thunder Bay and Ottawa, Rose has established an unchallenged leadership position among energy service companies in Canada and has grown to rank among the largest of such companies in North America. We sought an appearance before your committee here in Ottawa because this city is typical of the communities we serve across this province.
While Rose is a subsidiary of Consumers' Gas, due to the very different nature of our business, we sometimes, in fact frequently, have a very different view of the world. We are here today to provide our own unique perspective on Bill 118 and to strongly urge this committee and the government of Ontario to move forward with this legislation as expeditiously as possible.
We support the government's amendment to the legislation regarding fuel substitution. Allowing Ontario Hydro to promote cost-effective and energy-efficient fuel substitution will help to fulfil the wider goal of increased energy efficiency and conservation in Ontario and will have significant economic impacts on the province and its people.
One area where the legislation could be further improved would be to include in the fuel substitution amendment some words which would ensure that only energy-efficient fuel substitution occurs. When new equipment is installed to replace electric heating, it should meet the highest efficiency standards possible.
During the course of my presentation, I will clearly demonstrate the importance of Bill 118 as I review the following areas: first, some background on Rose Technology and the work it does and an explanation of one of Ontario Hydro's programs, which includes limited incentives for fuel substitution; second, the benefits of energy efficiency, conservation and fuel substitution, many of which have already been cited here today, and finally, a brief look at the positive role energy service companies play in Ontario.
Let me begin. Responsible energy management requires commitment and an economical means to deliver the results. Our firm has developed the expertise and resources to help hospitals, universities, school boards, corporate offices and municipal government facilities achieve significant cost savings through improved energy management.
Rose is in fact in the business of facilitating energy efficiency and conservation. Established some six years, we currently have a staff of more than 60 professionals including engineers, project managers and project financiers.
Helping its clients to cut operating costs by making capital improvements to their buildings, Rose serves as the general contractor and takes full responsibility for the engineering, equipment and installation of the work. The improvements made by Rose ultimately translate into substantial energy cost savings.
These improvements can include new lighting systems, recommissioning of heating, ventilation and air-conditioning systems, fuel substitution for targeted economic applications and the installation of computerized building automation systems. Equally important, these changes also result in improved comfort and air quality for building occupants.
Rose arranges financing for our projects and is repaid with the resultant energy cost savings. Rose only invoices the building owner for realized energy savings. If the savings are insufficient to repay project and financing costs within the guaranteed period of time, Rose absorbs the difference.
At a time when governments and public agencies are faced with tremendous financial pressures, the provision of capital and guaranteed financing by companies such as ourselves can be vital and can facilitate the implementation of significant conservation and efficiency measures.
The project owner also has the option of financing the work. In this case Rose will guarantee the return on investment. The owner's risk is eliminated as Rose assumes full financial and technical responsibility for the work. For example, here in Ottawa Rose worked with the National Research Council to finance and complete building improvements worth over $3 million. Work included the upgrading of an existing energy management system, extensive lighting replacements and air-handling unit modifications. These upgrades have resulted in annual energy savings of $565,000, and they have a guaranteed payback period of 61 months. The NRC project is typical of the type of work Rose does across this province.
In many cases, Rose works closely with Ontario Hydro through the utility's guaranteed energy performance program, GEPP, to complete these projects. This incentive, established in 1990, offers incentives to energy service companies such as Rose which will guarantee and deliver economic energy savings to clients through improved energy efficiency and economic fuel substitution. The incentives are in the form of rebates to the service companies, which we in turn pass on to the client. The amount of the rebate is calculated on the basis of the actual electricity savings the companies are able to achieve for their clients.
Ontario Hydro currently offers these incentives for fuel switching and other energy-saving techniques because it recognizes the need to encourage efficiency in a variety of ways and because some of the measures which can substantially reduce electricity consumption would not be fully exploited without these incentives.
This incentive program assists energy service companies in that it has the effect of reducing the payback period for certain capital improvements, and of making these improvements more economical and thus more attractive for clients.
The benefits for Ontario Hydro and for the province are significant. Hydro has estimated that the GEPP could result in a potential reduction of over 20 megawatts by 1993. We would like to commend Ontario Hydro for its efforts under the GEPP, which has achieved very significant, measurable results, operating effectively in a nonbureaucratic manner, something Hydro is not frequently blessed with. Rose also firmly believes that Ontario Hydro could achieve even better results in reducing electricity demand under the terms of Bill 118.
In fact, as this committee studies this bill, Rose has several projects on hold in Ontario, awaiting passage of the legislation. These projects are worth approximately $45 million, and once initiated they are expected to create an estimated 2,500 jobs, most of which will be created in this province, jobs Ontario desperately needs in today's economic climate. The projects are also expected to achieve major energy savings, contribute in a substantial way to Hydro's electrical load reduction targets and impact positively on the environment. Once this legislation is passed, Ontario Hydro will be able to assist Rose with these outstanding projects and indeed expand the role it already plays in promoting fuel substitution in Ontario.
For some time now it has been widely recognized that energy efficiency and conservation make economic, social and environmental sense. In fact, there is enormous potential in all sectors of our economy to improve the efficiency of our energy use and to reduce energy costs. Improved energy efficiency translates into dollar savings, and just as important, it means saving or conserving energy itself. By saving energy, we help to reduce the demand for new, expensive supplies of energy. Reducing demand for electricity can help us avoid large public expenditures for building new generating facilities in the future, and by using less energy and reducing the demand for new supplies, we also help to reduce the considerable environmental damage associated with energy use, production and transportation.
The case for energy efficiency and conservation is clear, and both the government and Ontario Hydro can be commended for the programs and policies they have implemented in recent years to pursue efficiency gains. They should also be congratulated for recognizing, through Bill 118, that fuel substitution, or switching from electricity to other, more efficient fuels for certain applications, is an important means of realizing these efficiency goals. At the same time, energy service companies could expand their role in pursuing greater gains in energy efficiency and conservation.
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I want to conclude my remarks today by talking briefly about the measurable energy, environmental and economic contributions that energy service companies make here in Ontario. Perhaps the best way of illustrating the point is to quote some statistics from Rose Technology.
In 1991 our figures indicate our Rose projects produced some impressive energy savings. More than 38 million kilowatt-hours of electricity, 309 million cubic feet of natural gas and 25 million gallons of potable water were saved. In total, there was an average peak electrical demand reduction of 5.5 megawatts. These impressive energy savings translated into significant benefit to the environment. Rose's energy savings had the effect of reducing annual atmospheric emissions from boilers and thermal power plants by more than 40,000 tonnes.
Finally, Rose projects realized more than $4.25 million in energy cost savings for their clients, and the investments in building improvements resulted in the creation of more than 500 person-years of employment.
The bottom line is that energy service companies create jobs and stimulate economic activity, help protect the environment from further energy use and production-related damage, encourage the efficient use of energy, and finally, help conserve important energy resources, not only for their clients but for all Ontarians.
Rose is proud of the work it does to assist the government and Ontario Hydro in achieving our collective conservation and efficiency goals and we look forward to continuing in the future the cooperative working relationships we have developed. Bill 118 will be an important way to ensure that Rose and other energy service companies can continue to make positive contributions to the provincial economy, to our environment and to our energy use. Again, we strongly urge the committee and the government to complete their deliberations and to pass this legislation as soon as possible in the spring session of the Legislature.
Mr Jordan: Thank you, sir, for your presentation on the conservation of energy. Certainly I think every one of us is more than interested in conservation and the many different ways of reaching the objective we care to set for the company, whatever company it may be, whether it be the end user or the wholesaler or whoever. You said here, "Rose is proud of the work it does to assist the government and Ontario Hydro." Could you give me some examples of the work you have done to assist the government and Ontario Hydro?
Mr Youell: Much of today's focus has been targeted on the residential consumer of electricity and gas and oil and so forth. Our work is exclusively in the commercial, institutional and occasionally industrial environment. Our projects have been in that area. We essentially dominate the hospital market. We have worked in 20, 30 or 40 hospitals across this province, such as Toronto General Hospital and Ottawa Civic Hospital. We are looking right now at a number of measures.
Mr Jordan: Are you being paid by Ontario Hydro to do this?
Mr Youell: No, we are not. Through their guaranteed energy performance program, they provide a form of subsidy on occasion to allow us to undertake certain energy-efficient measures in that, but it is a minor contribution on a broad set of conservation measures that we undertake.
Mr Jordan: I have a little concern also. You say, "In fact, as this committee studies this bill, Rose has several projects on hold." What is going to happen if the bill does not pass?
Mr Youell: I doubt those will go ahead. They are clearly reliant on fuel substitution taking place, and there are the institutional clients that simply do not have the money to proceed without a form of subsidy of some sort from Hydro or the Ministry of Energy, some body.
Mr Jordan: What type of clients would they be?
Mr Youell: School boards, hospitals, YMCAs; they are institutional, primarily.
Mr Arnott: Just to follow up on that question, are you saying those projects are not viable economically without this bill?
Mr Youell: That is correct. The payback period, and that is the best measure we use of viability, is simply too long and the money is not available without some form of subsidy.
Mr Arnott: Yet they would result in significant energy savings?
Mr Youell: That is correct.
Mr Huget: I have two very brief questions. I have heard two very disturbing remarks since we have started the hearings, one the other day from a presenter who suggested or was trying to suggest that there was no major energy saving to be seen in industry. They had done all they could do to save energy and there was no more that could come from that. The other disturbing remark was today, where the impression was that consumers do not want to conserve energy, that it is being forced on them. Given your experience in dealing with energy efficiency and conservation, what is your feeling, from a hands-on experience, of the potential for energy conservation and saving by industry and anything you may want to pass on to us in terms of public opinion about conservation?
Mr Youell: I am not well positioned to talk about industry. We really have done a minor amount of work. I would be surprised if there was a belief that industry had done all it could. I think they view it in a context of competing capital projects and, "What kind of return am I going to get?" If I get a three-year payback on putting my $100 here versus there, and that one is better, obviously I am going to undertake it. I suspect there are a number of energy-efficiency projects that will go ahead in that area, with or without any form of subsidy from Hydro. The Hydro subsidy would help accelerate the payback and others.
I do not know what public opinion in general is. We do not deal with the broad public, but certainly with commercial and institutional markets, they are responsible, enthusiastic clients. Generally they are anxious to undertake projects. They do not have the money in many cases, and particularly in the institutional market are looking for any form of funding to help replace tired, worn-out equipment and operate their facilities more comfortably and more energy-efficiently than they are today. They are looking very much to to Hydro as a saviour with these grants, coincidentally meeting Hydro's goals.
Mr Huget: Part of the concern I have over those statements stems from the fact that I think there are a number of energy conservation and efficiency initiatives that are sitting on a shelf in many places, whether they are institutional or industrial. Frankly, I get somewhat concerned that it may not receive the priority it deserves in terms of industry. You raised the question of payback. I understand that as being a concern, but I am of the view that there is a great deal that can be conserved and a great deal that we can do in terms of energy efficiency. I also am of the view that if we do not, it will be a tremendous mistake as well.
Mr Cleary: You mentioned earlier that you had many projects waiting to come on stream. I was just wondering what type of projects. There are three pilot projects in the province right now, I think, one in Sarnia, one in Cornwall and one in Espanola.
Mr Youell: Sir, I do not know what you are referring to with those projects. We do not have anything to do with them.
Mr Cleary: Energy audit projects applied for by the local municipalities.
Mr Youell: We have done a fairly major energyefficiency project for the city of Sarnia, but not in Espanola or Cornwall. We do much more than audit. We want to actually implement and make the example.
Mr Cleary: I think those projects are moving ahead right now and are being implemented.
Mr Youell: I am not familiar with them, sir.
Mr Cleary: No, I just wondered if that was a type of project you are involved in.
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Mr Conway: I am very interested in this and I have several questions, but we have a very rigorous Chair. In the absence of time and heat, we have to move along. One question really continues to jump out at me. I repeat that I am a very happily satisfied gas customer, but I just keep struggling with this equity issue. I want to ask you, because you are a very astute observer of this scene, to help me understand how this Legislature should approve a policy that would force Hydro to do something that the gas utilities by regulation, if not by law, are specifically precluded from doing, presumably in the interest of their bond-holders, if not in the interest of the general ratepayer.
Mr Youell: Recognize again that I do not represent the gas company here. We coincidentally are owned by them, but we save as much in gas through our energy efficiency work as we do in electricity.
Mr Conway: You see, I am all for efficiency, and I am very anxious to support my friend from Sarnia and others in this business of appropriate and reasonable fuel switching. There is no reasonable person out there who can be opposed to that. But you have an association with the gas industry, and you should not be ashamed about that. The gas business has a lot of which to be proud in this province. But I am really struggling on the equity ground, trying to understand how it is we should endorse a policy that will open the Hydro ratepayer to a principle and a set of obligations that the energy board simply would not allow a gas company in this province to undertake.
Mr Youell: I do not know how to answer that. Our perspective, I guess, is looking at it from Hydro's point of view of trying to shed load. It is absolutely coincidental that either oil or gas benefits from that.
Mr Conway: I accept the argument. It is a question of who pays. Why we would stick the ratepayer of Hydro for something that the ratepayer of the gas company is precluded from accepting is still a mystery to me that I am sure these hearings are going to elucidate and ultimately remove.
The Vice-Chair: If you have an answer for that, you can handle that.
Mr Youell: No, I do not.
The Vice-Chair: I thank you, Mr Conway, for keeping it as short as you always do, and I thank you, sir, very much for your presentation. It was a unique presentation. I missed a day, but I am not aware of a presentation from somebody from your field. I think we all appreciate that, so thank you very much for coming and we will be forwarding the documentation upon completion.
IVACO ROLLING MILLS
The Vice-Chair: I now call Ivaco Rolling Mills, please.
Mr Goldsmith: My name is David Goldsmith. I am a manger of planning and development for Ivaco Rolling Mills. I have been in the steel industry for 17 years and responsible for energy issues with our company for the last 13 years.
We are a division of Ivaco Inc, which is a steel producer with annual steelmaking and rolling capacity in excess of two million tons. We have 52 plants, with 21 in the United States, one in Australia and 30 in Canada; of those 30, 16 are here in Ontario. We employ approximately 8,400 people, 2,100 of them here in Ontario. We are a Canadian company with our head office in Montreal. Our 1990 sales were almost $1.9 billion. Our shares are traded in Montreal and Toronto.
I represent our Ivaco Rolling Mills division which is located in L'Orignal, Ontario, approximately 80 kilometres east of here on the Ottawa River. It is one of three steelmaking and rolling facilities owned by Ivaco. We are an electric arc furnace steelmaker with rod rolling facilities, which puts us in the recycling business. We recycle scrap steel. We produce almost 600,000 tonnes of wire rods annually. Wire rods are an intermediate product which are converted into welded wire fabric, nails, fencing, fasteners, wire ropes, cables, prestressed high carbon wire and so on.
In 1991 we purchased 315 million kilowatt-hours of electricity from Ontario Hydro. We are the largest customer in eastern Ontario. We paid over $13 million for that electricity. It is over 20% of the variable cost of making steel. We directly employ almost 550 people in our community. Also in 1991 we were awarded the Canadian Electrical Association's prestigious Energy Efficient Industry Award for the achievements we have made in peak load control and in becoming more energy efficient since our programs began in the late 1970s.
We are extremely concerned about the implications of Bill 118 and the cost of electricity, and by extension, our competitive position.
Bill 118 fundamentally alters the way in which Ontario Hydro does business. It does this by providing for extensive government interference in the operations of the utility such that it almost becomes another government department rather than a crown corporation, and it redefines the cost of power to accommodate this interference.
There are four elements of Bill 118 which I would like to address: the principle of power at cost, the change in responsibilities of the board of directors, the designation of the chief executive officer and fuel switching.
The principle of power at cost has been fundamental to Ontario Hydro since Sir Adam Beck founded the utility in the early 1900s. It has contributed significantly to Ontario's ability to draw industry to the province and to its economic growth. Although Bill 118 ostensibly still calls for power at cost, it redefines cost to include essentially anything the government of the day wants it to.
Ontario already has the third highest power rates in Canada. It is not a cheap province for electricity, and it has not been since 1984. At our facility we pay over 18% more for electricity than our sister steelmaking operation in Cartersville, Georgia. They do not have a sweetheart deal with their power utility. They are buying power on a published rate and their rate is firm for five years. Before the 1992 increase, based on 1991 rates, we are paying 18% more for our electricity than they are paying. That is the competitive situation in North America.
Other industries with operations all over North America have indicated that Ontario is one of the highest cost jurisdictions they operate in. On top of these excessive rates, and at a time when the industrial and business sectors are suffering the worst recession in many years, the cost of power is being redefined to include more and more items unrelated to the production and distribution of electricity.
We are aware that the government has agreed to limit any policy directives that are issued to Ontario Hydro to the corporation's exercise of its duties under the act. This, however, does not provide us with any comfort since the government itself will make the decision as to whether the directive is within the corporation's mandate. We have already seen how the decision will be made in the cases of Elliot Lake and Kapuskasing, where the government had directed Ontario Hydro to commit a total of some $500 million in support of these communities. This represents more than a 5% increase in rates based on projected 1992 revenues.
I am also aware that the government claims this is within Ontario Hydro's existing mandate, but the issue is directive power, not mandate. We have no problem with government assistance to needy areas through normal legislative and policy channels. We have a big problem with raising these revenues through the power rates. Once this principle is established, there is no limit to how much a cash-strapped government can turn to electricity to raise revenues without increasing taxes.
Bill 118 provides that the board of directors of Ontario Hydro is not responsible for the consequences of complying with these policy directives as long as it has acted honestly and in good faith. It also provides that compliance with the directive shall be considered to be in the best interests of the corporation. The combined effect of these two amendments is effectively to eliminate the obligations the directors have to ratepayers.
The historic role of the board has been to provide sober second thought in the face of any government directive and to act in consideration of its duty to protect the interests of ratepayers. In effect, the government will now dominate Ontario Hydro on all key matters at the expense of the ratepayers who will have no voice.
Ostensibly these changes are being touted as necessary to create a more open policy directive process and to bring Ontario Hydro under control. We met with the Minister of Energy, Mr Ferguson, last fall and he made that statement to us. We asked him to give an example of any instance in the last 10 years when Ontario Hydro had acted out of control, or why this directive power was necessary. Neither he nor his deputy minister nor any member of his staff was able to cite a single instance. We certainly do not know of any.
Ontario Hydro is a $7-billion-a-year corporation. It requires an experienced and dedicated chief executive officer to operate efficiently. Traditionally the chairman has acted as the CEO. This has not worked well, primarily because governments like to appoint a chairman of their own choosing, and when the government changes so does the chairman. This has had a negative effect since an experienced executive would certainly hesitate to accept such a position because of the lack of job security and lack of sufficient time to become knowledgeable enough to manage a corporation as complex as Ontario Hydro.
Until now the business and affairs of Ontario Hydro have been under the direction and control of the board of directors. The CEO must be responsible to the board if it is to carry out this responsibility. If the board cannot select the CEO, the relationship is unstable.
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The chairman should act as the liaison between Ontario Hydro and the government, thereby relieving the president of many of the public responsibilities the office carries. It would ensure that when important decisions are to be made by the board, it is informed of the initiatives preferred by management, the alternatives available and the risks involved.
This process was completely bypassed in the last rate hearing, I might add, when the Ontario Energy Board presented its recommendations on a Friday and approximately four working days later the board of Ontario Hydro came up with a totally different increase in rates, without allowing the people of Ontario Hydro to develop alternatives and to do impact assessments, which has been the practice in the past. There has always been a lag of at least one month from the energy board recommendations to the actual decision by Ontario Hydro. The process was completely bypassed this year.
Fuel switching is probably the most insidious portion of this act. Bill 118 fails to address the key problem of reducing total energy use by focusing exclusively on electricity use. Some members of the Legislature have stated that fuel substitution is a key element of the government's strategy to make Ontario more energy-efficient. Apparently, Mr Eliesen, the chairman of Hydro, has superseded the working of this committee by announcing yesterday that that is the basis upon which the next 25 years are being planned within Ontario Hydro.
Fuel switching has absolutely nothing to do with energy efficiency. In fact, while total energy use per unit of gross provincial product has been falling since the late 1970s, electricity use has been rising. This is a direct result of the higher energy efficiency of electricity in many applications.
We are looking at modifying our gas-fired reheat furnace, or billet reheating operation, to bring steel to 700 degrees Celsius with gas and then use large amounts of electricity to heat the rest of the way to the rolling temperature of 1100 degrees Celsius. Today that process is entirely gas-fired. This is the most energy-efficient way to perform the task, but it means more electricity demand.
The most energy-efficient way to heat your home is not with natural gas; it is with electricity with a ground source heat pump. It is disturbing to hear so many people talking about natural gas being more efficient for space heating when they are comparing radiant heat of electricity with the burning of natural gas, which produces carbon dioxide, the largest source of global warming. Using a ground source heat pump, you save 50% of total energy consumption, but you increase electricity demand. That is what the government should be paying for, not switching to natural gas.
It is totally unacceptable for one group of users, which has no alternative, to bear the cost of this conversion to the advantage of others. It amounts to a government-initiated subsidy bestowed selectively but levied indiscriminately. It adds to the cost of power directly through the financing arrangements and indirectly by reducing the load against which the fixed costs are levied without any clear guarantee of any substantive benefit in the long term.
Furthermore, it will increase the burning of natural gas, damaging the environment through the production of global-warming gases. This flies in the face of the government's claim to be acting to protect the environment and its commitment to stabilize the production of global-warming gases by the end of this decade. It creates a spectre of new environmental impacts by the construction of the additional pipeline facilities that will be required to bring the gas to Ontario.
I also have a problem with understanding why it is that Ontario Hydro was required in the early 1980s to pay people to go on electricity and now it is Ontario Hydro that is paying them to go off electricity, rather than the gas company or the government or somebody else -- if anybody has to pay for it.
Ontario Hydro is a large and complex corporation that needs to be run as a business to ensure efficiency and cost control. Power at cost has been a cornerstone of economic growth and prosperity in this province for decades. Until governments began to interfere in the operations of the utility some years ago, it was one of the best run and most cost-effective utilities in the world. This was a factor in our decision to locate in Ontario.
Bill 118 changes this relationship. There is no rationale for increased government involvement in the affairs of the utility. This bill strips Ontario Hydro of its independence from government and threatens to transform it into another department of the province. It would become a government ministry masquerading as a crown corporation.
Bill 118 is an unnecessary and unwarranted intrusion into the operations of Ontario Hydro, and for the sake of the economic prosperity of the province it should be scrapped.
Mr McGuinty: Thank you, Mr Goldsmith, for a very insightful and hard-hitting presentation. I would like you to tell us a bit more about the effect, if any, that Bill 118 and the present government's energy policy -- and in particular the announcement made yesterday by Hydro -- are having on our business community, on its concerns for its future success in this province, and possibly, if you are aware of this, what concerns this may be creating in the minds of persons or businesses thinking of moving to Ontario.
Mr Goldsmith: I know of two companies that have written to the chairman of Ontario Hydro, the Premier of the province and the Energy minister indicating which plants they are planning to shut down based on the electricity policies and the rate increases resulting from them. I heard yesterday of a third company that is about to write to the government about a specific plant in eastern Ontario. That is probably the most telling answer to your question. Basically the business community is extremely unsettled, skittish and concerned about reliability of supply. There are no concrete reassurances coming from anywhere.
Mr McGuinty: But the government assures us, or Hydro assures us, that we are going to save 9,900 megawatts.
Mr Goldsmith: Excuse me, but that is Mr Eliesen assuring you; that is not Ontario Hydro. If you speak to the people in Ontario Hydro who are responsible for preparing the forecasts and so on, they will tell you that they are extremely uncomfortable with the numbers, before Mr Eliesen changed them yesterday, that they themselves have no confidence in them and that they are being forced upon them.
Mr McGuinty: What could have prompted Mr Eliesen to make such a radical departure from the plan that had been submitted only two years ago?
Mr Goldsmith: That is a matter for speculation. I could make guesses, but they are no more valid than anybody else's.
The Chair: You do not want this person to guess.
Mr McGuinty: I will not object to any guesses.
Mr Goldsmith: It seems to me it does a great job of justifying not making any decisions. It is a great way of deferring anything until later.
Mr McGuinty: One of the concerns I have, and I have raised this in the House, is that when we talk about conservation, which in and of itself is an excellent idea, we discuss this in the abstract. We can raise and lower these estimates at will to suit a particular timely need. The ongoing concern I have, and I indicated this earlier in the presence of another witness, is that we require some hard evidence to substantiate the elevation of that figure. I think it was 5,700 megawatts to be saved; we are now at 9,900 megawatts.
Mr Goldsmith: I can comment on that. I have stated before that I feel it is a no-lose proposition to forecast conservation. Today the province has approximately 26,000 megawatts worth of generation, about a 23,000-megawatt peak demand. Depending on which forecast you pick, it is for having, let's say, 30,000 megawatts of demand in the year 2000. That is after saving, say, 5,000 megawatts through conservation, which means it would have been 35,000 and now it is only going to be 30,000. No matter what it is in the year 2000, you cannot lose because all you say is, "It would have been." So this 9,000-megawatt savings is notional perhaps, because no matter what the demand actually is in whatever year you pick, you can say it would have been 9,000 megawatts higher.
But I am very concerned about the reality of the number. If I can quote to you from a public opinion survey done on energy conservation by the Ministry of Energy last year, "There does not appear to be a linkage between attitudes and behaviour undertaken." Most people support conservation, but they do not act on it. "The survey indicated that 80% of the people believe they could do more to conserve energy, but 42% of the people intend to consume the same or more energy in the next year. People tend to identify energy efficiency with promotional activities such as lightbulbs and showerheads and little else." It concluded, "The conservation activities that people may eventually be required or requested to do may come as a surprise to the public. Another finding of note is that a move to encourage conservation through price increases would be met with strong resistance."
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I might also point out Ontario Hydro's own forecasts for conservation. Somebody raised the issue before about how much industry has left to conserve. It is non-zero, I am sure; I know it is non-zero in our plant. We are certainly doing more than we already have. Consumption of electrical energy in this province is approximately 29% residential, 34% commercial and 37% industrial. Efficiency or conservation targets are 39% residential, 50% commercial and 11% industrial. That probably reflects the relative amount of available conservation. In other words, residential and commercial are where this has to come from, and that means lifestyle changes. That is where the difficulty is going to be. Industry is not going to be the one that is going to provide this 9,000 megawatts of savings. It is not there.
Mr Conway: I have just one observation and then a question. I think the last point is extremely telling. We had someone touch on it last night or perhaps earlier today. A careful analysis of where the savings are going to come from would suggest, on the basis of either Hydro's or the ministry's own projections, that it will be from residential and commercial and will require significant lifestyle changes. I do not think that is well understood by a lot of people in the Legislature or in the general public. It makes me think of the time of the use-rate controversy of a few years ago, as it related to residential consumption.
Did I hear you say to this committee that you have discussed a number of these conservation projections with people in the corporation who have a much lower confidence level in the targets being talked of now by the chairman than the chairman himself?
Mr Goldsmith: Yes, I did.
Mr Jordan: I too would like to thank you for a very informative presentation and your very sincere concern with Bill 118. As the man in charge of your company and particularly in charge of that division relative to the use of energy, you have done considerable work to put this forward and see what it is going to do to your energy bill. I just have the funny and sick feeling that as much and as hard as we work here with this committee and as good as these briefs are that are being presented, I am going to go back and Bill 118 is going to be implemented. Are you nodding yes?
Mr Duignan: I am nodding yes.
The Chair: Just one moment. We have an opening this evening where there is a non-attendance by one of the participating parties. Maybe then you can ask Mr Duignan questions. But right now, Mr Goldsmith is here to talk to us.
Mr Conway: Leo is just getting to know Marc Eliesen.
The Chair: You have known him for quite a while.
Mr Conway: Indeed I have.
Mr Jordan: It is time you got control over that. Excuse me for these interruptions. Usually the Chairman can control this young fellow from Renfrew North, because we have trouble in the county.
Seriously, after seeing yesterday's announcement in an official document to go before the Environmental Assessment Board in Toronto, this has never been amended but this is based on it having been amended. My colleague across here kept nodding up and down. He said, "Yes, the bill is going to pass regardless of what these hearings give us." How would you react?
Mr Goldsmith: It is not unexpected. This government has claimed to be in favour of consultation ever since it came in, but it has yet to consult with the people most affected by the actions it is taking. It has not listened to them either when it has talked. That is not unexpected, if you are asking me how I react.
Mr Jordan: You are not going to be surprised.
Mr Goldsmith: No, I am not going to be surprised. We are already making our plans based on that happening.
Mr Jordan: With that in mind, I want to close by thanking you for taking the time to come before this committee and give us as much information as you have. I sincerely thank you.
Mr Goldsmith: If I do not say something, I have no right to complain about what happens.
Mr Jordan: You are quite right.
Mr Arnott: Thank you very much for your presentation. You talk about your electricity bill, 20% of the cost of manufacturing steel in your plant, that 5500 people work at your --
Mr Goldsmith: It is 550.
Mr Arnott: I am sorry; 550. Is your plant unionized?
Mr Goldsmith: Yes, it is.
Mr Arnott: What are your advantages relative to your sister plant in Cartersville, Georgia, if you are paying 18% higher costs in electricity?
Mr Goldsmith: At this point I am not sure we have any. We used to. We used to pay about 20% less for electricity than they were, 10 years ago. Our labour rates are higher and our energy costs are higher. We are slightly more efficient. We have a little newer plant but they have already invested enough to upgrade their plant. That is not an issue any more. We do not really have much in the way of an advantage over them.
Mr Arnott: Twenty per cent of your cost of production going up 44% over three years: Where does that put you?
Mr Goldsmith: As I said, we are already behind, so it puts us further behind. What does that do to us? I think 80% of our market is in the United States, so it puts us that much further behind our competition, which is already ahead of us.
Mr Arnott: That is 550 jobs put in jeopardy by the policy of this government.
Mr Goldsmith: That is correct.
Mr Huget: I notice with interest some comments around the electrical forecast, in particular people who are unidentified within Hydro commenting on the unreliability of those forecasts. I think it is fairly safe to say that there has been uncertainty for a long time about forecasting and that whole issue. That uncertainty is a two-way street, because I believe that in 1990 we were actually 2% or so below our forecasts and there was zero growth in demand in 1991. Both those years it was below forecast. The uncertainty issue is one that is there, but it is a two-way street. I think it swings both ways.
Having said that, I think you raise an interesting point. The point you raise is perhaps the prime reason behind having Hydro develop a contingency plan to ensure that if its forecasts are not accurate, there indeed is a contingency plan to deal with that issue, particularly from a business standpoint. My riding, Sarnia, is probably one of the highest if not the highest per-capita energy users in the province. I am extremely concerned about having reliable energy supplies and I would say I am as concerned as you are and indeed as concerned as the businesses and your business as well.
I think we have the same concerns. I just want to make sure you understand that indeed we have asked Hydro to have in place a contingency plan in the event that its forecasts are not right, but we are convinced that they are.
Second, when you look at the amount of money that is spent on behalf of taxpayers, do you not feel there should be some accountability to the people and to the government of this province? You probably have a view that we are meddling with the internal operations of Ontario Hydro, but do you not think that any government has a role, with an organization like Hydro, which has so much of an impact on the economic and other circumstances in the province and is a public corporation, in terms of at least setting a direction, particularly around efficiency and conservation as opposed to megaprojects without considering efficiency and conservation? I feel there is a constructive role and I would just like your views.
The Chair: Before you answer, we are not going to be here much longer. The Hansard person has to listen very carefully to what happens. She has been here now for almost four hours steady without any break, so could people please not engage in interruptions or in other conversations. We have only a few more moments but it is becoming increasingly difficult for her to catch all that is being said. I am sorry.
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Mr Goldsmith: First of all, I understand that Hydro does have contingency plans in place. I am not happy with those contingency plans. The reason is that prudent planning calls for a balance in your projections. Sure, their forecasts can be too high and they can be too low. My favourite saying is that the only good forecast is one that is done after the fact. The problem -- somebody mentioned it earlier today -- is that you need a balance and the plans to date are based very heavily on demand side management and inadequately, in our opinion, on supply side options.
I have no problem with energy efficiency and conservation motivations or directives or something, somehow, and I will get to the methodology in a moment. I have a big problem with saying that is what we are going to do and we are just not going to consider major supply options. That is the uncertainty that concerns industry.
If you look at the contingency plans Ontario Hydro has in place, they are to build natural-gas-fired generation. If they have to build any significant amount of natural-gas-fired generation as a result of either not meeting the demand management targets or as a result of load growing faster than they think it will, that will mean another pipeline the size of the existing one running from Alberta to Ontario. That is the amount of gas we are talking about. You have to keep that in mind.
You are talking about 36 combustion turbine units to supply that amount of electricity. You are talking about turbines that are built by only one or two manufacturers. There is no way they are going to get all those in a hurry. Yes, they can build them faster than they can build a megaproject, but everyone gets hung up on the total capital dollars involved in a megaproject and nobody looks at the fact that it does not cost the province a penny. I disagree with you when you make the statement that Ontario Hydro is spending all this money on behalf of the taxpayers. They are not. They are spending money on behalf of electricity ratepayers who may or may not be taxpayers, but the point is that these people are the ones who have to be considered, not the general taxpayer.
Second, when Ontario Hydro spends that money, it does not have any impact on the province that is measurable. Third, Ontario Hydro is paying the province a ridiculous fee for this debt guarantee which is costing the province absolutely nothing, but is another way of taxing the ratepayer without going to the general tax revenues.
My concern about the forecast is that the contingency is too heavily swayed in favour of demand management. There is not enough supply in there. If you build natural gas, you create global warming. Natural-gas-fired power generation is the largest source of global warming gases in the world, and that is what we are talking about doing as a contingency, burning more natural gas. It does not make sense.
Natural gas is in limited supply. People are talking about pricing today. Electricity is higher than natural gas in price, and that is true, but that is a very short-term view. Ten years ago, natural gas rose 81% in price in three years. Now it has dropped quite a bit since then because of deregulation and because of a glut in supply. But if that supply tightens up -- and it will not happen this year but it may happen next year or the year after -- then that price is going to skyrocket again and all these people you are going to have paid to get off electricity on to natural gas are going to be coming back to wring your necks.
As far as having the government have some influence on the direction of Ontario Hydro is concerned, there is a mechanism for that, and that is the Ontario Energy Board. The government today, with the existing Power Corporation Act and the previous amendments that have been made, can issue policy directives to Ontario Hydro through the minister. These can be monitored through the Ontario Energy Board.
I do not see any reason why that process does not work. It certainly has worked in the past. No other government has had a problem with that. It does not make sense to take a $7-billion-a-year corporation with a specific mandate to deliver power at cost and start changing that mandate, which is what is happening no matter what you call it. You can use the words any way you want but the mandate is going to change, otherwise you do not need all these powers. If you are not going to change the mandate, you do not need Bill 118. You can do anything you want today.
Mr Huget: You mention in your presentation that we have relatively high power rates in Ontario. You compare it to Georgia.
Mr Goldsmith: In our case, with Georgia.
Mr Huget: With regard to nuclear development and nuclear sources of energy, as I understand it -- at least the selling point of the day was that this was to provide the province with a cheap, reliable source of energy. Given that in my case and in the case of this government, we appeared on the scene September 6, 1990, obviously you probably noticed that the power rates have been higher than somewhere in Georgia for quite some time.
Mr Goldsmith: Yes.
Mr Huget: How is it that we spent the kind of money we did on what was supposed to provide us with cheap power and we in fact do not have cheap power, by your comparison?
Mr Goldsmith: I made the statement as well that it was a succession of governments that interfered. I did not say it was this government. That was deliberate.
Mr Huget: I am interested in how, in your view, this wonderful development that was to have provided us with cheap power has turned out to be something other than cheap to ratepayers, industry or anyone else.
Mr Goldsmith: You are assuming that it is Darlington or the nuclear program in general, let's say, that is costing us all this money. I am not. I am saying the problem with Ontario Hydro is inefficiencies and lack of cost-effectiveness within the corporation. Having government get involved is not going to improve that situation. The problem with Darlington is that governments interfered and added $6.1 billion to the cost. Even with those additions, even with the $13.5-billion projected cost of Darlington, it is still projected to cost 4 cents a kilowatt-hour to produce electricity over the lifetime of that station. That is cheaper than natural gas by half. Natural gas is 7.5 cents a kilowatt-hour to generate electricity, nuclear is 4 cents and hydraulic is somewhere in the 2- to 3-cent range, depending on the station. Those numbers have been reviewed by several select committees of this Legislature and agreed to by those committees, although not unanimously. They are on the record. They are numbers that are available to you.
Mr Huget: I will just finish on that point. They are expensive projects -- I think you and I can agree on that -- and were supposed to put us in a position where our energy prices would be cheaper than anywhere else in terms of attracting industry. In spite of that, we have not been able to accomplish this.
Mr Goldsmith: If we had finished Darlington on time in 1979 or 1980, they would be. If we had exported the excess power, as we did in the early 1980s -- we exported excess power and subsidized Ontario energy bills to the tune of 7% because of the revenues from the exported energy -- we would have exported more because the neighbouring utilities needed more and we would have subsidized our rates more and everyone would have been happy, but governments could not be happy with that. They had to interfere and delay Darlington and cost us this bundle of money. That is my concern with Bill 118. It allows for more and more of that kind of interference, which will only add to the cost of electricity in this province.
Mr Huget: My concern with the megaproject, sir, is that I do not think we have got our bang for our buck either. I have a concern about that.
Mr Goldsmith: We would have if the governments had not been involved.
Mr Klopp: I will get Hansard. I must have misunderstood something. A minute ago -- correct me if I misunderstood it, sir -- I thought you stated that previous governments never had a problem with Ontario Hydro or interfered with it, and, "You guys want to do this with Bill 118." Just now you said previous governments interfered with how it ran.
Mr Goldsmith: I said previous governments interfered with it, yes. I did not say they did not have a problem with it. I said previous governments did not have a problem with their ability to impose their mandates on Ontario Hydro without the provisions of Bill 118. That is what I was saying.
Mr Klopp: Okay. Quickly, you mentioned 36 generators that we are going to need for natural gas only -- I do not think this bill talks about natural gas only -- but more important, you said it is going to cost 4 cents for Darlington based on how many years?
Mr Goldsmith: Forty years.
Mr Klopp: Are you familiar with the Bruce A or B nuclear plants, which I understand are both the same as Darlington and are up and running?
Mr Goldsmith: They are not the same as Darlington, but they are up and running, yes.
Mr Klopp: They are pretty close.
Mr Goldsmith: They are the closest to them; they are the most recent ones, but they are not the same.
Mr Klopp: What were their projections of how long they would run without normal greasing etc that one has to do?
Mr Goldsmith: That is another fallacy in the arguments everyone keeps talking about. Every nuclear station since the original Pickering stations was planned for a single retubing over its lifetime, to occur after 30 years. The stations you are referring to, and Pickering which you did not refer to, have required retubing after 20 years. However, those stations are still projected to require only that one retubing over their 40-year lifetime.
Mr Klopp: What is your efficiency rate then? Are they based on efficiencies at all when you do these things?
Mr Goldsmith: Yes, and over their 40-year lifetime all the existing nuclear stations are expected to achieve their originally projected efficiencies, over 40 years. People keep looking at the last year or two and say, "Nuclear is terrible because we've had these problems."
Mr Klopp: Bruce B has been there a long time, 10 years, I would think.
Mr Goldsmith: The problems in the last few years, the efficiency levels in the last year or two, the low efficiencies of Bruce have been transmission-related, not reactor-related. They could not get the power out of Bruce because no one would let them build the transmission lines they needed to get the energy out of Bruce. We spent $500 million in premiums for electricity because we had to buy it outside the province because we could not ship it out of Bruce.
Mr Klopp: Actually, sir, I was at those hearings. They said they needed it for Ontario. We said, "Then why are you going to ship it to Detroit?" They said: "We're not doing that. We have to go across Huron county to get it to London." Incidentally, after we won the case -- we did not hold it up at all. We did a modified M3 on that, sir. They had six plants. Actually they ended up redoing the thing. They won their case, which is fine, democracy in action. Guess what they are doing right now, sir? They are building a line. They want to go to Windsor -- just as a point.
Mr Goldsmith: Yes, and that will subsidize our rates in Ontario.
The Chair: Point, counterpoint. Mr Cleary, final single question of this gentleman.
Mr Cleary: You made a lot of good common sense and many of the things you said in your presentation I heard in the last day from a local industry back home. You scare me when you say that if Bill 118 passes in its original form, you and some other companies in our part of Ontario will look at their options. We sure do not want companies looking at their options any more, because we have lost a lot of plants there already. I guess what I have to ask you is, would some of your options be looking at cheaper power from the United States, a plant in the United States, and also from Quebec?
Mr Goldsmith: I want to clarify something. I did not say, and I will explicitly state the contrary: We are not specifically looking at leaving the province over Bill 118 and I do not want to create that impression in anybody's mind. It is certainly a factor in our investment decisions. We are not looking at closing up shop and leaving the province, at least not at this point. I suppose anything can happen. The most attractive option today is to move to the United States, if you are talking about electricity rates. Quebec is not an attractive option. Their rates are lower. Their reliability is significantly lower.
The Chair: I want to tell you, on behalf of the whole committee, thank you, as we have thanked others. We appreciate everybody's participation to date. The interest in this particular bit of legislation has been significant from all over the province, from all facets of the community, and of course a wide and diverse range of views are being presented. We appreciate your coming. I thank everybody for their interest, for their attentiveness, for their patience and for their cooperation. We are going to come back here at 6:20 this evening, hearing submissions until approximately 8:30, and of course people are welcome to attend. The first participants will be the Concerned Citizens of Renfrew County.
Mr Conway: Any prospect of heat at 6:20?
The Chair: No.
The committee recessed at 1645.
EVENING SITTING
The committee resumed at 1822.
CONCERNED CITIZENS OF RENFREW COUNTY
The Chair: We have four groups this evening. The first is Concerned Citizens of Renfrew County. Please come up to the table in front of us, to the microphones, sit down and tell us who you are.
Present among the representatives of the three parties in the Legislature are Dalton McGuinty, Energy critic for the Liberal Party; Leo Jordan, Energy critic for the Conservative Party; Bob Huget, a member of the Legislature who is also the parliamentary assistant to the Minister of Energy, along with other MPPs from each of their three caucuses. Also present are research, Hansard and the clerk's staff.
Please tell us who you are, your organization and whom it represents. We have 20 minutes. I wish it were longer, but we have a number of groups that have to get their submissions in. Try to keep your comments to 10 minutes, or hopefully even less, because the most fruitful part of these proceedings is the discussion and the questions.
Mr Hendrickson: My name is Owen Hendrickson and I am with the Concerned Citizens of Renfrew County. I will tell you a little about our organization as I go along.
We would like to comment on three sections of the proposed bill: (1) Should the Minister of Energy be allowed to issue policy directives for Ontario Hydro? (2) Should Ontario Hydro be allowed to implement fuel switching, that is; conversion of electrical heating to other forms of heat? (3) Should the municipal electrical utilities have the option of treating the cost of energy conservation programs as either operating expenses or capital expenses?
With regard to policy directives, some speakers might argue that marketplace solutions can effectively address energy policy issues and that there is no need for government intervention. We see a need for increased private sector participation in Ontario's energy supply and we do not really view Ontario Hydro as an institution that responds effectively to market forces, but we none the less maintain that governments, in the sense of popularly controlled democratic institutions, should play the dominant role in setting energy policies and providing energy services.
Given that we feel energy should be governed, why not just make Ontario Hydro a democratic institution? Why compel Ontario Hydro to follow directives from the Minister of Energy? We have three reasons.
First, we feel that many energy policies have cross-sectoral implications and should be developed in a forum where municipal affairs, transportation, industrial development, housing, natural resources and other sectoral policies can also be examined.
Second, we feel there should be a limit to the number of governments society has and we should avoid wasteful duplication and overlaps.
Third, we point out that Ontario governments have always wielded considerable influence over Ontario Hydro and this is not likely to change. Our local MPP, Sean Conway, boasted in his last re-election campaign that he had persuaded Ontario Hydro to give a $30-million subsidy to AECL in Chalk River, just as one example. Rather than maintaining the pretence that these government interventions do not occur, let's make them transparent to the public and allow voters to influence them.
With regard to fuel switching, the CCRC is concerned about the trend to ever more centralized and globalized systems for supplying energy and other human needs. We feel that current economic development philosophies are creating highly vulnerable and unsustainable societies. It is as if a giant arrow points towards global free trade, unrestricted movement of capital, concentration of wealth in a few unregulated multinational banks and corporations, and for the vast majority of the world's population, pollution and poverty.
We are appalled at the current simplistic level of international debate regarding environment and development issues, which consist mostly of developing nations telling developed nations such as Canada: "It's our turn now. You drive down your standard of living and we'll meet somewhere in the middle." We also feel that the term "developed nation" applied to Canada is ridiculous with its selfcongratulatory implication that we have achieved an ideal, sustainable socioeconomic model that should be imitated by the rest of the world. Let's recognize the desirability and inevitability of change as a starting point for formulating new energy policies in Ontario.
We think natural ecosystems provide a model for sustainability. They have a high diversity of primary and secondary producers and a capacity for specialization and adaptation in response to local variations. Accordingly, we see a greater centralization and diversification of energy sources in Ontario as being desirable and argue that this will promote stability and job creation. We also see a need to reverse this arrow of globalization to point towards local sustainable development, local adaptation and self-sufficiency. I apologize for this excursion into the philosophy of local economic development, but feel that it is necessary to provide a context for CCRC's position on Bill 118.
In terms of alternatives to electrical heating, I am sure other speakers have pointed out that electrical heating is quite inefficient. The use of electricity from fossil fuel generating stations creates large amounts of carbon dioxide per unit of useful heat far more than alternatives such as oil, natural gas or wood. Furthermore, Ontario's per capita electric power consumption is very high compared to the rest of the world. CCRC supports investment in labour-intensive fuel switching and conservation strategies in preference to capital-intensive power plants in meeting our energy needs.
In addition to our support for publicly funded conservation and fuel switching, CCRC recognizes the need for a more informed debate on energy supply. Switching from electrical heat to fossil fuels only postpones the day of reckoning when Canada's oil and gas reserves, and ultimately the world's reserves, are gone. There is currently a very lively and potentially healthy debate in Renfrew county on nuclear energy and wood energy as two future supply alternatives. CCRC has been an active participant in this debate and we would like to share our views on it in the context of Bill 118.
CCRC feels the use of electricity from nuclear plants to heat buildings and water is not an acceptable substitute for use of electricity from fossil fuels. Heating is a highly inefficient use of electricity. Electrically heated homes are vulnerable to power interruptions. Loss of power for lighting or operating one's home computer is annoying, but prolonged interruption of one's home heat supply in the event of damage to power lines or power plant shutdown is a serious affair.
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Nor does CCRC feel that nuclear generating facilities constitute a sustainable source of electricity. We are constantly amazed at the lack of understanding of both short-term and long-term implications of widespread use of nuclear fission in Ontario. We would like to direct your attention to a 1988 report from the federal Ministry of Energy, Mines and Resources entitled Nuclear Energy -- Unmasking the Mystery. I will make a few points from that report.
A 20-kilogram CANDU fuel bundle contains less than one hundredth of a curie of radiation when it is inserted. When it is removed it contains over a million curies of radiation. A complex mixture of over a hundred different radionuclides is produced during this 100-million-fold increase in radiation within the fuel bundle. Additional quantities of low- and medium-level reactor wastes are generated, and radioactivity is routinely released to the environment. Compared to other types of reactors, the CANDU heavy water pressurized reactor system is characterized by high production and emissions of radioactive gases such as carbon-14 dioxide and tritiated water to the environment. This is all contained in that EMR report.
I do not intend to belabour the short-term public health consequences of these emissions or the question of our moral right to burden future generations with nuclear wastes, but would like to note that there is growing evidence for serious problems in Renfrew county associated with radioactive emissions and waste at the Chalk River Nuclear Laboratories of AECL. Although some might characterize the lack of attention to these problems as a coverup, we feel it is more accurate to view this as a form of collective self-denial in the interest of maintaining employment in the nuclear industry.
There is an equally pernicious collective self-denial operating with regard to current and future use of wood, particularly for home heating. In many ways wood is an ideal fuel. Properly managed, it is renewable. Its use promotes local employment and self-sufficiency. It is flexible and can be easily used to cope with sudden cold snaps, such as the one we are in now, without triggering expensive centralized energy production and distribution systems.
There is a Canadian tradition of expertise in operational and scientific aspects of forestry and there is little evidence of fuel wood scarcity in Canada. In fact, there are continuing problems with wood waste disposal at some industrial facilities. Modern wood heating systems have greatly reduced particulate carbon emissions and improved efficiencies. Even looking to a future in which solar, wind, and hydraulic power may be dominant sources of electricity, we still find wood a very attractive source of heat.
However, Canadian governments seem to regard the continuing use of wood heat in a so-called developed country as an embarrassment. Although many people in rural Ontario heat exclusively with wood, there are no comprehensive studies of wood energy use in this province. Wood is officially regarded as a marginal energy source and its current status is consistently underreported. Whereas CCRC regards as a virtue the fact that wood energy can stimulate a great deal of local development activity, this may be regarded with distrust by centralized bureaucratic planning agencies.
CCRC does not, however, give an unqualified endorsement of wood energy use, because we feel the Ontario government lacks policies to ensure its sustainable development. In particular, we are sceptical about large-scale facilities that are solely dedicated to the generation of electric power from wood. Such facilities could lead to creation of large areas of single-use energy forests. This could discredit wood energy in the eyes of a public that is increasingly aware of the many values which can and should be obtained from public forest lands.
We feel the emphasis should be on use of wood as a direct source of home heat or for cogeneration of heat and electricity at industrial sites or district heating facilities. We challenge the Ontario government to adopt a policy encouraging sustainable use of wood for heat and power in public buildings, especially in rural areas and small municipalities.
Our recent experience with the new Killaloe public school is instructive in this regard. Given an alternative between a ground-source heat pump system and an automated wood-chip combustion system, both with roughly equal costs, the Renfrew County Board of Education chose the former. Why? Because Ontario Hydro provided a $70,000 subsidy for the heat pump, based on its greater efficiency compared to electric resistance heating. However, we estimate the annual operating cost for the heat pump system will be about $9,000 higher than for a wood biomass system, which takes away money that could be spent providing better educational services for Renfrew county children.
We also recommend that the government give priority to the use of Bill 118 to encourage home owners to switch from electric heat to wood heat instead of switching to non-renewable oil or gas. Preference should be given to newer stoves and furnaces with minimal particulate emissions. This could provide an opportunity to establish a wood pellet industry in Ontario, allowing introduction of wood energy into more densely populated areas while maintaining low public health risks.
CCRC also hopes Bill 118 can be a tool to promote a more enlightened attitude on the part of municipal utilities. We are sympathetic to their need to maintain sufficient income to cover fixed costs of administration, billing, maintenance of substations, transformers, power lines and so forth. However, we also call for recognition that as conservation and fuel-switching initiatives are implemented and revenues from power sales decline, the cost of power purchases will also decline.
Furthermore, we feel the added flexibility in treating conservation programs as capital expenditures creates potential new long-term revenue sources for municipal utilities. Some will be in a position to develop local energy supplies to reduce the cost of purchasing power from Ontario Hydro. There may be local dams that are not currently fitted with turbines, or areas suitable for wind power generation. We have also noted earlier that cogeneration can be used for district heating. Possibilities exist for joint ventures with local industries and entrepreneurs.
Even without new electric supply investments, there are a number of creative opportunities for municipal utilities to get into the business of energy services rather than just power sales. Home conservation improvements in the form of insulation, new doors and windows, sales of energyefficient furnaces, water heaters, lighting fixtures, refrigerators and other appliances could all be treated as long-term home owner loans repayable to the utility in the form of a continued fixed rate of electricity despite lower actual usage.
An increased role for municipal utilities is consistent with CCRC's philosophy of local self-sufficiency and sustainability. We believe the long-term energy future for Ontario will involve much more diverse and decentralized supply options and we feel this should be reflected in the design of institutional arrangements for energy services.
On behalf of CCRC, I would like to thank you for allowing us to share these thoughts with you, and I would be happy to entertain any questions you may have.
The Chair: That is a very thorough submission.
Mr Jordan: Thank you for your time in travelling from Renfrew county to Ottawa and for the work you have put into this presentation to express your views and those of the association you represent. I represent Renfrew South and Lanark county. I take it from your comments that you are from Renfrew North.
Mr Hendrickson: Until recently, I lived in Deep River and worked at Petawawa National Forestry Institute, but recently I have transferred to Ottawa. I am now living in Ottawa and I am on secondment with the Department of Forestry here, but I still maintain active links with CCRC.
Mr Jordan: You mentioned -- and this has been mentioned several times by different groups -- that the per capita use of hydro in Ontario is extremely high. When they arrive at that figure, are they taking the total use of hydro in Ontario and dividing it by the population of Ontario? How do they arrive at that?
Mr Hendrickson: It is high, either including industrial and commercial use of electricity or if one factors that out and merely divides the electricity consumption in the domestic sector by the population.
Mr Jordan: You have done that for the domestic?
Mr Hendrickson: Yes, we have looked at both figures.
Mr Jordan: It is very close on domestic to other areas, as I understand it.
Mr Hendrickson: It is still somewhat higher, partly because of electric baseboard heating.
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Mr Jordan: If you look at our province being so industrialized and the manufacturing we have here, or did have, the reason we had it was that we had a dependable supply of electrical energy at cost; not reasonable cost but power at cost was the mandate of Ontario Hydro going back over the history. I just do not want individuals like you and I to be looked at as completely wasteful people when it comes to energy, because the people I know generally who have to pay the bill are fairly conscious about the amount.
This $70,000 that Ontario Hydro gave to the school board, how was that arranged?
Mr Hendrickson: I can provide you with details of that, but I do not have it with me here. I am sorry. I cannot really go into detail about that arrangement.
The Chair: Obviously, Mr Jordan can make inquiries if we or Mr Jordan wish.
Mr Huget: Thank you for a very good presentation with some interesting points. I will be very brief.
In part of your presentation, you mentioned that in your view Bill 118 could be used as a tool to promote a more enlightened attitude to municipal electrical authorities. I wonder what you base that comment on. I would like your views regarding in whose interests you feel the electrical commission is acting. I heard a presentation from someone from a municipality who thought the utility commission in his municipality was not necessarily representing the municipal government either. I would just like to know what your views would be.
Mr Hendrickson: In theory, municipal utilities are democratic institutions. They have very close ties historically with Ontario Hydro. One possible impact of this legislation is that policy directives will come from the Ministry of Energy to Ontario Hydro and then, through Ontario Hydro, will filter down to the municipal utilities, because of the close link in terms of electricity purchases, for example, and the historically close association of interests between Ontario Hydro and the municipal utilities.
In the long run, we would like to see a more decentralized system of energy services, with a lot of local participation in decision-making regarding energy supplies. We feel a democratically controlled, properly elected municipal utility could play an important role in that. So there is a positive side that maybe has not been fully appreciated, because this is a new initiative. We are being hurried into looking at conservation and new renewable sources of energy supply. It is a new way of thinking that may not have filtered through the entire system yet.
Mr Huget: Are there any other suggestions you may have for us?
Mr Hendrickson: It is going to take time. We have to promote among the public the importance of addressing energy issues at a local level. As much as anything, it is a public education effort and it is not going to happen overnight.
Mr Conway: Thank you for quite a stimulating presentation at the end of which, on page 6, you state the following, "We believe that the long-term energy future for Ontario will involve much more diverse and decentralized supply options, and that this should be reflected in the design of institutional arrangements for energy services." Having regard to that, what do you see in the future as the kind of ideal Ontario Hydro?
Mr Hendrickson: There will be for a long time an important role for larger generating facilities. We have a major industrial sector in Ontario and it is simply not possible for local utilities to maintain that infrastructure. Things are not going to change overnight. In rural Ontario -- for example, Renfrew county -- we are very interested in the possibility of having local electricity commissions, the model of a popular municipal utility but not limited to the boundaries of a municipality, taking in rural areas so we can address some of the fuel wood supply issues I have addressed in this brief. Perhaps we have to redesign the boundaries of some of our utilities or local commissions, whatever they may be, to include a mix of rural and urban areas.
Mr Conway: In his 1974 book on Ontario Hydro, a wonderful book I recommend to anyone who wants to know more about Hydro, Professor Nelles argued that over the decades popularly elected governments and legislatures had very real difficulties in trying to exact accountability from corporations like Hydro, largely though not exclusively, he argued, because of their technological characteristic, that it is a very tall order for a group of generalists such as you see before you today to effectively exact accountability over a corporation whose mandate involves such complicated technological enterprises.
Because you raised the accountability question in the first part of your brief, having regard to the activities of a corporation like Hydro, the very significant and complex scientific and technological matters it is necessarily involved with, and I suspect would probably be involved with even if it were not into things like nuclear power -- let's say they went into solar energy in a significant way -- what sort of advice do you have for a group of generalists who get themselves elected and then find they have a responsibility to exact accountability from this thing that does all these funny things they do not really understand with any degree of precision?
Mr Hendrickson: At larger governmental levels we should try to set general policies. I think there are important policies emerging in the current energy debate, such as the obvious need for conservation efforts in Ontario and the possibility for emphasizing renewable energy sources over non-renewable energy sources, but I am also sure others have addressed the possibility of better and more efficient use of natural gas and maybe even agreements between some of the producing provinces and Ontario to get good pricing and reasonable arrangements.
Also, there is just the concept of energy efficiency, being efficient in use of energy. Let's cogenerate so we use both the process heat and the electricity value of a unit of fuel. At the Ontario government level or an Ontario Hydro level we should try to set these kinds of broader policies which can then be taken at a more local level and applied in operational terms where we may say, "Hey, here we've got some untapped hydraulic power potential and here we've got some biomass energy potential that we're not efficiently using." I think that even at the Ontario Hydro level and certainly at the Ontario government level, and even more at the federal level, we need to seize upon these broader policy issues and try to get clear in our minds the directions we want to go in with efficiency, conservation and renewability.
The Chair: Sir, we have been impressed with the number and range of people who have attended and the ideas that have been expressed during the course of this first week of hearings. Your views contained in the brief are obviously well thought out and well articulated. We want to thank you for coming here to participate. Your MPP can make available to you a transcript of the proceedings and would be pleased to do so. That would give you a sense of the range of views. Again, you are probably familiar with most of them, but I am sure you will be interested in seeing the range of views. We ask that you keep in touch with your MPP and other members of the committee and hope that the clerk will keep you informed as best she can of any reports prepared by this committee so that you can respond to them if you wish.
Thanks for taking the time to come in on what we are told is among the coldest of Ottawa evenings. It has been a good experience for all of us.
Mr Hendrickson: It has been my pleasure.
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HYDRO-ELECTRIC COMMISSION OF THE CITY OF GLOUCESTER
The Chair: We are now going to hear from Gloucester Hydro. Good evening, sir. Please be seated, tell us who you are and try to briefly address us with your comments, because as you recognize, among the most important things that happen here is the questioning and dialogue after your submission.
Mr McCullagh: First of all I would like to thank you for making this opportunity available to me to address your committee on the proposed changes to the Power Corporation Act. My name is Robert McCullagh and I am the chairman of the Hydro-Electric Commission of the City of Gloucester. Gloucester Hydro is a medium-sized electrical utility supplying 32,000 customers. We celebrated 25 years of service to the people of Gloucester last year.
About two months ago I was deeply involved in campaigning to regain my seat on the commission. In the course of my campaign I spent many hours knocking on doors and talking to our customers. These people, and many more like them, are the stakeholders in our utility and Ontario Hydro. The concerns they have are simple: They want safe, reliable electrical energy at a responsible price. I do not believe many of the proposed changes to the Power Corporation Act contribute to this objective.
This evening I would like to take this time I have to share some of the concerns our utility has with Bill 118. I feel it is unfortunate that the municipal utilities that represent one of the largest groups of stakeholders of Ontario Hydro were not consulted when the bill was drafted. Perhaps if they had been, we would not be sitting here tonight.
Our first and major concern is the proposed change that will allow the Minister of Energy to issue policy directives to Ontario Hydro that must, as the bill states, be "implemented promptly and efficiently." The spectre of possibilities this raises and the impact it could have on our consumers is quite disturbing. This disturbed our commission to such a degree that we entered the campaign with our fellow municipal utilities to lobby strongly to get this part of the bill changed. We were pleased when the Honourable William Ferguson announced that the bill would be amended to clarify the government's intention to limit the directive power to matters related to the powers and duties of Ontario Hydro as set out in the Power Corporation Act.
While Ontario Hydro's financial assistance program in Elliot Lake was not a result of directives but rather regulations, this is the type of social assistance program we object to strenuously.
With double-digit increases to our customers brought on by increases in our wholesale power costs and the implementation of the GST, there is little wonder that Ontario Hydro consumers are concerned about prices. Our city has not been hit as hard as many in Ontario by the downturn in the economy. We do not have a lot of industries closing, but our commercial customers are certainly feeling the downturn in the economy. Many of our customers are feeling the pinch of the zero, three and three. We are seeing the effect of this as the number of accounts that are not paid increases. We are spending more staff time working with our customers to help them budget better and reduce their energy consumption.
Our customers do not want to pay for the government's social programs in their power bills. The power bill should respect the power at cost principle that has existed in Ontario since Ontario Hydro was created.
For municipal utilities, the greatest part of our cost comes from the purchase of power from Ontario Hydro. Some 88% of our cost last year was the purchase of power. Obviously, even though lower increases in our local costs allow us to cushion the increase from Ontario Hydro, our rate increases follow Ontario Hydro's closely. Ontario Hydro's contribution of $65 million to the northern Ontario heritage fund cost our utility $370,000 and each one of our customers $11.60. That is not a cost of generating or delivering electricity costs.
It was heartening to read in the Ottawa Citizen last Friday that the Energy minister, contrary to what the chairman of the Ontario Hydro board said last fall, will not allow double-digit rate increases to continue. I only hope this can be done without increasing the debt load for future customers.
The customers who are affected the most by the high increases are those who have chosen electric heating. Electric heating in Gloucester is usually chosen either because gas is not available or it lends itself to the type of building construction.
I would like to tell you about the effect of changing direction and policies. Three years ago the Ministry of Housing along with our city embarked on a project to build subsidized housing projects in Gloucester. Three projects were built, one of which was restricted to single-parent families. Because of the lower initial installation costs, electric baseboard heaters were chosen for heating.
Needless to say, the first winter was a challenge for both our new customers in these developments as well as for our staff as we both went through an education process. For the customers it was the realization of the high cost of electric heating and budgeting for it from a fixed income. For our staff it was learning how to assist these new customers with controlling electric consumption in the home. This year Ontario Hydro and the Ministry of Housing have launched a program to reduce the energy consumption in non-profit housing developments across the province.
These relatively new developments are now candidates for conversion off electricity using Ontario Hydro funds. It is unfortunate that little extra money was not spent two years ago to put these homes on another source of fuel.
Our second major concern with Bill 118 is the changes in section 4 concerning energy conservation programs. The proposed changes broaden energy conservation programs from ones related to electrical energy to ones dealing with all forms of energy. This change, as well as affecting Ontario Hydro, will have a detrimental impact on municipal costs, including our own.
If other utilities are similar to Gloucester Hydro, they have a hard time adjusting to the rapid changes in direction and messages we receive from our provincial utility. Our utility was born 25 years ago in the days of the hard sell of electricity. "All Electric" and "Gold Medallion" homes were the catchwords of the industry. We have lived through campaigns of "Use Energy Wisely", "Go Electric" and "Stamping Out Cold Feet" and are presently enthusiastically supporting the better energy management campaigns. In the past four years we have doubled our staff in this area. However, the effort we put into energy conservation pales by comparison with that of Ontario Hydro.
You have to remember that reduced energy consumption does help to reduce our generation costs and has only minimal effects on our distribution costs. Indeed, energy conservation is a loser on utility balance sheets. The compelling reason to be part of the energy conservation effort is best described in our mission statement, "To provide the highest quality of economic, reliable electric power and related services to our customers, while contributing to the community's social and environmental objectives."
It would not be responsible on our part not to be involved in energy conservation, but the expanded role of Bill 118 to get involved in energy conservation involving all forms of energy will create a cost that will be paid for exclusively by electricity consumers. Surely the cost could be shouldered by other players in the energy sector as well. The use of oil, gas and wood is certainly not environmentally benign.
Our provincial association, the Municipal Electric Association, also brought to the government's attention its concern on fuel substitution. This is a concern we also share. Although our city has gas available to all the built-up areas and gas has been the heating fuel of choice in practically all new developments, we still have about 20% of our customers who heat with electricity. Most of these customers are in the rural area of the city or are located in apartments. In either case, their homes do not lend themselves to conversion to natural gas, which today seems to be the heating fuel of choice. We would not like to see the rates subsidize the cost of switching from electricity to other fuels.
On this matter the minister has indicated that he expects Ontario Hydro to consult with municipal electric utilities on any programs in this area. Further, such programs will stand up to economic scrutiny and will be in the best interest of the electrical system, the environment and the people of Ontario. In addition to this I trust that such programs would also be in the best interest of our customers and other customers who are left paying the electric bills of the province.
The final area I would like to speak on is the changes made to the board of directors. Bill 118 increases the composition of the board of directors of Ontario Hydro by four members, and the chairman become the chief executive officer. We are a long way from Toronto, and much of our press is occupied by the local political colour, but from what we saw from a distance it seemed that the new organization of the board was a knee-jerk reaction of the government to a difference in opinion with the old Ontario Hydro board.
Surely with the challenges that Ontario Hydro and the province have to secure our energy future this is no way to operate. As the former Minister of Energy, Jenny Carter, pointed out in her June 5 statement at the first reading of the act, the amendments are supposed to "enable Ontario Hydro and the government to work together more effectively for the continued economic, environmental and social wellbeing of the province." What the amendments appear to do, however, is take control from Ontario Hydro and give it to the Minister of Energy.
I liken the situation to the municipal setting, where we have a commission elected by the voters to run the electric system of the city. It would not be right if our city council could issue directives we were obliged to follow. The city council has an interest in the way we operate and is represented on the commission by the mayor, who can ensure that we are working to the same end as the city. Although the city, through the mayor, carries only one vote of three on the commission, she has as well the political persuasion to help influence decisions of our board.
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I think it is positive that the government establish a greater presence and influence on the Ontario Hydro board. The impact of decisions Ontario Hydro makes should move the province in the same directions as the government is moving, but the proposed amendment swings the control too far away from the board to the Minister of Energy.
In summary, I am sorry I am so negative about the proposed changes to the Power Corporation Act. Our utility does not see many of the measures as being positive steps in the direction of securing our energy future. The bill is to make Ontario Hydro more responsive to the people of Ontario. It goes without saying that we in the utility industry would like Ontario Hydro to be more responsive to our customers' needs and our needs. Many is the time when we have taken Ontario Hydro to task for ignoring the needs of our customers in programs it has developed, but I am afraid I have little confidence that with the Ministry of Energy exercising more influence and direction the situation will improve. In fact, I fear it could be worse.
Ontario Hydro is a big business that should operate like a business is supposed to run. Having a board taking direction from the government and not having the directors accountable for the consequences is a difficult situation to comprehend. If Ontario Hydro cannot be left to operate as a business, it would be better to take the whole step and incorporate it into the government. At least it would be clear who is calling the tune and who is playing the pipers. We all know who is paying the pipers. Having said that, I am not a believer that it should ever happen.
I expect the fuel-switching proposals will be put in place. A major component of Ontario Hydro plans to reduce load is based on fuel switching. Unlike load reduction through conservation, fuel switching is an exercise of tradeoffs where one has to consider emissions, impact on non-renewable resources, international prices and the impact on the Ontario economy. Consultation has been promised in this area. I hope real dialogue can and will occur and can be done in a timely manner. A clear and consistent message has to be given to the industry and consumers of Ontario as to where we are headed.
Finally, a few words about what Bill 118 did not propose: The finances of municipal utilities are tightly controlled by Ontario Hydro to an extent that we have had to justify the addition of a half-ton truck to our fleet of 20 vehicles. Aside from this, it has always been a bone of contention that unlike municipalities, utilities cannot establish reserve funds in anticipation of large expenditures. The pay-as-you-go principle is not possible in our business. What we would have liked to see in Bill 118 were changes to allow municipal utilities to operate more like municipalities where they, under the Ministry of Municipal Affairs, have more flexibility to operate as a business.
Thank you for this opportunity to address your committee. If there are any questions, I would be happy to try to answer them.
The Chair: Once again a very comprehensive submission. We have two minutes per caucus.
Mr Wood: I can see you have a number of negative concerns about the amendments in Bill 118. I have a number of questions but I am going to limit myself to one or two. Concerning the Elliot Lake situation, I am sure you are aware of the small amount of money that was involved compared to the $1.5 billion it would have cost to continue the contracts signed by Hydro and previous governments to keep Elliot Lake going. The amount of money put in was considered to be small compared to what it could have cost to continue those contracts. Do you have any comment on that?
Mr McCullagh: I actually have two comments on that. One is that it was my understanding that the possibility existed for a five-year notice-of-quit clause on that and that the $1.5 billion would have been saved had Ontario Hydro exercised the five-year option. Therefore, we would have had a saving of both. I do understand that sometimes you have to pay a little to save a lot. Our major concern is that this is the opening of a door and that $370,000 is a lot to us as a utility and a lot to the customers we represent.
Mr Wood: In 1989 Ontario Hydro made commitments to Kapuskasing and the industry there and those commitments were fulfilled on August 14 of last year. The Premier himself took personal charge of the negotiations, with Shelley Martel, the Minister of Northern Development and Mines, and myself. I am wondering what reaction you had on the commitments that had been made and fulfilling the deal for involving the full ownership of the Mattagami four, where they had three before and now they have the four powerhouses.
Mr McCullagh: The first thing is that I would not like to be in your shoes or his shoes in particular instances. Any commitments that are made by any elected official or body obviously have to be lived up to. I think he took charge where he had to, but I think Ontario Hydro as a group -- I will go back to my statement. If the government feels such, then Ontario Hydro should come under the Minister of Energy. That is the way it should go. They should be run accordingly and the costs associated with any commitments would come through them. Other than that, it should be run as a business where sometimes they will have to take hard decisions and say, "Yes, we've got a five-year quit clause and we'll pull out and you're not going to get anything." That has to be balanced. Certainly those are tough decisions, but commitments have to be lived up to.
Mr McGuinty: Thank you for a very thoughtful presentation. We have had a number of opinions here, some of them more informed than others. You are in a better position to offer an informed opinion with respect to the implications for me, a ratepayer who is not going to be able to switch to an alternative fuel. I live within your jurisdiction. I wonder, if I gave you a call and said, "Mr McCullagh, I can't switch to another fuel. If Bill 118 goes ahead, how's that going to affect my rates," what would you answer?
Mr McCullagh: They are going to go up. As the number of consumers in our utility goes down, our expenses and costs go up as we, as a utility, spend more and more dollars on energy conservation, which has to be done. As we have said, we have doubled our staff from two to four in this area. Costs increase and our revenues are going to flatten out or go down. Certainly there is only one way to pay the money and that is to increase it to the customers there.
Mr McGuinty: Others have told us, though, that the amount of power you are going to buy from Hydro is going to be reduced and that consequently there should be some balancing out of those costs and there should not be any net increase for me.
Mr McCullagh: I would like to see that on a piece of paper and would challenge the person who shows me that, quite honestly. I know what our costs are in our utility. We are lucky. Our utility is five and a half years from being debt-free. We are one of the lucky ones. That might possibly be true once we hit that point, but I do not think so. Our balance sheet does not show that. We have done the statistics for our utility.
Mr Jordan: Thank you for your fine presentation. I noticed that you say in your presentation, "Our first and major concern is the proposed change that will allow the Minister of Energy to issue policy directives to Ontario Hydro that must...be `implemented promptly and efficiently.'" Could you enlarge on that, please?
Mr McCullagh: Yes, I will go back to the statement. As we see it, a separate board of directors, as it had been at Ontario Hydro, would make its decisions independently and be run according to an overall policy of the government. What we see coming in Bill 118 is that the minister will be directing the board on almost a daily or annual basis as to how it should be doing its job. If that is the case, then let's remove the board and have the president of Ontario Hydro report to the Minister of Energy. If that is the way the government wants to go, that is certainly its decision. They certainly have the right to do so. But I think that under Bill 118 you really have a no-board situation. The board does not have the power it should to run it as a business.
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Mr Jordan: Right. The other part is that the Municipal Electric Association had received a guarantee, or an amendment that would be made by the minister, relative to that section which stated that these directives would not entail the implementation of anything that was outside the Power Corporation Act. Was that acceptable to you people and did you assume it to be this act or this act as amended by Bill 118?
Mr McCullagh: No, I do not feel it is acceptable to us. Either the board should run as it has been running or you should put the utility under the direct control of the minister's office. Bill 118 is something in between. I think you have a leg on either side. That is my view. I am sorry but, from what I have read of the bill, all the documentation and the reports of what has been going on at the hearings on a daily basis and things like that, I am not going to change. I may be incorrect in that, but that is how I view it.
Mr Jordan: We had the mayor of another community in this afternoon and he was quite upset over this $7-million lightbulb campaign. One thing that upset him was that it says on here "Ontario Hydro and your local utility." Would you comment on that, please?
Mr McCullagh: I think a lot of the programs that go on do not necessarily get the participation of the utility in the form they should. The program is decided by Ontario Hydro and we have a choice: Either we can say we are participating or we can say we are not, but it is going to come as if we are. The most recent example is this survey that is about to go out by Ontario Hydro now. Our municipality is bilingual: 35% of our customers are francophone and yet we are told they will not get a survey in their official language. We cannot get them. They have to send in a form. I think that is terrible, but that is the program and nobody came to talk to us about it. "Here is the program and you take it that way." I had a big fight with that. As I said in the brief, we fight Ontario Hydro regularly on those sorts of things.
The Chair: Mr Jordan, perhaps you could give those ligtbulbs to the clerk and she will file those as exhibits.
Mr Jordan: I would sooner reduce the energy by using them.
The Chair: All right. You have to take them out of the bag to do that. I got them too. They are in a drawer.
Sir, I want to tell you how much we appreciate your coming, you along with a whole lot of other people. One of the things that has been impressive, as I have told others, is the interest this legislation has generated and certainly some strong and well-articulated reaction. You have been valuable to the committee, I assure you of that. As I told the earlier presenters, and as I say to everybody who is here tonight, your own MPP would be pleased to obtain for you partial or complete transcripts of the people participating in this hearing. You might find that to be of interest. I trust you will keep in touch with your own MPP and others, be it the critics or the parliamentary assistant, to keep them advised of your ongoing concern. We appreciate you coming.
Mr McCullagh: Thank you. I will look forward to the results of your committee.
The Chair: I hope so.
Mr McCullagh: Absolutely.
FRIENDS OF THE EARTH
The Chair: The next participant is Friends of the Earth. Come forward, please, and have a seat. The remarkable thing is that coffee is being brought in. I have no doubt that it will arrive just shortly before we are finished, at which point I invite you to stay and drink coffee. Friends of the Earth, please tell us who you are and a little bit about your organization. Please try to spend as little time as possible on your submission, because as you have been able to tell, the questions and conversation and exchanges are particularly valuable.
Ms Comeau: I have definitely tried to keep it to less than 10 minutes. My name is Louise Comeau. Kai Millyard is here with me to answer any questions you may have. I am a climate change campaigner with Friends of the Earth. We are very pleased to have this opportunity to comment on this important legislation.
Friends of the Earth is part of an international network of environmental groups with offices in 44 countries. Our Canadian office is here in Ottawa. We have 25,000 members in Canada and most of them live in Ontario. We were founded in the 1970s around energy and environment issues and have been active in the area of public policy ever since.
Friends of the Earth is participating in the environmental assessment hearings over Ontario Hydro's demand-supply plan as a member of the Coalition of Environmental Groups for a Sustainable Future. In particular, we are in the hearings with an eye on the carbon dioxide and climate change implications of Hydro's plans.
While direct impacts on Ontario from climate change are difficult to predict, some scientists have made efforts. Their studies have suggested that a loss of the $40-million-a-year skiing industry in the Georgian Bay region is likely, and losses to farmers in southwestern Ontario of $100 million per year are possible as a result of moisture stress in hotter, drier summers. These stresses would of course be in addition to the stresses already imposed on our environment by other forms of air pollution.
While Bill 118 deals with a number of different Hydro issues, we will comment only on the portions of the bill pertaining to fuel switching.
Once upon a time, in the 1970s, a very wise person likened the overuse of electricity for things like space heat as a waste of resources equivalent to "cutting butter with a chainsaw." Not only does electric heating lead to a waste of billions of dollars, but it results in gross excesses of pollution of various kinds.
As you know, heating energy demands come at Hydro's peak times, so the electricity is provided in large part by coal-fired stations. Conversion of oil to electricity results in the loss of two thirds of that energy as waste heat to lakes and rivers. There is another average loss of 8% in the transmission stage. This means that electric heating uses about four units of energy to deliver one unit of energy at the house, a grossly inefficient system. On top of this, coal is virtually the dirtiest fuel available. For the same amount of energy, natural gas produces only half the carbon dioxide, virtually no acid-causing sulphur dioxide and far lower particulate and nitrous oxide emissions. The use of a high-efficiency natural gas furnace provides these benefits of the cleaner fuel and also avoids the power station losses, making for dramatically lower air pollution emissions.
The use of this natural gas example is not meant to imply support for natural gas over other fuels. Virtually all the fuels available for heating -- oil, propane, wood and solar -- result in significant reductions in pollution compared to electric heating and all should qualify under the program. While Bill 118 does not include restrictions, this question will be a matter of government policy and Hydro's implementation program. Currently, Ontario Hydro is planning fuel switching only where natural gas is available. We look forward to an open, multifuel policy. If any fuels are to be preferred for fuel switching, fuels such as solar and wood energy should get special support because of the low environmental costs of these renewable energy sources.
I would like to draw your attention to the graphs at the end of our brief, on the last two pages. These figures are from a study prepared for the Coalition of Environmental Groups by Passmore Associates that will be presented to this committee in full by the consultant next Monday in Toronto. Their analysis asked the question, what would the air pollution emissions have been if Hydro had not promoted electric heating over the last few decades? The answer: dramatically lower.
The analysis assumed that the 800,000 or so homes now electrically heated would have used midefficiency models of oil and natural gas furnaces. The analysis shows that province-wide emissions would have been 119 to 193 million tonnes lower for carbon dioxide, 914 to 1,480 kilotonnes lower for sulphur dioxide and between 274 and 455 kilotonnes lower for nitrogen oxides since 1975. To put it another way, the CO2 pollution caused by the excessive use of electric heat since 1975 is equal to Ontario's 1990 CO2 emissions from all energy sources.
Electric heat is the most expensive form of heating in Ontario. Indeed, it has always been more expensive than gas or oil, even in the years of high oil prices. The following graph, also from the Passmore analysis, shows how much higher the cost of electricity has been compared to oil and gas since 1975. Paying more for a high-quality form of energy that can run lights and electronics makes sense, but to use that energy to do simple tasks like low-temperature heating, especially when other fuels can do so at far lower costs and with less environmental damage, is irrational overkill at its worst.
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This high cost of electric heating has meant hundreds of thousands of Ontario families have spent millions of dollars in recent years that they never needed to spend. The Passmore analysis concludes that if Ontarians now heating with electricity had instead been using oil and natural gas, their bills would have been $4 billion lower than they were. This amounts to one of the most extraordinary ripoffs in Ontario history.
Why has this happened? Because Ontario Hydro's corporate culture is centred around building power stations, and it has used aggressive "Go Electric" marketing strategies to promote this wasteful energy use to generate enough demand to justify expanding the system. What is most offensive is to hear opponents of fuel switching, like many municipal utilities, arguing against the economic interests of their own customers. If the Passmore analysis had included water heating or space heating in the commercial and industrial sectors, the $4 billion overpayment would have been even higher.
For environmental and economic reasons, Friends of the Earth strongly supports the amendments in Bill 118 enabling fuel switching expenditures at Ontario Hydro.
Those arguing against fuel switching make two main arguments, and we will respond to both.
First, they argue that switching to gas benefits customers near gas lines but leaves others without benefits, constituting a cross-subsidy from all ratepayers to those going off electric. As we have argued, fuel-switching policy should allow switching to any fuel, not just gas, so all electric heat customers can benefit from the program. All other electricity customers benefit from demand management measures as well because reduced load growth means less need for Ontario Hydro to build expensive new supply that pushes rates up, as the Darlington station's costs are now doing to rates.
As for the cross-subsidy argument, all ratepayers are already subsidizing electric heating customers because they pay higher rates than electric heat customers do. It appears that the MEA does not mind the existing cross-subsidy, but does not support investments that will reduce everybody's costs and protect the environment.
Second, they argue that reduced loads on municipal systems will result in higher local rates because of the need to cover fixed costs. While compelling on the surface, we believe this is an overstated problem. The vast majority of municipal utility costs are the wholesale power purchases from Ontario Hydro. Therefore, actions to keep these rates down, like fuel switching, will likely affect local rates far more dramatically than the fixed-costs issue. It would also only occur where the customer base is not growing, narrowing the number of locations where higher rates to cover fixed costs could occur.
Finally, the fuel-switching program would occur over a number of years, therefore reducing loads gradually -- indeed, probably only slowing local demand growth, not shrinking demand. If any utilities can specifically demonstrate that this becomes a problem in the future, we should certainly consider it at that time, but to abandon the enormous economic and environmental benefits of fuel switching for this reason would be a hysterical overreaction to a problem that may never arise.
Finally, Friends of the Earth supports Hydro investing in 100% of the costs of conversion to other fuels. Where fuel switching or any other demand management measure is cost-effective, why would society not want to obtain it? Offering only part of the cost has the effect of getting less conservation than is cost-effective, a self-defeating strategy for a conservation goal. If Hydro is willing to invest fully to build new power stations, why should it not invest fully to supply energy through cutting waste?
The Chair: People are going to have some questions for you. Mr McGuinty, you have three minutes.
Mr McGuinty: Thank you both for attending and for providing us with a very considered paper. You provided me with a couple of pieces of information that I had been looking for in the past. You have indicated through use of these graphs here -- at least the author of the graphs, Passmore Associates, indicates -- that apparently the burning of oil to heat a home causes less detriment to the environment than does consumption of electricity. I do not know a lot about these things, but it would just seem to me that if we use electricity, I understand that to heat we are using peak power, which is made up of 60% to 80% fossil fuel, but oil appears to be 100% fossil fuel, just to my way of thinking. So where am I wrong there?
Mr Millyard: That is quite right. The fossil fuel that Hydro is burning is coal, which has considerably more pollutants in it than oil does. If you are burning coal to make electricity, you have to burn four units of coal in order to get one unit of energy delivered at the house because of the losses. Two thirds of the energy is lost in the power station. It goes out into the lakes and rivers, and more is lost in the power line. You have to overgenerate in order to get one unit to the house, whereas if you burn what is a cleaner fuel to begin with directly in the furnace, there is a dramatic reduction and there are much higher efficiencies. In other words, burning coal, a much dirtier fuel, at a power station is in the order of 25% efficient, and burning oil directly in the furnace is about 80% efficient and oil is a cleaner fuel.
Mr McGuinty: Thank you. The graph refers to light oil. What is that?
Mr Millyard: That is the kind of oil you get in your furnace, as opposed to heavy fuel oils, which would be used in industry.
Mr McGuinty: On the matter of the economics of fuel substitution, I am still quite confused. I think you were present when the earlier witness provided us with his opinion. He is a gentleman in the business. He tells me that if I were a ratepayer, I should be concerned if I were unable to switch to an alternative fuel myself, because he feels my costs will not drop and may in fact go up as a result of fuel substitution.
Mr Millyard: Yes, but I do not see why you would not be able to switch to an alternative fuel. There are four or five available. We have said very clearly that while at the moment Ontario Hydro is assuming it is only going to do fuel switching for electric-heating customers who have access to gas, that makes no sense at all. All electric-heating customers should have access to this program. A policy like that would clearly be a completely unfair windfall benefit for the gas companies. Virtually all the other fuels that are available are cleaner and cheaper than electricity, to begin with, and consequently all electric-heating customers would have access to the fuel-switching program.
Mr McGuinty: Would you see any reason why other utilities, for instance natural gas, that would stand to gain from a fuel substitution program should not participate in subsidizing?
Mr Millyard: I do not see why they should not contribute to investing in the switch. Clearly they will be benefiting. I think it is a side issue. I think the most important issue is that Hydro should be willing to support 100% of the cost, or a split with the gas utility if a gas utility is involved, because only if you are willing to pay the full value of the switch will you get the largest participation. Of course, we are only going for cost-effective switching anyway. Consequently, you want to get every little bit that you can.
Mr Jordan: Thank you very much for your presentation this evening. I have one question. You refer to an all-electric getting a separate rate.
Ms Comeau: Yes.
Mr Jordan: Where does that take place?
Ms Comeau: That is the block rate where I think up to the first 250 kilowatt-hours of electricity used in a month is one price. Anything above that is cheaper. Let's say it is eight cents for the first 250 and after that it is six cents. If you are a non-electric heater, if you are a family that is not using electric heat, it is unlikely you will use more than the 250. Depending on your lifestyle, you will pay the eight cents beyond that. The customer using electric heat will definitely achieve the lower rate. It is almost an incentive to use as much electricity as possible, because you get the lower --
Mr Jordan: Could I explain that a little bit?
Ms Comeau: Yes, go ahead.
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Mr Jordan: The rate structure, the higher block and then your lower blocks, whether you have three sets of rates or not, is freedom of choice. No one stops me at the 250 or the six-cent rate or whatever. Everyone is free to go and use 10,000 kilowatt-hours if they wish.
Ms Comeau: But should they?
Mr Jordan: I am saying they have freedom of choice, freedom of management, but what I would like to point out if I can at this moment --
Ms Comeau: Wait, I have to come back at that one.
Mr Jordan: Just let me finish.
The Chair: You provoked her.
Mr Jordan: I am sorry, Mr Chairman. I did not mean to.
Ms Comeau: If you have electric heat, you are committed regardless. Even if you were a reasonable family and kept your heat at a reasonable rate, you are committed to using a fairly large amount of electricity per month. You will not be able to have freedom of choice beyond a certain point. You are committed. You are using that system.
Mr Jordan: Because I get more kilowatt-hours at the end rate, you feel you are subsidizing?
Ms Comeau: Yes, absolutely.
Mr Jordan: The point I want to make is that to connect your house, it costs me the same capital for the pole, the transformer, the wire and the labour. The same capital investment goes into that. The higher blocks are meant as a return on my capital over a 20-year period, say, and then the remainder is at the cost of power. That is as I understand it.
Ms Comeau: That is looking at it from both sides of the mirror. I have a different perspective.
Mr Jordan: I was afraid you meant there were two different rates in the thing.
Mr Millyard: In effect, there are two different rates. We did not come to talk today about rate structures, so I think it is an incidental point. The system with the rationale you describe that is being used now is certainly the system that has been in place for a long time. It is on its way out in many places because it is recognized that it simply promotes overuse of energy. Flat rates are where progressive utilities are going so that they do not promote increased use.
Mr Jordan: Could you explain your flat rate a little bit, then?
Mr Millyard: One price, no declining blocks; no matter how much you use, it costs the same amount.
Mr Duignan: First of all, I appreciate your coming here this evening and offering some very interesting points of view. That is quite an interesting organization you belong to. Maybe you could elaborate a little bit more where you are arguing that it should not just be gas, that other forms of fuel should have some subsidization. Could you maybe elaborate a little bit on that? What types of items have you in mind basically for customers who would not be near a gas line, for example?
Mr Millyard: There is oil; there is propane; there is wood, particularly in rural areas, and certainly for water heating there is solar. All those should qualify for Hydro financing. They are all cleaner, with the possible exception of wood in local circumstances, although woodstoves and certainly oil furnaces should be subject to efficiency standards.
Under Ontario's Energy Efficiency Act, there is now a standard for natural gas furnaces. Unfortunately, it only comes up to the midefficiency natural gas furnaces. We would strongly support Hydro's program of only investing in fuel switching to gas if it were to the high-efficiency gas furnaces, so that we do not cause any unnecessary and excessive use of, and pollution with that fuel. Of course, it is also cost-effective because people's bills will be lower again. The same kind of requirement should exist for the other fuels. The most efficient equipment should be required.
Mr Duignan: Basically, you would like to see a combination of various fuels offered under the fuel-switching program.
Mr Millyard: It should be the consumer's choice. We are not interested in restricting consumers' choices here, with the exception of electric heating. It is expensive and it is very polluting. Ideally, you would have a graduated degree of support for the cleaner fuels. It gets very complicated to figure out which is clearly the best one. We think that the renewable fuels are better than the others and that if some kind of additional support for the renewable fuels were possible, that would be advisable, but apart from that, all of them should be available to customers who may want to switch.
Mr Jordan: This address that you give: Do you operate in an office from that location?
Ms Comeau: This Ottawa office? Absolutely. We have one office in Canada. Friends of the Earth is a national organization.
Mr Jordan: And it is in Ottawa.
Ms Comeau: One office in Ottawa, that is right.
Mr Jordan: And the people now out in the county are from --
Ms Comeau: We do not have local offices. We have one office, but we do have 25,000 members across the country and we communicate with them from our Ottawa office. We have affiliates and we work in coalitions, as we mentioned with respect to the Ontario Hydro demand-supply hearings. We work with other environmental groups, on coalitions and have affiliates in certain locations, but we have one office.
Mr Jordan: When I meet a group at county council regarding waste management, are they part of the same organization?
Ms Comeau: No.
Mr Jordan: If they call themselves Friends of the Earth?
Ms Comeau: I am not aware of another group called Friends of the Earth.
Mr Jordan: They are probably members in the rural --
Ms Comeau: They could be, but I am not aware of it. Usually, if someone is making a presentation under our name, we are aware of it and it would probably be a staff person who would have worked with that person, so I am not personally aware of it.
Mr McGuinty: I am wondering if you have access to, or have either seen or read, any kind of study or analysis of the economics of fuel substitution, something that goes into rather substantive detail.
Mr Millyard: Certainly the Passmore study we have referred to looks exclusively at that question, and you will see it in its full detail on Monday in Toronto. Our consultant will present it to you. It is principally a retrospective analysis that goes over what the economic consequences and savings would have been and what the pollution savings would have been had we not over the last 15 years been so aggressively switching to electric heating.
I did not bring it with me, but the Ministry of Energy has recently published, because of the Gulf war a year ago and then in the summer, a simple listing of energy prices, comparative fuel prices. It showed that if you are now on electric heating and you were to switch either to natural gas or to oil -- a high-efficiency natural gas furnace; either a semidetached, fully detached or row house -- the reduction in your fuel bill would be 65% to 66% by going to the high-efficiency gas furnace from electricity. It is an enormous difference.
The Chair: Mr Duignan, unless you want Mr McGuinty to ask the question you were going to ask.
Mr Duignan: I do not know what question he was going to ask, but very briefly, you touched on all the areas of fuel generation except that of atomic energy. Maybe that is a bigger subject for another day. I was wondering the reason.
Mr Millyard: By and large, nuclear energy does not provide very much of the electricity involved in electric heating. Nuclear power is run all the time on Hydro's base load. It provides for electricity needs that go all the time, like refrigerators. Things that are provided by peaks are some hydro but mostly coal stations, and that is why we focused on that. There is some cost of the nuclear stations rolled in here because at the bottom of the curve there may be a little bit involved. It is hard to say. Hydro would never give you a clear answer as to how much electric heating comes from nuclear, coal or whatever, but it is not much of an issue here.
Mr McGuinty: I look forward to seeing that Passmore study, but if it is based primarily on what has happened in the past, the history of our usage of electrical energy for heating purposes, how would you address this? I switch to oil and oil prices go up substantially and it is no longer economical for me to be on oil in comparison to electricity. What should we be doing to address that potential problem?
Mr Millyard: The best thing to do, no matter what fuel you have, is to insulate your house. The less energy you use, the less vulnerable you are to increases in the price regardless of what fuel it is. There is no question that the price of oil could go up. There is no question that the price of natural gas could go up. All of them no doubt will. At the moment, electricity is far more expensive and is going up far faster than any of the other fuels. Given the debts of our provincial utility, it looks like we are going to be paying a lot for electricity for quite a while. I do not see the spectre of the other fuel going up as a particular reason to stay away from it. That is a risk all forms of energy are vulnerable to.
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The Chair: You have heard what we have had to say to some of the other groups that have appeared here. We appreciate it. The response to this legislation and to these hearings has been just incredible. We have not been able to accommodate all the people and groups that have wanted to speak to us. There has been a real interesting, insightful and wide range of views expressed.
I trust you will keep in touch with either your own MPP or members of this committee, be it the parliamentary assistant or critics from the respective opposition parties. Once again you are entitled, as a right, to receive copies of the complete transcript of these proceedings before this committee. Your own MPP will be delighted to provide that to you. I hope you keep in touch. Thank you for coming out on this cool evening.
Mr Millyard: The coal stations are running hard tonight.
CANADIAN PARKS AND WILDERNESS SOCIETY
The Chair: The last group speaking to us this evening is the Canadian Parks and Wilderness Society, Ottawa-Hull chapter. Please come and sit down. Tell us who you are. The coffee I spoke about, by the way, is there. It is a big pot. Make yourself at home, tell us who you are and say what you will to us. Try to keep your remarks to under 10 minutes so we have time to exchange views with you.
Mr Endenburg: First of all, this is Shelley Endenburg. My name is Jeff Endenburg. We represent the Ottawa-Hull chapter of the Canadian Parks and Wilderness Society, also known as CPAWS. I am sorry we do not have copies of our brief to hand out, but it is short so it should not be too hard to follow.
The Chair: We will have to listen all the more carefully.
Mr Endenburg: CPAWS is a national, environmental, non-government organization established in 1963 and now represents approximately 7,000 members. The Ottawa-Hull chapter, one of nine chapters across the country, consists of approximately 650 members from eastern Ontario and western Quebec.
The mission of CPAWS is to ensure the preservation of Canada's ecosystems through the establishment of parks and protected wilderness areas, thus preserving the diversity of habitats and species that make Canada unique.
To begin, I would like to thank you for the opportunity to comment on Bill 118. This bill calls for some important and necessary changes to the Power Corporation Act. Although I intend to address the implications of the bill in more detail later, I would first like to state the position of CPAWS on the direction Ontario Hydro should be taking.
CPAWS believes that for both economic and environmental reasons Ontario Hydro should be encouraging reduction of energy use, improved energy efficiency and increased use of alternative, particularly renewable, energy sources. The extraction, transportation and use of any source of energy has inherent negative impacts on wilderness. To minimize the impacts we must minimize the amount of energy we use.
Coal mining scars the landscape, pollutes water sources and consumes energy in the mining process. Burning coal releases carbon dioxide and other pollutants such as sulphur dioxide into the atmosphere. High levels of carbon dioxide in the atmosphere have been cited by scientists as the cause of a possible greenhouse effect that may alter the climate of the earth and in turn irreversibly transform habitats that support the world's species.
It is hard to imagine the greenhouse effect being a bad thing on a minus-30-degree evening, but I think it is going to be bad. Sulphur dioxide is a major cause of acid rain, which continues to kill lakes and rivers in northern Ontario. The extraction, refinement, transportation and burning of oil are damaging to the environment. The building of pipelines for transporting oil from the north irreversibly damages delicate northern ecosystems and interrupts wildlife migration routes and breeding areas.
Transportation of all fuels consumes additional energy, creates additional pollution and presents serious threats due to spills. The Exxon Valdez accident is a dramatic example of the devastation caused by petroleum spills.
The environmental costs of nuclear energy far outweigh the benefits over the long term. Uranium mining, the tailings that result and the disposal of radioactive wastes, pose serious threats to all living creatures, including humans.
Hydro energy requires the damming of wild rivers, interruption and often destruction of fisheries and the flooding of wilderness areas.
The extraction, refinement and burning of natural gas releases pollutants into the atmosphere. Although switching to natural gas is encouraged as a cleaner energy source over other alternatives, natural gas is a finite, non-renewable resource that scientists are estimating is nearing the end of its supply. With this and other arguments in mind, it makes the best economic and environmental sense, in the long term, to minimize all energy consumption by encouraging and supporting efficiency measures.
The Ottawa-Hull chapter of CPAWS advocates three priorities for the reduction of energy used for heating. Our first priority should be to focus on thermal envelope improvements to increase energy conservation and efficiency. Such measures include upgrading insulation, sealing air leaks, improving windows, etc. If we use less energy, the demand for energy drops, thus decreasing the real need for Ontario Hydro to incur additional economic and environmental costs to meet electricity demands in the province.
Our second priority should be to encourage the use of renewable energy sources such as solar heating. This technology can be a truly viable alternative, but further research and funding are required to make solar and other energy sources both reliable and accessible. Following these two priorities, natural gas may be considered the least harmful energy option to encourage.
In this context, I will comment on some of the changes proposed by Bill 118.
Efforts to improve the accountability of Ontario Hydro to the government of Ontario represent positive changes to the Power Corporation Act. It is becoming increasingly important that Ontario Hydro serve the real needs of Ontario residents. These real needs are the services provided by energy at the least economic, social and environmental costs. Increased accountability to the government means enhanced democratic control over this utility which for decades has been irresponsibly increasing supply capacity at enormous cost to consumers and to the environment. There needs to be greater public involvement in decision-making at all levels of Ontario Hydro operations to ensure that the people of Ontario are afforded the clean and healthy environment they want.
The proposed changes to the act make sense. Ontario Hydro and the residents of this province can realize economic benefits from the implementation of these measures. Changes to section 95a of the act will allow municipal electric corporations to spread the costs of energy conservation measures over several years rather than accumulating operating expenses in a given year.
There are tremendous economic costs associated with the use of electrical energy for heating. As an example, a study, the Economic and Environmental Implications of Fuel Shifting, conducted by Passmore Associates in December 1991 estimates that residential consumers in Ontario spent 77.8% more for heating their homes between 1975 and 1991 than if they had used natural gas or oil. For these residents, electrical heating was clearly the expensive alternative.
Robert Franklin, former president and CEO of Ontario Hydro, has been quoted as saying that for a 15 kilowatt electrical home heating system, Ontario Hydro must spend over $50,000 to build the new generating capacity to supply the electricity. It is no coincidence that Ontario Hydro's debt has grown to $30 billion in light of the fact that for the last 20 years Ontario Hydro has been promoting electrical energy for heating.
There are sections of Bill 118 that will impact directly on the environment. Of special interest are subsections 56a(3) and 56b(3) which clarify Ontario Hydro's plans to focus conservation efforts on overall energy efficiency and address the negative environmental consequences of relying on electricity for heating purposes.
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Electrical heating is far from being clean and efficient. Electrical space heating in the winter correlates with Ontario Hydro's peak demand period. To meet this demand, fossil-fuel-fired plants must be used. The Passmore study also indicates that a large percentage, from 60% to 90%, of the electrical energy produced in Ontario is generated by coal-fired plants. Coal plants produce more than four times the weight of carbon dioxide alone than natural-gas-fired plants. Emissions of other pollutants are also dramatically lower when burning natural gas fuel.
Although Bill 118 represents an important step towards the protection of the environment, it is only a step. There are many other measures that should be taken by Ontario Hydro if the real needs of Ontario residents are to be met. Emphasis needs to be placed on programs to minimize the consumption of any energy source used in the province. By embracing the priorities endorsed by CPAWS and doing more towards the ultimate goal of energy conservation, Ontario Hydro can set a positive example for other provinces and territories across Canada.
The Chair: We are going to have some questions, I am sure. Mr Wood is first.
Mr Wood: Thank you very much for coming forward and giving an excellent presentation. During the course of this week we have had a pretty balanced group of presentations, but in a lot of the presentations brought forward, similar to the presentation you have brought here tonight, there is a concern that there are other ways and means of producing energy for heating homes and encouraging switching to other types of fuel, instead of having to build the big megaplants that have been built in the past and the debt that has been built up over the years. If conservation and switching are not encouraged through this bill, it will be detrimental to the people of Ontario. I do not really have a question. I just want to thank you very much for coming forward and presenting that and wish you all the best.
Mr McGuinty: I believe you contend that Bill 118 will make Hydro more accountable. You did not really cite specifically why you felt it was going to make it more accountable. Maybe you could do that for me.
Mr Endenburg: First of all, I would like to say that our main concern about the bill was to do with the environmental aspects. We are not lawyers. We do not have the background for the actual legalities of it, but in the past Ontario Hydro has not necessarily served the real needs of the public. Encouraging an increase in the use of electricity is not a responsible approach to take. I would like to see more accountability of Ontario Hydro to the democratically elected government so that the people of Ontario have more say in the direction Hydro is taking.
Mr McGuinty: I gather you are saying that Hydro is not doing a good job for its ratepayers -- I think that is a fair statement in terms of what you are saying -- so we are going to give government more authority to direct Hydro. What if we end up with a government that abuses that authority or for political purposes directs Hydro to do something that is not to the benefit of ratepayers?
Mr Endenburg: That is the way the democratic system works. We elect the government and we have to have confidence it is going to make the decisions we asked it to. That is the best system we have right now. At least that gives us the possibility of having more control over the decisions that are made by Ontario Hydro.
Mr Arnott: I have a simple question. I am just wondering if you have any concerns about the security of supply of some of the alternative forms of energy you have advocated tonight.
Mr Endenburg: Yes, we do, particularly these non-renewable sources of energy we are talking about, oil, natural gas and coal. They are all finite amounts and we definitely have concerns about that. That is why I think we need to look at more alternative renewable sources, such as solar energy, for heating, perhaps hot water heating, space heating. Perhaps wind generation can be an option in some places, and there are other sources, perhaps using wood in rural areas, as has been suggested by other groups, as long as these things are used in a renewable fashion. In other words, we cannot go and destroy forested areas, cutting down the trees and not keeping in mind that once those trees run out, then what do we do? We have to make sure we use these things in a sustainable way.
Mr Arnott: What about natural gas and oil? We do not have any local or Ontario sources of those particular fuels.
Mr Endenburg: I guess most of our natural gas, probably all of it, comes from the western region of Canada. It all has to be piped into Ontario. If we switch a lot of our electrically heated residences to natural gas, of course, there is going to be a greater demand on that and it is going to run out in the end as well. This is really why we have to start looking at renewable sources of energy. From our present perspective, natural gas burns cleaner. It is certainly much more efficient for heating buildings, residences. It is definitely less harmful in that sense to the environment. From that aspect it is a very positive thing, but of course it is going to run out, and we cannot use that without any environmental consequences. It has costs as well. It does produce carbon dioxide and other pollutants. We definitely have to keep all that in mind.
Mr Jordan: You referred to section 95a of the Power Corporation Act. What was your interpretation of that and what were you trying to bring forth from that reference?
Mr Endenburg: That section, I believe, would allow the municipal electric corporations to spread the costs of any energy conservation programs over a number of years, rather than incurring them as a capital cost in a given year.
Mr Jordan: Just to clarify that, do you mind if I read the amendment to you?
Mr Endenburg: No.
Mr Jordan: It presently says, "The cost of an energy conservation program to a municipal corporation or municipal commission shall be deemed to be a current operating expense of the municipal corporation or municipal commission." It will be a current operating expense. The amendment would allow it to be a capital expenditure. You are facing a scenario where you could have a commission elected that could go out and borrow a considerable sum of money and put that utility in a very bad financial situation because of some type of alternative energy it wanted to experiment with. At the present time they cannot do that. Whatever they are going to do for conservation they have to do out of their operating expenses and pass it right on to you in the rates so you do not put the utility in debt.
Do you really think it is good to now allow the utilities to get into a heavy capital expenditure? It could be very heavy, depending on the project. Then in three years they are not there any more. They are gone if the people decide, "I don't want this; they've put us in debt; this program of theirs did not work." They kick them out. Now the new ones come in and they face this debt. That is what I am concerned about.
Mr Endenburg: That is a potential problem. I think the Municipal Electric Association is responsible for serving the needs of the public and for making responsible decisions for the public it is serving. It is in their best interest to make these decisions such that they are going to -- what I am trying to say is that they have to make the right decision for the people. If they put their money into something that has not been proven, then there is a potential problem, I suppose.
Mr Jordan: What I am saying is that we feel safer if I institute conservation programs and have to make the rates match it so my books balance, not that I can go into some great project of a dream because I am elected and I am there for three years and I can put my utility in an awkward financial situation. I just wanted to clarify that.
Mr Klopp: On that point, I want a clarification. On the other side, can municipalities amortize or put costs over? When they buy a new utility truck, do they have to pay for that right off the bat out of that year's money?
Mr Jordan: They have to have Ontario Hydro approval.
Mr Klopp: But is that truck amortized over a number of years or does it have to be paid for that year, a new truck or a new transmission line?
Mr Jordan: That is equipment. Equipment and stations and fixed assets, if you will, are something different from --
The Chair: This particular discussion is best engaged in during clause-by-clause.
The whole committee -- all of us -- appreciates your taking the time, along with so many others, to prepare a submission, to put your thoughts and views down on paper in a most articulate way, and taking the time to come here on what is a somewhat chilly Ottawa evening. We have been impressed for the whole week now that this committee has heard submissions. This committee has been in Sioux Lookout, Thunder Bay, Timmins and now Ottawa hearing from people, some of whom have appeared before governmental committees many times, others who have appeared perhaps for the very first time, all of whom have been very forceful and very thoughtful in their comments. The next time you are with your colleagues at the Ottawa-Hull chapter of the Canadian Parks and Wilderness Society, please tell them, and we say this sincerely, that we appreciate that organization, along with all the others, taking the interest. This is how government can best work, when people make their views known. Keep in touch with your local MPP, as I have told others. He or she will make transcripts of this proceeding available to you. Keep in touch with that person with a view to finding out how this legislation progresses. We appreciate your being here very much.
This completes this evening's role for the committee. It has been a long day. The committee was up at 4:30 this morning so it could be accommodated at the Timmins airport and travel, as it did, to Ottawa. It has enjoyed being in Ottawa. We will be meeting in Toronto at Queen's Park on Monday, early in the afternoon, at 1 o'clock. If there are no other matters to be raised by committee members, we are adjourned until then, with my thanks to everyone for their cooperation.
The committee adjourned at 2003.