Excerpts from the magazine of the Independent Power Producers' Society of Ontario
Volume 10, No. 3, June 1996
Please note that various photos, charts, graphs and illustrations associated with the original text may be omitted from the electronic version. Contact IPPSO for hardcopy.
News analysis and comment:
Irony in the face of Macdonald and Harris
Independent power producers and others cite several examples of Ontario Hydro's new aggressiveness in combatting competition. In the last few months, the huge crown-owned utility has:
þ Launched historic lawsuits to discourage municipal utilities who are buying small amounts of power from alternative suppliers (see story at right);
þ Finalized secret multi-million dollar "load retention" discount power deals designed to forestall industrial self-generation, despite protests from competitors unable to get the same discounts;
þ Suggested that it would charge "exit fees" to any major customer purchasing independently, while objecting to the idea of having the exit fees reviewed in a rate hearing, on the grounds that such fees are charges, not rates. (Exit fees are not allowed under the Power Corporation Act, according to lawyer Andrew Roman.)
þ Distributed incorrect information on the cost structure of NUGs, erroneously blaming them for its financial problems, and suggested that existing NUG contracts should be re-opened, even though this would require legislation (see article elsewhere in this issue);
þ Failed to bring forward environmental and social costing data as promised several years ago;
þ Blocked NUG exports (see article elsewhere in this issue).
þ Failed to bring forward transmission access policies or efficiency policies, as ordered by the regulator;
þ Continued its own capital investment program and encouraged re-investment in mothballed nuclear capacity (according to the Ontario Hydro Nuclear Business Unit's newsletter) without any effective external financial or regulatory oversight.
In the past, Ontario Hydro has used a range of techniques to discourage competition. These include unfair backup charges, unfair buyback rates, subsidization of its own generation, and a ban on wheeling. The use of anti-competitive lawsuits and new measures at this time suggests that this is an all-out fight for market share against its competitors.
"One can understand Hydro trying to beat its competitors," IPPSO Executive Director Jake Brooks says. "But these techniques depend on use of unfair advantages. Hydro is risking publicly-guaranteed money for these gambits, money which will probably end up being charged to Ontarians in the form of stranded asset charges or new taxes in years to come. In addition, Hydro is refusing to follow important directives from its regulator, the OEB. This is not acceptable in the era of continentalization of the electric economy and opening up of markets. It will not sit well with our NAFTA partners."
It is particularly alarming that Ontario Hydro is doing this just as the government is considering its response to the Macdonald report on "Competition in Ontario's Electricity Sector."
Notably, Ontario Hydro's documents do not claim that Ontario Hydro has a legal monopoly under Ontario's Power Corporation Act, Public Utilities Act, or Municipal Act. Legal experts have pointed out that even though many people believed that Ontario Hydro enjoys such a legal monopoly in Ontario, this was never written into law in Ontario. Instead, Ontario Hydro's claim against the municipal utilities is based on the fact that each of them had signed contracts with Ontario Hydro wherein the local utilities agreed to purchase power exclusively from Ontario Hydro. The contracts have both expired, on May 1 in the case of Ajax Hydro, and in 1939 in the case of London.
Ontario Hydro's argument appears to rest on the claim that such purchases of independent power by the local utilities would cause Ontario Hydro to "suffer damages as a result of an increase to the plaintiff's cost of generating, distributing and supplying electric power." Hydro's claims that it "is a trustee or agent of all municipal corporations and public utilities in Ontario with respect to the supply of electric power, and such breach of contract by the defendants .. will result in an increase in the costs of generating, distributing and producing electric power to be borne by such municipal corporations and public utilities and thereby interfere with the trust obligation of the plaintiff."
Perhaps most surprising is a paragraph at the end of Ontario Hydro's statement of claim. Ontario Hydro asks for permission "to discontinue the supply of electric power to the defendants" if it turns out that the defendants do have the right in law to purchase from outside suppliers.
"There are so many problems with Ontario Hydro's lawsuit," says IPPSO Executive Director Jake Brooks, "that one hardly knows where to start. First of all, no one really believes that the cost of power is going to go up significantly if these little utilities buy small amounts from outside suppliers. Secondly, why is Hydro wrapping itself in the mantle of some ill-defined and perhaps mythical trust, as an excuse for avoiding competition, which it says it wants. Isn't Hydro concerned about making sure the local utilities have access to the cleanest, cheapest power available? And why is Hydro asking for the right to cut off service if it really wants to be more competitive?"
Brooks is also concerned that Ontario Hydro would try to make anyone live up to the terms of a contract that was signed in 1908 and expired in 1939: "Does the implied contract go on forever, until Hydro says it's over?"
Brooks believes it's relevant to ask why Hydro waited until now to seek clarification on these questions. "I can see no justification for Hydro requesting an urgent ruling on this question now, when Hydro has known that the problem existed for years. Despite numerous requests for discussions on this subject, Hydro has acted unilaterally in this area for a long time now, sometimes even reversing its previous positions, over strenuous objections."
Hydro used a secret agreement with the MEA to ban wheeling in 1993. In the same year, Hydro was ordered by the Ontario Energy Board to table its position on third party use of the transmission system, and it has never complied with this obligation. "The fact that Hydro hasn't even tried to renew any of these contracts has to tell you something," Brooks says. "If the parties to a contract still like its terms when it expires, you would expect that they would renew it. It seems that no one thought such an agreement was reasonable to renew any more."
IPPSO Director Paul McKay points out however, that IPPSO's official position on restructuring Ontario's electric sector does not endorse a wide-open market where municipalities can purchase power without any restrictions. "IPPSO is in favour of maintaining the power pool," McKay stresses "and deals like these two should have to pass tests demonstrating that they have a positive net value to society." Given that the projects have high efficiency, and in Ajax's case are based on the use of an otherwise wasted renewable resource, both projects would stand a good chance of passing such tests, McKay thinks. IPPSO's position does not suggest that the onus for proving such social benefit should fall entirely on the proponent of a small project.
Because the sole issue in this case is the interpretation of the expired contract and a few sections of the Power Corporation Act, it is not likely to be a long or complicated trial. It could potentially have far-reaching impacts though, possibly even confirming that the gates are open for municipal utilities to buy power wherever they choose. The trial could also confirm that without a current contract Hydro has no right to be the exclusive supplier to municipalities - putting them on the same footing as industrial customers. "Such a ruling would not result in any mass exodus," Brooks says. "Power contracts are not signed overnight, and much of Hydro's power will remain quite attractive to Ontario's municipal utilities for many years. Few of Ontario's municipal utilities have the kinds of physical opportunities that these two sites have in any case."
In Ajax, the Ajax Energy Corporation wishes to expand its existing district energy system to encompass power generation as well. Doing this would enhance the plant's efficiency to more than double that of an Ontario Hydro generating station, while contributing to a significant reduction in greenhouse gas emissions and global warming. As recently as last year, Ontario Hydro was encouraging Ajax Energy to submit a proposal to generate power under its RETS program. The Ajax district energy system is fuelled by the combustion of waste lumber from construction sites, and produces steam for industrial uses.
London's project will produce not only power and heat, but CFC-free cooling as well. The estimated capital cost of the London project is $4.7 million, with London Hydro getting a 27% ownership stake for $1.25 million. (The cost of the investment may change, but London Hydro's cost is guaranteed not to exceed $1,325,000). London Hydro is to receive 50% of the profit derived from savings on its peak energy cost. The developer has guaranteed the utility's investment will "pay back" in 5 years maximum. The installation uses a trailer mounted unit supplied by AGC Project Development, Inc. and employs twin Kawasaki and Marathon generators producing 3.5 MW and 30,000 lbs/hour of steam. The system should be up and running in June.
Further details of the London Hydro situation were published in the previous issue of IPPSO FACTO (April 1996, page 8). IPPSO's press release of May 3 details some of IPPSO's statements on the matter.
Ontario Hydroþs attempt to scuttle London Hydroþs local energy project is economically damaging, environmentally reprehensible, and legally pointless. The cost of such court action will far exceed any benefit. The Ontario government, which stands for getting government out of the way of private enterprise, and for open and fair competition in the marketplace, should not tolerate this. Neither should the ratepayers of London Hydro.
Londonþs project could save customers money, triple the efficiency of energy production, deliver large amounts of CFC-free air conditioning, and displace unreliable and potentially hazardous power from Ontario Hydro. London Hydroþs project creates jobs, stimulates investment, protects the environment, and contributes to local economic development, at no risk to taxpayers. Ontario Hydro apparently wants to do the opposite, and force dirty, expensive, inefficient power on Ontario consumers.
"Ontario Hydro probably doesn't expect to win this case," said energy lawyer Jay Shepherd, who has done extensive work in this area of law. "This looks, at this point, like a 'slap-suit' - a lawsuit launched not to win, but to intimidate the defendants. London Hydro, Ajax Hydro, and the cogenerators they are dealing with, all know that Ontario Hydro has much greater resources than they do, and can outlast them." Ontario Hydro should understand that by the time this matter gets through the courts, the electricity system will be restructured, and it will no longer hold any type of generation monopoly. Shepherd and others believe Hydro is simply trying to delay the introduction of much-needed competition with bullying tactics.
Ontario's Power Corporation Act does not actually give Ontario Hydro a monopoly over electricity sales in Ontario. Until now, Ontario Hydro hasnþt tried to get a ruling on its central contention here - that it can hold a municipal utility to the terms of a contract that expired in 1939. In fact Hydro has not acted on this question since the contract with London Hydro was signed in 1908.
Ontario Hydro recently blamed the supposedly high cost of independent power for its financial problems. If independent power is more expensive, IPPSO asks, "Why on earth would London Hydro want to buy it?"
A question worth asking: "Where else would society tolerate a dominant supplier using public money to take one of its customers to court for the crime of making the product more cheaply?" IPPSO believes Ontario Hydro has more important things to do with its financial resources.
Editorial
I recently caught myself wishing for the Ontario Hydro of even last summer. Yes, back in those halcyon days, Ontario Hydro still thought that independent suppliers had value, or at least weren't some kind of threat akin to the black plague. Less than one year ago, the famous '4Cs report' recommended very prominently "direct retail open access by the year 2000 and for full competition to supply the pool by January 1, 1997." Many of us had problems with some of the details in that report, but "full competition to supply the pool" sounded pretty good to us, in those innocent times.
Nostalgia can sometimes help you get a sense of where you are. Didn't we used to think of Ontario Hydro as everybody's friend, and especially the friend of the little guy. Our "guardian of the public trust" is now saying "break me up and sell me to the highest bidder." Our haven for the best paid and most overstaffed workforce in the country is now apologizing for not meeting its obligations - because of a lack of staff. And Ontario's fiercest defender of regional equity is now saying there's no guarantee about where rates are going in five years, or who will be hit hardest next year.
Our public servant whose slogan was "Power to the People" is talking about consuming 306 municipal utilities in one bite. The original advocate of rural electrification has cut rural service while increasing rural rates - enough to raise the ire of Ontario's rural Tory caucus.
The great social equalizer is exporting more and more discount power to the Americans - while paying Canadians not to make their own. In fact, Ontario Hydro is now suing Canadians for doing exactly the same thing it's enticing Americans to do - buying power on the open market.
Our paragon of environmental example is saying that it has to get out of long-term efficient cogeneration deals, so that we can buy more of that dirty coal-fired stuff on the spot market.
Do you remember when maintenance was only cut back by 10% a year, instead of on average 50%, compared to the heady days of the Demand-Supply Plan?
Our defender of public process now defies its own regulator, saying that exit fees aren't really rates and therefore don't require anybody's approval. And that it can't afford to comply with legal filing requirements. And that freedom of information laws shouldn't apply to its nuclear safety reports or privatization studies. Ontario Hydro probably has the lightest regulatory overhead of any of its competitors. Yet, at the same time it's pressing for a new regulatory regime, one that will be as "light- handed" as possible.
Isn't Ontario the place of eminent compromise? Where everything can be worked out "within the family?" Where we believe in building consensus? Where there are no secret deals? Where nobody has to question whether our money is getting invested wisely? A little bit of last year's Costa Rican rain forest would have been a minor excursion, compared to today's unreviewed capital spending.
Oh for the good old days, when Mother Hydro was everybody's friend, and all you had to do was trust.
- Jake Brooks
After taking a detailed look at the benefits of gas fired co- generation in Ontario, the first question that comes to mind is "Why is there so little of such a good thing?"
The answer, it turns out, is not economic viability, lack of gas supply, lack of demand for new power generation, nor a lack of knowledge or technical capability. Rather, the reason relates to the policy and institutional barriers surrounding power generation in Ontario.
At last count, there was about 1,870 megawatts of installed and committed non-utility generation (NUG) in Ontario (Ontario Hydro, 1994). About 1,375 megawatts or 73% of this capacity is gas fuelled, predominantly co-generation.
The benefits of gas cogen are substantial. In addition to the benefits of Ontario's electricity system that are associated with all NUG projects (system diversification, reduction in transmission costs and reduction in line losses), gas fired power generation offers both social benefits (environmental) and substantially benefits Ontario's gas distribution system.
By extrapolating data from the 3 main types of cogeneration in the Consumers Gas franchise area, fuel savings from heat recovery and overall CO2 emission reductions can be estimated for the province.
Heat recovery from each MW of cogeneration results in the displacement of about 25,600 GJ of natural gas annually, or about 35,000,000 GJ province-wide. This heat recovery, in combination with the displacement of coal-fired electrical generation for more than 75% of the year, results in annual CO2 emission reductions of about 4,400 metric tonnes per MW, or about 6,000,000 metric tonnes provincially.
In terms of benefits to the Province's gas distribution system, gas fired generators typically achieve close to 100% capacity factor and very high reliability (+/-95%). Consequently, power projects tend to achieve the highest load factors on the entire gas distribution system. Adding this high load factor capacity to the system is achieved at a lower capital cost per incremental system cost than the existing system average.
Consequently, adding power generation load results in increasing the revenue over cost ratio for local distribution companies (LDC's), thus reducing gas transportation costs for all Ontario gas customers. The revenue/cost ratio improvement is also true on the TransCanada PipeLines transmission system.
Using Consumers Gas' system as an example, the total power generation gas volume on Consumers' system commencing January 1997 will be 533 million cubic meters/year or about 6% of Consumers' total volumes of almost 9 billion cubic meters/year.1
Doubling or tripling this gas load up to 12 or 18 percent of Consumers total load would significantly improve Consumers' revenue/cost ratios, benefitting all of Consumers Gas' rate payers.
At present, total gas-fired power generation represents only 7.7% of Ontario Hydro's total reliable capacity of about 24,000 megawatts.
For a power generation fuel as clean and economical as natural gas, it is clearly not nearly a high enough share of Ontario's generation mix. A very good case could be made for increasing the natural gas share of generation in Ontario to somewhere closer to the 20% range (5,600 megawatts) based solely on the argument of appropriate diversification of fuel supply. The benefits to Ontario from improving the diversification of our electric supply and increasing the efficiency (revenue/cost ratio) of our gas distribution system would be substantial.
But it is not economic, operational or environmental factors in Ontario that are restricting the growth of gas fired cogeneration. Rather, it is the policy and legislative barriers that prevent Ontario power customers from purchasing this clean, cost effective power in a competitive market.
So, if gas fired cogeneration is such a good thing, why isn't there more of it?
1. The Whitby Co-Generation Project scheduled to commence commercial operation January 1997 will add 110 million M3 to Consumers' current 423 million M3 of annual power generation load.
ECAO is an association of Ontario businesses who are directly involved in the installation and upgrade of electrical equipment for both industrial and residential purposes. Although they are not directly involved in the generation of electricity, they are concerned about the expansion of monopoly utilities into non- monopoly aspects of the electricity sector, including their own.
ECAO Vice President Bob O'Donnell says that when competition is introduced into the electricity market in Ontario, measures must be taken to ensure that large utilities don't deliberately undercut smaller companies in order to force them out of the market.
"The potential for abuse is amazing," he says, particularly if Ontario Hydro and the municipal electric utilities (MEUs) are privatized. Private shareholders, he says, "would put considerable pressure on management to increase profits. The utilities may then decide the best way to raise profits is to grab a larger share of the market by using their larger resource base and special legal privileges to undercut smaller suppliers."
O'Donnell cites several examples of this kind of behaviour under the current market structure:
In December 1995, Toronto Hydro bid 36% below the lowest private contractor for work on the TTC's Spadina light rail system.
Ontario Hydro bid 40% lower than the lowest private contractor for a transmission line to a new Georgia Pacific Corporation plant in Northern Ontario in 1995.
Ontario Hydro bid 50% lower than the lowest private bid for providing electrical service to a new MacMillan Bloedel mill near Pembroke in 1995.
IPPSO has also cited examples where Ontario Hydro has used predatory practises to take contracts away from independent producers. Ontario Hydro is currently suing London Hydro to try to prevent them from purchasing electricity from an independent source. (See story this issue, p.1) Ontario Hydro has also made secret deals with customers, giving them cheaper rates if they don't buy from independent producers or build their own generation plants. (see IPPSO FACTO February 1996, p.6 and December 1995, p.1)
O'Donnell says the public utilities have an unfair advantage over private contractors because they are not under the same pressure to fully recover costs and still make a profit. "It shows that, no matter how many employees they have gotten rid of, they still have too many, and are trying to find things for them to do without full cost recovery," he says.
Although he admits the examples he gave may have been mistakes on the part of Ontario Hydro, or simply anomalies, he suggests otherwise. He says the bids were more likely deliberately set below cost to provide work for employees who would otherwise not have anything significant to do. They do it simply to recover some of their exaggerated operating costs. Losses can be made up later by inflating charges in other areas or by appeals to taxpayers.
With these examples already taking place, O'Donnell fears investor-owned utilities will be more aggressive in taking advantage of monopoly powers and captive markets. He says that privately-owned utilities in unregulated American markets often compete unfairly. He also claims customers are beginning to see this happen in the privatized Nova Scotia power market.
If Ontario Hydro and the MEUs adopt more aggressive anti- competitive behaviours, as O'Donnell predicts, the effects on private industry could be devastating. According to ACAO Executive Vice President Eryl Roberts, "Electrical contracting is a $4 billion business in Ontario, employing 30,000 electricians, linemen, apprentices, related field staff, along with thousands of other support employees such as engineers, estimators and administrative staff." He says ACAO members "greatly fear" the possible losses in revenues and jobs the industry could face if the utilities are allowed to bid below real cost.
As a preventative measure, the ACAO has two suggestions: First, privately-owned utilities could be prevented by law from entering into related, unregulated markets. Second, the government could also require that utilities that do compete in markets related to electricity follow set regulations that ensure fair competition. "We're simply calling for a level playing field of free and fair competition," says O'Donnell.
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Is the "surplus" evaporating?
Ontario Hydro recently stated through its lawyer at the Ontario Energy Board (OEB) that currently the surplus is 4250 MW, including mothballed units like Bruce 2. If such mothballed units are removed from the calculation, the surplus falls to only 2250 MW. And considering that at the moment the entire Pickering station is out of service, the surplus could be said to be as low as 250 MW at the time of this writing. Surplus figures in this range are low enough to justify construction of new capacity, and to rule out new load retention rates such as Ontario Hydro is currently implementing.
The above estimates suggest that there may not be the kind of surplus that people have been led to believe, says IPPSO Counsel Ian Mondrow.
Also to be discussed at this year's OEB hearing is whether Ontario Hydro's 17 proposed new rates are appropriate, considering "generally accepted rate making principles." (See IPPSO FACTO, February 1996, page 15.) The Board was also directed by the Minister to consider "the impact of (Ontario Hydro's 1997 rate proposals) on Ontario Hydro's financial soundness, on the reduction of Ontario Hydro's debt, and on the reliability and quality of Ontario Hydro's service to all Ontario's electricity customers." Participants at the hearing will be able to discuss whether the proposal is responsive to restructuring, but not about restructuring itself.
An interesting discussion emerged during one of the scoping sessions for the hearing. Ontario Hydro has developed plans to charge "exit fees" (charges levied against customers who self- generate or purchase from outside suppliers). However, Hydro claims that such fees are not rates, and it is therefore not submitting them to the OEB as part of its proposed 1997 rates. (All "rates" have to be submitted to the OEB for review). After discussion, the OEB said that since exit fees had not been formally proposed and referred by the Minister, there was no point in discussing them at this hearing. However, the Board ruled that if Hydro did want to implement exit fees, they would first have to be reviewed in the rate hearings. This amounts to a statement from the Board that Hydro should not implement exit fees for 1997. However, it is possible for Ontario Hydro to ignore these findings and implement such fees anyway. Independent power producers often question exit fees as unfair discrimination against competition. (See IPPSO FACTO, February 1996, page 8.)
IPPSO's Board also questioned whether participants are getting the fullest possible value from the hearings, considering that the OEB findings are not binding on Ontario Hydro, the way they are with the natural gas utilities: "We continue to be alarmed and concerned about Hydro's diligence in terms of responding to the recommendations of the OEB, and the inability of the OEB to have any forceful role about what Hydro does," said IPPSO President Tom Brett.
Minister Elliott has invited representatives from industry, health organizations, academia and elsewhere to a workshop June 19 and 20 "to share ideas on ways to reduce smog and work together toward this common goal." The topics under discussion will include environmental, health and economic issues, and US/Canada transboundary pollution issues. IPPSO will be represented, but companies involved in non-utility generation are also invited to provide input, either through IPPSO or directly to the Ministry. In fact, given the schedule, it is important that anyone with concerns in this regard try to bring them forward as soon as possible.
This work takes place within the context of the Federal Provincial NOx-VOC Management Plan, started in 1989 under the auspices of the CCME, and still under development. (See articles elsewhere in this issue). For further information, contact IPPSO or the Ministry of Environment and Energy.
Environmental Assessment Board 4
Communications Branch 10
Corporate Management Division 16
Conservation and Prevention Division 56
Environmental Sciences and Standards Division 132
Policy Division 18
Operations Division 153
Total 389
In addition, 27 individuals currently on leave of absence were notified that their positions have been abolished.
It is not yet clear how these changes will affect independent power producers. Independents use the Ministry in order to get Environmental Certificates of Approval for their projects, and of course for policy development purposes.
The Ministry believes that it has achieved about 60% of its total planned staff reduction. The Ministry of Environment and Energy appears to be receiving more of a reduction in percentage terms than the average across the Ontario government as a whole.
Called the Hillman Solution Gas Generation Plant (HSGGP), it collects about 450 mcf/day of natural gas that was previously burned in open flares about 5 km north of Pelee National Park. The HSGGP uses two refurbished Cooper Bessemer JS-8 engines for efficient combustion of the otherwise wasted resource.
According to Ian Baines, President of Marsh Energy, the project engineers, "A waste resource has now been captured and put to work providing power for the people of Leamington."
Electricity is sold into the Ontario Hydro grid through a local 27 KV feeder into Hydro's Leamington DS, generating $650,000 in annual income. The plant, built at a cost of $2 million, operates at an annual cost of $250,000 annually.
Marsh developed the concept for the plant after Pembina Resources, which owns the oil fields, approached them in 1991 to find a use for the estimated 250,000 mcf/day of gas then being burned as a waste product. According to Baines, the plant benefits all parties involved, including the local community, by reducing methane emissions, recovering a previously lost resource, eliminating unsightly open flares, and employing local staff. Pembina will be the operator of the plant, and has actively supported the project for its environmental benefits.
Further developments are also possible, says Baines. Although there is currently not a cogeneration aspect to the plant, future sales of recoverable heat to local greenhouses is under review. The Leamington area is home to some of Canada's largest and most productive greenhouse operators. Leamington is becoming a leader in sustainable energy. The HJ Heinz cogeneration plant is located 4 km from the Hillman site.
Another proposed renewable power project, employing a 600 kW wind turbine, has been short-listed for the site by Ontario Hydro's RETS program.
caption: The Hillman Solution Gas Generation Plant under construction near Leamington, Ontario. Inset: natural gas being flared, before the generation plant was installed.
Farlinger said, "While Hydro and AMPCO have some differences of opinion about the final structure of the industry, we are in agreement on the major issues - the end of the monopolies enjoyed by Hydro and the municipal utilities; open competition in generation and in retail supply and services; and an openness to privatizing some components of the existing system where it enhances competition or otherwise provides benefits to electricity customers."
"We differ primarily on how far and how fast. And I would like to address each of the major areas of difference, which are: timing; size and number of generating companies, and ownership of the transmission system."
"On timing, we share your view that changes should be implemented as quickly as possible. In fact, in our final letter to the Macdonald Committee, we reinforced the tone of urgency. We asked that the Committee define the end-state of the electricity industry in Ontario. And we further asked that a target date be established for achieving that end-state. It is essential, in our view, that the focus be set, so that the various industry participants can work toward the target date, and our customers can get on with running their businesses."
Farlinger appeared to suggest that the international competitiveness of Ontario's electric industry would be hurt by competition within Ontario. He said, "In an Ontario market, we agree that many small generating companies would provide the optimum level of competition. And that would be excellent for all customers in the province. But we cannot ignore the reality of the North American marketplace. There is no question that when deregulation and industry restructuring take place south of the border, there will be some very large competitors in both generation and distribution. And, just as you argue that your industries have to compete in world markets, so does Ontario have to compete in the electricity markets. And in this scenario, you must retain some large generation in Ontario, not only to retain market share, but to compete for new markets outside the province."
IPPSO representatives do not accept the view that international competiveness precludes accepting more independent generation at home. "In fact, all that Farlinger is saying here is that we need to retain some large generation in Ontario," notes IPPSO President Tom Brett. "He has not ruled out a mix of large and small generation, as his critics sometimes suggest. Experience has shown that small generators can compete alongside large ones very effectively, especially with the help of brokers and aggregators."
The critical mass required to compete in the power market, Brett points out, "is clearly well below Hydro's 27,000 MW." In addition, there are "niche markets" that are likely to be served best by relatively small generators.
Farlinger also took an opportunity at the AMPCO meeting to clarify that he opposes privatization without competition. "We need both competition and privatization." he said.
He took direct aim in fact, at AMPCO's proposal to sell off the transmission system immediately: "An immediate sell-off of the transmission system, as AMPCO proposes, uses the assets of one component - transmission - to subsidize another component - generation. That is certainly one way of recovering stranding costs from customers. However, it raises several issues, including cross-subsidization, which could be deemed anti-competitive by US suppliers. And if the stranded debt is too high, it puts a burden on costs to customers."
NUG blamed for Hydro's financial problems
Ontario Hydro's claims that NUG is too expensive are simply rhetorical, according to environmentalists and independent power interests familiar with the issues. "The committed NUG contracts are at or below Hydro's average cost, and well below Hydro's marginal cost when the contracts were signed. Besides, comparing firm long-term contract power prices with the spot market is apples and oranges, because the system needs both kinds of power," said IPPSO Executive Director Jake Brooks.
Ontario Hydro Chairman William Farlinger shocked some people with a little-reported remark after a speech he delivered in Ottawa in April. IPPSO Director Jeff Passmore asked a question from the floor about what Hydro would be doing to promote competition in Ontario. Farlinger reportedly responded to Passmore with a comment to the effect that although the NUG industry wouldn't be happy about it, NUGs had better get ready to have their contracts re- opened because they are too expensive.
IPPSO directors maintain that Hydro's independent power contracts are reasonably priced, and that it is unreasonable to consider renegotiating them. The Financial Post published IPPSO President Tom Brett's letter on May 16, which read in part:
"Ontario Hydro claimed once again that its own power is so inexpensive that competitive power is costly. Haven't we heard that before? The facts suggest otherwise:
þ Ontario Hydro is on record admitting that power from its Darlington plant costs more than 8 cents per kilowatt-hour.
þ Hydro also acknowledges that the cost of independent power capacity is amongst the lowest on the Ontario electric system, because independents are paid mainly for performance rather than for 'capacity.'
þ Independent power contracts on average are very close to Ontario Hydro's average cost of power (about 5.5 cents per kilowatt-hour, according to Hydro) even though the contracts have a range of other benefits including generating tax revenue for the government, removing billions of dollars worth of risk from taxpayers, saving Hydro transmission costs, creating jobs and environmental benefits.
þ Ontario Hydro is required to acquire a portfolio of short and long-term contracts because of its obligation to serve the Ontario public. In such a portfolio the more expensive power is there to help assure long-term reliability of supply. In your report, Ontario Hydro incorrectly equated its short and long-term costs, and this led to several erroneous conclusions such as the financial problems mentioned in the story. In fact, Hydro's NUG contracts as a whole have reduced its cost of maintaining the portfolio by about 20%. Independent power may not be absolutely the cheapest power you can get today, but it has saved Ontarians loads of money and continues to do so.
þ In any case, anyone who reads an article suggesting that Ontario Hydro power costs only 2 to 3.5 cents per kilowatt-hour must be wondering why they have to pay upwards of 7 or 8 cents for the same power from Ontario Hydro."
"Independent power contracts are a good deal for Ontario. They are not perfect, but they prevented Ontario Hydro from building its second Darlington plant, which would have cost us untold billions more than the first one. No impartial person would recommend breaking such legal contracts, because doing so would make Ontario a questionable location for international investment."
"If the current price for long-term power has gone down to 3.5 cents as Hydro claims, then this is because of competition from independent power producers, not in spite of it. In either case, Ontario consumers have a right to benefit from these declining prices. Ontario Hydro's declining financial performance is because of the debt service on ill-advised megaprojects like Darlington."
In another news release IPPSO said "If independent power is so expensive, then why on earth would London Hydro be trying to buy it?"
Hon. Bob Rae, former Premier of Ontario
Hon. Dr. Stuart Smith, Chair of the National Round Table on Environment and Economy, and former Ontario Liberal Leader
John Fox, Executive Vice President of Ontario Hydro
John Murphy, President of the Power Workers' Union
Prof. John O'Donnell, former chair of Michigan Public Service Commission, which recently introduced transmission access
Bethel Desmond, Vice President of Commodities with Banker's Trust, (BT Bank)
The Canadian Solar Industries Association (CanSIA) has made plans to run its annual conference at the same hotel during the same week, in order to be associated with IPPSO's conference. Discussions are underway to develop more extensive co-operation between the two conferences.
In related developments, IPPSO reports that exhibit locations for the associated Canadian Independent Power Trade Show are selling well, and corporate sponsors are expressing interest in being associated with several functions planned for the conference.
Regulation and rationalization necessary, Farlinger says
"Hydro estimates that a rationalized wires infrastructure could, through eliminating duplication and achieving better economies of scope and scale, produce annual savings in excess of $200 million," he said, in a speech titled "Competing in our customers' best interests."
Chairman Farlinger was addressing the 10th annual CAMPUT (Canadian Association of Members of Public Utility Tribunals) Regulatory Education Conference.
In explaining Hydro's latest proposal for restructuring Ontario's electric sector, it became apparent that Hydro management favours breaking the current company into at least four or five separately owned structures. Farlinger specifically supported:
1) A separate Wiresco, as a regulated public monopoly "at least initially"
2) A Central Market Operator (CMO), an independent Crown corporation "at least initially"
3) Ontario Hydro generation, continuing in public ownership
4) Privatized parts of Ontario Hydro generation, which presumably would involve at least two more owners in addition to Ontario Hydro.
It is not yet clear what ownership structure Ontario Hydro management foresees for its nuclear facilities, but it could well take the form of yet another separate ownership structure.
In describing the CMO, Farlinger did not specifically say that it would be under separate ownership from Wiresco or Ontario Hydro Generation. He said only that it should be an independent Crown corporation, and that "the CMO must be operated independently to remove all self-dealing potential upstream and downstream. At the same time, its independence would create confidence among new entrants that market rules are fair. It also has the benefit of keeping market rules and the market system in one place."
Interestingly, Farlinger suggested that some kind of privatization could take place before competition is fully established, rather than vice versa: "Considering the fact that Ontario Hydro supplies 94 per cent of the generation in the province, my own view is that some of it should be privatized initially in order to establish competition more quickly." IPPSO and others have argued that competition needs to be established before privatization, because privatization is not in itself a guarantee of competitive behaviour.
Perhaps of most interest to the audience and the independent power industry, Farlinger clearly stated Hydro's acceptance of the need for public regulation in several different components of the electric system:
"You can't be referee and player. ... (In the generation part of the business) ... due to Hydro's overwhelming presence in generation, some form of overseer role might initially be required to ensure real competition. The siting of any future facilities would also require an environmental approvals process."
"Because (transmission) is seen as a natural monopoly, regulation would be required to ensure fair prices, service availability and quality."
"Under Hydro's proposal, the municipal utilities would lose their legislated franchise service territories. They could become licensed purchasers and resellers of power and energy services. This would require the transfer of Hydro's regulatory authorities to a new regulator or local municipal councils."
Clearly, there is much here of concern to the existing municipal electric utilities. Farlinger also reported on public attitude research performed by Hydro which appears to contradict similar research peformed by the MEA (Municipal Electric Association): "Ontario Hydro has done significant consumer attitude research, established consumer panels and conducted stakeholder forums. The results show that customers want safe, reliable service and choice. And they believe that competition will drive efficiency, innovation and lower rates." The MEA research (see story elsewhere in this issue) found that Ontario consumers rank choice of power supplier at the very bottom of 21 possible issues of concern about their power utilities.
Although she says the government will wait until the Macdonald Committee on the restructuring of Ontario's electrical system makes its recommendations in June, she confirmed that selling them to private investors is still an option.
"We are looking at the entire system to see how we can restructure it to make it competitive to provide safe, reliable power," she told the legislature. Later, she said it would be "less than honest" to deny that selling the Sir Adam Beck I & II stations is an option being considered by the Harris government.
She dismissed fears that such a move would equate to selling off vital Ontario interests or abandoning Ontario's heritage. She said it was a "wild idea" to suggest that Ontario Hydro resources will be packed up and shipped off to the US.
Liberal Energy Critic Sean Conway, however, says that selling these assets is a step that requires far more thought and input from the people of Ontario. "Public power produced by harnessing Niagara has been an enormously important part, not just of the economic, but of the political life of this province in this century," he says. "The Harris gang seem to be willing to sell off that fundamental part of our heritage without so much as a tear or concern."
Sir Adam Beck I, built in 1922, and Sir Adam Beck II, built in 1954, together produce about 1800 MW of power, slightly less than the Pickering A Nuclear Station. The complex is by far the largest hydro development in the province and was the first "megaproject" initiated by Ontario Hydro.
Elliott says the government's final decision will be based on the recommendations of the Macdonald Committee, as well as the ideas of the Progressive Conservative Government. The party campaigned strongly in favour of privatization during the last election.
The owners of Great Lakes Power shuffled their stakes recently as well. Brascan Ltd. is buying 48% of Great Lakes to increase its stake to 93%. Seven percent of the company is held publicly. The company selling the 48% stake is Hees International Bancorp Inc. (Both Hees and Brascan are members of the Hees-Edper Group, so the sale is more like a reorganization). The purchase price is $280 million, of which $42 million will be cash, $100 million will be shares, and $138 million will be "installment receipts."
Waterpower projects may get relief
Reports in the Toronto Globe and Mail on May 29 and 31 revealed that the government will soon be setting up a commission to examine how "to establish a single, unified property tax system for the province," and possibly other alternatives that would allow for some limited kinds of local autonomy. Christine Burkitt, a spokeswoman for Ontario Municipal Affairs and Housing Minister Al Leach, said the government will shortly release general proposals for property tax reform, along with its directions for the commission. On May 30 it announced the 12-member panel will be chaired by former Toronto mayor David Crombie.
Property tax problems have stymied small hydro developers in Ontario for several years now, not only because of the extremely high reassessment figures in many cases, but also because of the lack of uniformity across the province. For further information on the problems with property tax faced by Ontario waterpower projects, see IPPSO FACTO, April 1996, page 10.
In previous years, governments have addressed waterpower assessment problems by supporting and passing "private bills" which essentially circumvent normal assessment procedures on a case-by- case basis. However, in recent years the private bill route has fallen out of favour, mainly because of crowded legislative schedules. "The fact that government has often supported private bills to solve waterpower project assessment problems shows that government acknowledges that there are problems with the present system. However, until now there was no reasonable prospect for a systematic solution," said IPPSO Executive Director Jake Brooks.
Property tax reform is of course a much larger problem than just waterpower property assessment. Antiquated tax systems are blamed for a mass of successful appeals to reduce assessment levels, unfair differences in taxes between different parts of the province, driving business out of downtown Toronto, and many other problems. The government also appears to be interested in using its new tax reform commission to develop recommendations on streamlining the delivery of services which are currently divided between municipalities and the province in a less than systematic way. It is far from certain that waterpower assessment problems will be addressed directly in this effort.
In another revelation with potentially positive repercussions for Ontario's independent power industry, Ontario Finance Minister Ernie Eves said on May 9 that his focus of attention would soon shift from the provincial budget to privatization of government assets. Never in Canadian history has privatization received such high-level support. Eves also said he would approach privatization of Ontario Hydro and other assets in an open-minded and pragmatic way. The government wants to avoid some of the mistakes made by the UK in its privatization process, notably not getting a high enough price for the state-owned electric utilities.
Eves will head up a new committee to examine privatization options. The committee will invite advice from the public and professionals, but those who give such advice will not be eligible to take part in the privatizations. "It seems as though the government is trying to ensure that privatization happens in a fair and balanced way," said IPPSO Executive Director Jake Brooks.
IPPSO does not support or oppose privatization of Ontario Hydro per se. IPPSO's position is that the establishment of competition is more important than who owns which assets. Diversity of ownership is very important in IPPSO's view, and this will probably entail a reduction in the proportion of generation assets owned by Ontario Hydro. However, a mix of public and private entities can be sufficient to establish the needed diversity and competition, in IPPSO's view.
The MEA argues that Ontario Hydro was originally established as a municipal co-operative and holds its assets and equity only as a trustee for the participating MEUs. "Only in recent years, as Ontario Hydro management has sought to introduce the concept of privatization, has an active campaign been launched to mythologize what is undisputable," says MEA President Bill Scott. "Namely, that the municipal utilities are the beneficial owners of Ontario Hydro assets and equity." He says that recognizing this reality is important to protect the interests of Ontario electricity customers. He believes that many of Ontario Hydro's proposals for privatization and restructuring will lead to higher costs for consumers. Significantly, the MEA does not suggest it is responsible for Hydro's debt.
Ontario Hydro's proposal claims competition is crucial to provide customers with a choice of generation supplier. The MEA, however, commissioned an opinion poll that showed customers view choice of supplier as the their least important concern out of 21 issues listed. The survey of 1200 Ontario residents done by Insight Canada in January, showed that cost, public safety, reliability and security of supply, and safety of employees are all "significantly more important than having a choice in electricity suppliers," according to Scott.
In accordance with these findings, the MEA's submission calls for maintaining public ownership of Ontario Hydro and the MEUs, but with a general restructuring of the industry to ensure customers get the best possible value. The MEA sees an expanded role for a provincial regulator and the formalization of a provincial power pool. The power pool operator would ensure security of supply through mid to long term contracts with generators (both Ontario Hydro and independent) and ensure cost effectiveness through "prudently incurred risks" in the form of spot market purchases. "Ultimately, this will translate into customers paying the lowest possible costs for electricity and maintaining the highest levels of reliability," says MEA Chair Bob Davey.
"The MEA reform model reflects the interests of customers, as reinforced by (our) survey, which also concluded that Ontarians believe the current managers of their electric utilities are best able to run electric utility companies," says Scott.
The MEA's original submission was made on January 26. Copies of both are available by contacting Bob Kanduth at the MEA at (416) 483-7739. The MEA represents Ontario's 307 MEUs, which supply 75% of the province's electricity customers.
Since non-utility generators in Ontario tend to use cleaner and more efficient methods of generation than Ontario Hydro, many participants recommended that the Toronto Hydro Action Plan include switching electricity supply away from Ontario Hydro to NUGs. The benefits from NUGs suppliers would be particularly high during peak load times, especially during the summer, when Ontario Hydro must start up the Lakeview coal-fired generation plant on Toronto's waterfront to meet demand. According to Ontario Hydro Environment Director Brian Kelly, "Anything that increases or decreases electricity consumption on the margin will have a big bang in CO2 emissions." He was speaking in terms of energy efficiency initiatives, not switching generation to NUGs. He also made no mention of future developments in Ontario Hydro's RETs program.
According to Dan Leckie, city councillor and Chair of Toronto Hydro's Commission on CO2, restructuring of Ontario's energy sector to allow competition will open up, "a much wider range of options," for cleaner sources of electricity. Toward this end, he says Toronto Hydro is petitioning for a legislative change for the status of the municipal utility from an 'electricity distributor' to an 'energy services co-ordinator'. He says this would give Toronto Hydro more choices, and make the utility more able to offer choices to its customers.
The consultation meeting was set up by the CO2 Commission to review the recommendations of a consultant's report. Eric Haites of Margaree Consultants Inc. made 10 'short term' recommendations that could be initiated within the next year and a half. The recommendations focused on improving efficiency and switching generation to renewable sources. The meeting was attended by a wide range of interested parties, including environmental groups (such as Greenpeace and the World Wildlife Fund), renewable energy businesses (such as Conserval Engineering who manufacture Solarwall), city government and Ontario Hydro.
One of the proposals being considered by Toronto Hydro as part of the Action Plan is the establishment of a 'Green Fund' to finance demonstration projects for renewable energy technologies (RETs). It was recommended that the fund be used to help make RETs more attractive to customers, rather than simply showing off technologies that are not feasible to customers. Participants noted that higher costs for RETs shouldn't be seen as a barrier to their use. As one participant said, "If people are willing to pay for it, it's cost effective."
Participating in Ontario Hydro's Green$hares program is another proposal being considered. Currently offered only in Peterborough and Guelph, Green$hares allows customers to pay a premium for electricity produced by renewable sources. Money generated goes into a fund to finance RETs.
An important internal program for Toronto Hydro identified by the consultant was improving the efficiency of the distribution system. This would include; compensation to reduce reactive power losses, distribution system automation, system voltage optimization and phase current balancing, lower-loss transformers, and dispersed energy storage. Some of these initiatives are currently underway, while others have only been studied.
Toronto Hydro's non-distribution facilities also have opportunities for efficiency improvements, according to the consultants. This could include: installation of energy-efficient lighting, upgrading the thermal envelope, insulation and window improvement, and installing more efficient heating and cooling systems.
An area where participants felt Toronto Hydro should proceed within the next few weeks was in the reduction of emissions from the utility's vehicles. Converting vehicles to alternate fuel sources is one recommendation, but driver and dispatcher training was also identified.
Toronto Hydro has already approved financial and in-kind contributions to the 'Toronto Healthy House' project (See story this issue, p.???), a solar demonstration project in partnership with Creative Communities Research, the Canada Mortgage and Housing Corporation and Ontario Hydro. A Toronto Hydro staff member will be assigned to assist with the project.
Toronto Hydro is also investigating the possibility of providing solar water heaters for rent or lease to its customers. Solar pool heating and air heating were other options recommended for consideration by participants at the meeting.
Although specifics weren't given, the consultants recommended Toronto Hydro investigate other RETs projects to pursue in co- operation with other partners in the city. One project recommended was an energy audit of a neighbourhood. Although the results of the audit would differ for different neighbourhoods, it would give the utility and the city a better understanding of how efficiency can be improved and how to identify alternative energy sources.
A city wide shade tree program was identified next as a key element of the action plan. A comprehensive and long-term strategy to increase the amount, and health, of city trees can help cool the city during times of peak electricity demand, reducing the need for air-conditioning. Trees also help consume carbon dioxide and convert it to oxygen.
The consultant's final short-term recommendation was an expansion of the TIES demand-side management program. Under this program, Toronto Hydro replaces large electric air conditioning units with newer, more efficient ones, and also provides lighting retrofits to more energy efficient systems. The program is currently only available to large commercial customers in the downtown core. So far, it's estimated the program has displaced an equivalent of 40 MW of electricity generation.
All of these recommendations were identified by the consultants because they can be done in the short term, with relatively modest financing. More long-term proposals will be brought forward for public discussion at a later date.
Attendees of the three-day Ottawa conference toured CHC's Almonte manufacturing plant in the Ottawa area, as well as two small hydro sites where CHC equipment is in place.
The largest of the two was the Appleton Station, a 1.3 MW plant owned and operated by Merol Power Ltd. CHC supplied 3 induction generator units that operate under a 6.5 m head with a peak flow of 30 cms. The facility went on line in the spring of 1994 and sells its electricity into the Ontario Hydro grid.
The second generating station on the tour was the Smith Falls plant owned by the Smith Falls Water Commission. CHC supplied a single 350 kW unit for the plant which the Commission operates as a load displacement source, with any excess electricity sold to Ontario Hydro. The plant also has an approximate head of 6.5 m, with a peak flow of 10 cms.
photos
The new and renovated facilities comprising the Centre host a wide variety of year-round programming for the YMCA and is focused on hands-on education in renewable energy technologies and other sustainable practises.
All electricity for the off-grid facility is provided by a photovoltaic (PV) system and a wind generator. A 2.3 kW PV array is backed up by a Windseeker 500 wind generator with an output of 24 volts per hour provided there is a minimum wind capacity of 5 mph.
These systems are connected to the Burrows building which is a 40-bed, eight-room dormitory built into the side of a hill with a 'living roof' covered with sod and wild flowers. This building also houses a unique demonstration project meant to show people how much energy is required to provide us with electricity. People- powered rowing and bicycle generators are used where visitors can monitor the amount of electricity they contribute to the Centre. This building also uses solar water heaters, composting toilets and a water-recycling filtration system.
The dining hall, in an older renovated building, is heated by two corn-stoves and an infrared heater that heats only objects, not air. It also has compact florescent lighting, solar water heaters and low-E, argon-filled insulated windows.
The newest building, still under construction, features a large passive-solar solarium and a special ventilation system that draws cool air from the ground in the summer. The solarium floor is made of recycled tires that collect thermal heat.
Tours of the site, or information about the Centre and its programs, can be arranged by calling the Environmental Learning Centre at (519) 699-5100.
photo being sent.
The Solar Energy Society of Canada, Inc. (SESCI) is hosting the event which will, "showcase leading-edge designs and technologies, renewable energy, advanced engineering and Canadian university teams," according to organizers.
The cars use photovoltaic arrays which cover most of the top surface of the vehicle to create an electric current that charges a battery and powers the motor. On a sunny day, a typical solar car can reach speeds of 70 to 75 km/hour and travel 200 to 300 kms.
Besides providing the university teams with an opportunity to test and evaluate their technology in field conditions, the Challenge will feature a solar technology fair in six cities along the way. In addition to the cars themselves, there will be various displays and demonstrations intended to educate and raise awareness of renewable energy technologies and what they can offer Canadians.
On June 22, the fair will be set up in London in the morning. The cars will travel to Waterloo for a lunch-time fair, and then on to Toronto in the afternoon. The fair will be set up in Toronto at the CN Tower in the afternoon. On the 23rd, the cars will travel on to Kingston, on the 24th, to Parliament Hill in Ottawa, and on the 25th to Montreal and the conclusion of the event.
The six cars in this year's event are the products of scientific teams from cole de Technologie Sup‚rieur, McGill University, Queen's University, the University of Ottawa, the University of Waterloo and the University of Western Ontario.
The Challenge is financially supported by government, corporate and organizational sponsors including Environment Canada, Natural Resources Canada, Industry Canada, Ontario Hydro and the Professional Engineers of Ontario.
For more information about the event, contact the Canadian Solar Discovery Challenge in Ottawa at (613) 523-7821, fax (613) 523-5741, or Email at solchall@worldlink.ca
photo - being mailed
Hydro news
Shortlisted bidders were announced in early October 1995. These proponents submitted bids to Hydro in early 1996, and were expecting final decisions approving or rejecting their bids in early April. Delays then put the announcement off until late April, and at press time, it was learned that even the revised date in late May would not be met.
For further information, see IPPSO FACTO stories on the RETS program published in December 1995, page 8, February 1996, pages 15 and 16, April 1996, page 14, and errata sheet for February articles, included with the April issue.
Energy Probe Nuclear Analyst Norm Rubin observed that "Nuclear reactors were supposed to be both safe and reliable. This event, where 4400 MW was lost because of a concern over safety, shows that there's an inherent conflict between safety and reliability."
Compounding these problems, the shutdown has taken much longer than expected. Originally, Hydro estimated the shutdown would last eight to ten days. But other factors have apparently intervened, and the shutdown was at least six weeks long. According to announcements at press time, restart dates ranged from June 6 to 23, for the first six reactors. The remaining two reactors were planned to be out of service for longer periods before this event.
The original problem was apparently caused by a check valve failure, which endangered the emergency core coolant injection system. However, it is suspected that further problems came to light during the shutdown, and delayed the restarting. Ontario Hydro also used the shutdown as an opportunity to take care of several preventive maintenance functions that would have been necessary to perform sooner or later in any case.
The cost of such an incident is measured in several ways: the cost of replacement power, loss in net revenue to the utility, and damage to the reputation of the Candu system, which Prime Minister Jean Chretien has been trying to market to Canada's trading partners.
It has been IPPSO's position for some time, as publicly presented to the Ontario Energy Board during the Board's 1994 review of Hydro's restructuring and as reiterated many times since, that the special restructuring charges taken by Ontario Hydro in its 1993 fiscal year have resulted, and continue to result, in overstated net income for the Corporation. This is not the result of internal debt shifts, but rather is the result of a multi- billion dollar writeoff that had, as one of its key purposes, the enhancement of future net income.
Notes and Impressions from the Ontario Hydro In-House Energy Efficiency T&D Workshop - April 16 - 17
Hydro talked energy efficiency on and off for decades. The inconsistency made it hard to take the Corporation's public pronouncements seriously but I think the current commitment is different. Note, for example, the change in conference plumage. Suits are out, sweaters in. No longer do PR honchos massage "corporate positioning" to be flogged to the great unwashed that Hydro might appear green. These days engineers ponder in-house efficiency because it's sound business.
The municipal electric utilities are in a fine lather over the implications of competition and the need to be more business-like. Improving T&D efficiency allows more of the electricity bought from Ontario Hydro to be sold to customers. Line losses amount to shrinkage of paid-for inventory. Improvements to transmission efficiency go directly to the bottom line.
Change within Hydro and change within the municipal electric utilities mean that the Hydro culture has accepted that energy efficiency is good business rather than corporate posturing. This is in large part due to the acceptance by Hydro that electricity is going to be a competitive business.
Who would have thought that the slow-footed mammoth IPPSO faced when it was born in 1985 could have changed so fast (it has only been four years since the arrival of Maurice Strong and the collapse of the DSP). The Imperial Hydro has become the entrepreneurial Hydro. Unfortunately the regulatory structure has lagged behind the change.
According to conference speaker William Rutz (Consultant to ABB System Control responsible for Open Access System Control Applications), it took two years to sort out the natural gas market after deregulation. In electricity, it has been four years and counting since the Energy Policy Act mandated open access in US markets (See discussions of the FERC rulings, on page ??? of this issue).
Electricity markets are more complicated than gas. The grid is almost organic. Anything that happens to either supply or load ripples through the system. Regulation must address congestion, stability, line quality, dispatch, environment, conditions of access, and tariffs to name just a few issues. In addition, open access will mean an order of magnitude or more increase in the number of daily transactions in the electricity business. This will require improvements in control system data communication, and bid preparation and evaluation software.
New regulations are critical but will take time. Until there is a set of rules, competition is going to be a bare-knuckles affair. Ontario Hydro, having recognized that electricity is competitive, is damn well going to compete with everything it has. It's still financially vulnerable but remains the biggest, toughest kid on the block. It will exploit its market power as a competitive tool as it attempts to stabilize its financial position.
IPPSO wanted a competitive electricity market. Be careful what you wish for - you may get it.
Ontario Hydro also had the most staff in the highest pay category of the public sector: Over $300,000. In this category were Allan Kupcis, president, at $461,303; Eleanor Clitheroe, CFO, at $375,192; and John Fox, Executive Vice President, at $344,516.
"In any privatization project, we could be there to help," he said after a three day visit to Canada which included talks with Harris, Qu‚bec Premier Lucien Bouchard and Prime Minister Jean Chretien. France's private electric utility EDF "has the know-how and experience" to successfully privatize Ontario's utility. "Obviously, it would be very happy to be involved."
France, Galland says, like Ontario, relies mainly on nuclear generation and so is familiar with the technology and other issues involved. Apparently, EDF is interested particularly in Ontario Hydro's nuclear assets, making them somewhat unique as potential buyers. Since the cost of nuclear generation is comparatively higher than other generation assets Hydro owns, and there is much higher potential economic and environmental liability, most attention has focused on privatizing hydraulic and fossil assets.
Premier Harris has not commented on the possibly of French involvement in privatization. Neither he, nor Galland, have given specifics on what the French government's or EDF's involvement could be. The Macdonald Committee studying the restructuring of Ontario's electricity sector is expected to make recommendations in June as to whether or not Ontario Hydro should be privatized and, if so, how that could best be accomplished.
The contracts with Detroit Edison and Consumers Power of Michigan and Rochester Gas of New York are to provide electricity necessary to meet their summer peak demand periods, which are higher than winter peaks.
A total of 700 MW will be provided to Detroit Edison and Consumers Power valued at about $30 million. The utilities also have the option of buying more if needed. These contracts are on top of a six-year contract signed last fall to provide 600 MW each summer to the same utilities starting this year, at a cost of about $25 million per year.
Rochester Gas has agreed to purchase a maximum of 170 MW totalling about $6 million between April and June 1996. Ontario Hydro is also negotiating with other US utilities for summer contracts.
"These agreements are further evidence of our role as a reliable and competitive supplier in US markets," says Bruce Mackay, Manager of Interconnected Markets in Ontario Hydro's Electricity Exchange. "They provide valuable diversity in our export sales portfolio, and better utilize Hydro's surplus generating capacity."
Last year, Hydro claims its export sales of $233 million helped it maintain its commitment not to increase average rates in the Province. However, average rates were in reality maintained by raising residential rates while selling excess power cheaper to large industrial and US customers. At the same time, Hydro has been cutting secret deals with Ontario-based corporate customers to prevent them from buying from independent producers, generating their own electricity, or moving to the US.
Hydro ran an ad in the Globe and Mail on April 10 for parties interested in the work. According to the ad, the third party will target Hydro customers who are: "Looking at projects that involve: Shifting production or relocating plant to a competing jurisdiction; Fuel switching; Self generation projects; plant expansion and new plant siting." The third party will look at the economic benefits that the customer would receive through the proposed project and tell Ontario Hydro if it can afford to offer a rate low enough to convince the customer to stay with the utility.
Hydro has been accused by IPPSO and other parties of practising unfair competition in some cases by offering these rates (see IPPSO FACTO February 1996, p.6 and December 1995, p.1). By reducing rates to large corporations who may have other options, Hydro must compensate by increasing rates to its 'captive' residential customers and small business.
"Ontario Hydro should not be permitted to use (load retention rates) as an invitation to buy-out non-utility generation projects being built or contemplated by their customers," the Ontario Chamber of Commerce said in response to a deal offered to Imperial Oil in Sarnia. In this case, a load retention deal was struck that killed a $135 million investment by Imperial Oil in a cogeneration project at their Sarnia plant.
While Ontario Hydro has publicly endorsed establishing a fair, competitive electricity market in Ontario, it's clear from their ad that they intend to continue this practice under such a system. One of six criteria listed for applicants is that they "have an understanding of open access and the effect of privatization on the energy sector."
According to IPPSO Executive Director Jake Brooks, "Aside from the question of whether it's fair to give huge discounts to selected customers, there's another issue at stake here. If a shareholder-owned company wants to take huge loss-leader risks with its prices, the shareholders are on the hook if the idea goes sour. In Ontario Hydro's case, however, it's the public that will have to pay, not the shareholders, if it turns out to be a poor pricing strategy."
Last fall, Ontario Hydro Technologies purchased Spheral from Texas Instruments in a move that has been criticized as predatory by some members of Ontario's solar industries. They have accused OHT of unfairly using public resources to undercut them and have formed the Ontario Renewable Energy Association to combat this threat (See IPPSO FACTO April 1996, p.11).
Woodrow, however, claims OHT is developing the new technology to develop more efficient and reliable systems of generation. She says the future of generation in this province, as well as other jurisdictions, is in smaller, more diversified sources of generation, as opposed to the megaprojects of the past.
"Hydro has clearly wanted out of centralized generation for the last number of years," she says, "and I think that given what's happening in the utility industry, that will likely be underlined even a lot more in the next few years. Spheral Technology could really underpin a whole new system of independent generation."
Although the primary focus for the immediate future will be on internal utility uses, Woodrow does say that commercial possibilities will be explored as the technology progresses and its usefulness is proven. "I think it depends on how much research it's going to take to bring the price down to the point where we think it can be a viable consumer-type initiative," she says.
Spheral Technology is based on a unique photovoltaic (PV) system developed over 15 years with the assistance of the US National Renewable Energy Laboratory (NREL). It is based on cells made of thousands of small silicon beads bonded to an aluminum sheet. Laboratory tests to date have yielded results of 11.5% efficiency, defined as the power-output over the total power in the spectrum, according to OHT consultant Raye Thomas.
The challenge now is to maintain this level of efficiency in larger, commercial-scale systems outside of the laboratory. Lower grade silicon will also have to be used in order to make large scale use of the technology financially viable. Independent opinions of the future of this technology are generally good, according to OHT.
NREL's thin film PV research program Director, Ken Zweibel, says, "There's a number of serious people in the PV world who have a pretty good opinion of this technology. My guess is that it falls somewhere between existing crystalline silicon and potential thin film costs, and that has to be its advantage."
Woodrow believes the technology has the potential to become an important asset for Ontario Hydro and other utilities. PV technology has been used by utilities in commercial operations, but mostly only on a small scale. She says Spheral Technology will be the world's first PV electrical generation system manufactured by the same utility to use it to produce electricity.
National News
Canada's first non-utility electricity and energy marketers have encountered considerable resistance from Canadian utilities, who apparently seek to retain their monopoly on Canadian electricity supply and transmission (IPPSO FACTO, September 1995, p 4 and December 1995, p 2).
The marketers want to export power generated by Canadian independent power producers and utilities to the United States, where plentiful free market opportunities are emerging with new rulemaking of the Federal Energy Regulatory Commission (FERC). FERC'S Mega-NOPR, Order No. 888 requires "all public utilities that own, control or operate facilities used for transmitting electric energy in interstate commerce to have on file open access non- discriminatory transmission tariffs that contain minimum terms and conditions of non-discriminatory service (see related article on the Mega-NOPR in this issue of IPPSO FACTO).
Strong US federal legislation is creating favourable conditions for power marketing, and a power marketing association has emerged in the US. The four Canadian marketers are also FERC- approved. In contrast to Canada, the US industry is flourishing.
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In contrast to Canada, the US industry is flourishing.
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Four Canadian marketers received the first non-utility export permits from the National Energy Board (NEB) late last year. The export permits were the first ever awarded by the Board to non- utility firms, and were granted over the opposition of British Columbia Hydro, Ontario Hydro, Hydro-Qu‚bec, New Brunswick Power and other Canadian utilities.
These utilities, after failing to halt the emergence of marketing competition at the regulatory level, have sought to prevent non-utility marketers from using their NEB licenses to sell, and thus far US purchasers have only been able to obtain modest amounts of Canadian electricity from one of the marketers.
The new marketers need to use the transmission lines of Canadian utilities to wheel power to the US border, and the utilities are resisting these bids. Where transmission is becoming available, as in Alberta and BC, its cost must be low enough to allow electricity marketers to profit from exports. At least one of the Canadian marketers is selling US electricity to US buyers, and at least one other has traded futures contracts on the New York Mercantile Exchange (IPPSO FACTO, April 1996, p 28).
The four firms include a pair of relatively small independents, Utility Trade Corp. (UTC) of Calgary, and Multi Energies Inc. (MEI) of Montreal, both of which already market Canadian natural gas in the US. Both UTC and MEI aspire themselves to become independent power producers.
The other two marketers are larger companies: TransCanada Power Corp. (TCPC), the power marketing and power producing subsidiary of TransCanada PipeLines Ltd., and Houston-based Destec Power Services (DPS), which seeks to export electricity from Dow Chemical's natural gas fuelled cogeneration plant in Sarnia, Ontario, and from other Canadian generators.
Utility Trade Corp
Utility Trade Corp. was the first to win NEB approval. The UTC permits contained a blanket clause which the NEB shortly wrote into the permits of the three other non-utility power marketers: "approval will be for a duration of 10 years with authorization to enter into individual contracts of up to five years without having to obtain a permit for each transaction in advance from the Board."
UTC's power marketer Jim Keck stressed the importance of the 10 year permit, noting that an initial period of several years might be needed before western markets become sufficiently liquid.
Keck said that deregulation developments in the US natural gas, telecommunications and airline industries led to comparable changes in Canada, albeit with a delay of several years, and that electricity would be next.
Alberta is not directly connected to the US electricity grid, and UTC's electricity marketing program has faced problems with BC Hydro's transmission system, which is needed to move power from Alberta to the Pacific Northwest, and from BC to Alberta.
As an international power marketer, UTC has already sold US electricity to US buyers. UTC has utilized futures contracts of the New York Mercantile Exchange with hedging in order to decrease its market risk.
BC transmission is criticized
BC Hydro put in place on January 31 a wholesale wheeling tariff which was designed in part to facilitate third party wheeling across the province. However, Keck said that "whoever gets to BC Hydro's transmission group first can potentially book all available capacity up to three months in advance. For example, if a power marketing company wished to acquire July 1996 capacity on the BC Hydro system, they would first need to acquire capacity for June." (For further details see their WWW site at http://ews.bchydro.bc.ca)
Keck said that a fair and efficient way to distribute capacity rights to third parties is one used by owners of natural gas pipelines: a period of time where different players can bid and counter-bid for capacity, with a pro-rata assignment policy for two or more equal bids.
"BC Hydro's current take-or-pay contracts entail risk for all marketers except Powerex (BC Hydro's own electricity marketing arm). We oppose take-or-pay contracts on recallable (interruptible) transmission, and favour a more realistically priced alternative for non-recallable (firm) service. The current price gap between the two levels of service is far too extreme. While firm transmission would give a company a higher priority of service, its cost is five or more times that of the non-firm rate."
UTC expressed the concern, shared by the new Alberta Power Pool, that in the present system, Powerex monopolized most or all of the transmission capacity between British Columbia and Alberta from February until at least April (IPPSO FACTO, April 1996, p 2).
The Independent Power Association of British Columbia has also argued that BC Hydro transmission tariffs are too high.
Powerex responded by claiming that a large portion of the transmission capacity it booked with BC Hydro on February 6 was used to return energy to Alberta utilities which had been stored in BC before electricity restructuring in the form of the Alberta Power Pool began on January 1, 1996.
Keck expects the transmission costs to decline over time as more marketing firms enter the competition.
MEI in Qu‚bec
Like UTC in western Canada, MEI in Qu‚bec has not yet gained transmission access to move its power to US markets. MEI needs the transmission lines of Hydro-Qu‚bec, Ontario Hydro and NB Power to wheel its power across their provinces to the US border.
In late December, the NEB approved an application from MEI for 10 year permits to export surplus electricity from New Brunswick, Qu‚bec and Ontario.
Multi Energies Inc. has offered electricity to end-users in the Northeastern and mid-Atlantic states closest to achieving retail access. None of Canada's eastern provincial utility monopolies has yet agreed to move MEI's electricity to the US border, but MEI is pleased that negotiations with the utilities have at least begun in this direction.
MEI claims it is entitled to transmission service comparable to the service which the three utilities provide in their own operations and to other parties. In particular, MEI expects Hydro- Qu‚bec to provide transmission services comparable to those it offers to the Energy Alliance Partnership (EAP), an incipient US marketing venture of HQ Energy Services (US), the Qu‚bec gas distributor Noverco, and Consolidated Natural Gas of Pittsburgh (IPPSO FACTO, February 1996, p 33).
In a widely discussed decision of October 1995, the Federal Energy Regulatory Commission ruled essentially that EAP could become a competitive power marketer in the US if it granted open access to the Hydro-Qu‚bec grid for US marketers. There is no indication yet that Hydro-Qu‚bec will comply, and so the utility must use traditional and alternative mechanisms for power exports to the US.
Destec in Ontario
Destec Power Services (DPS) has been frustrated by Ontario Hydro's anti-wheeling policies. In early 1995, DPS was qualified and approved by FERC as a power marketer. Destec Power Services is a subsidiary of Destec Energy Inc. of Houston, whose majority shareholder is the Dow Chemical Co.
Destec is concerned about the unwillingness of Ontario Hydro to wheel electricity cogenerated by Dow Canada in Sarnia, Ontario, only several hundred meters from the Michigan border. Additional DPS sales to the US could also come from the Sarnia Energy Joint Venture: Dow Canada, Novacor Chemicals and Bayer Rubber (formerly Polysar).
Destec Energy's cogeneration project in Ernestown Township, near Kingston, Ontario, and other independent power producers or utilities might also supply export power.
In response to a Destec request for wheeling services, Ontario Hydro's executive vice president and managing director of customer services John Fox wrote Destec Energy in late February that new wheeling within Ontario is prohibited by a moratorium agreement signed by Ontario Hydro, the Ontario government, and the Municipal Electric Association. Legal experts have advised IPPSO that the moratorium agreement has no legal force. However, Fox said that the results of a review of the structure of the electricity industry in Ontario, conducted by a committee under former federal cabinet minister Donald Macdonald, are expected this spring, and could lead to a re-evaluation of the wheeling moratorium.
"Coincidentally," said Fox, "the timing of the results of Ontario's review of the industry structure is similar to the timetable for the changes that are likely to be mandated by the Federal Energy Regulatory Commission through its soon-to-be- released rulemaking (the Mega-NOPR, published on April 24, see story elsewhere in this issue of IPPSO FACTO)."
Destec replied on April 15 that, "As the US market opens up for non-traditional sales and purchases of power, the opportunity for these transactions is exploding. Recently, virtually every other week we are presented with a valid new opportunity for power sales that could be served by the DPS Canadian (National Energy Board) export permit."
Destec requested Ontario Hydro to rethink the moratorium agreement, and also to make transmission access and transmission rates a part of its rate review at the Ontario Energy Board in June. "We hope that you will reconsider your 'just say no' position," said Destec.
TransCanada Power
Unlike the other three Canadian marketers, TransCanada Power Corp. reports minor success in exporting electricity to the US. In January and February, TCPC sold electricity valued at C$82,000 to four importers: Washington Water Power, Louis Dreyfus, Portland General Electric and Bonneville Power.
March and April saw no exports, said Jim Fitzowich, western region director for TCPC, because US buyers were able to purchase cheaper electricity in the Pacific Northwest. The average Alberta Power Pool-Mid Columbia basis differential was $0.58/MWh in March and $4.34/MWh in April. (The Mid Columbia hub is a point on the Columbia River, north of Yakima, Washington.) The cost of transportation was about $4.60/MWh plus losses, accounting for the lack of activity. (The line losses associated with moving Alberta electricity to COBB range from 22 percent to 24 percent of the energy transported, according to Canadian Natural Gas Focus.)
TCPC has moved power into and out of the US, under its own permits and those of others. In particular, TCPC has participated in arrangements where another utility carrier with an NEB license moved its power to the BC-Washington border.
For the Alberta to BC portion of its exports to the US, TCPC used the Alberta Power Pool. Fitzowich said that the transmission price in Alberta is set by the Grid Company of Alberta, acting as the Transmission Administrator. He added that Gridco is beginning to provide transmission access the way it should, although at a slower pace than expected.
TCPC was one of the first Canadian marketers to trade futures contracts on the New York Mercantile Exchange futures market, for delivery at Palo Verde (a nuclear generating station switchyard in Arizona), and COBB (on the California-Oregon border). TCPC trades in the physical markets in these areas as well, said Fitzowich.
Utility opposition
In written arguments to the NEB, various Canadian utilities claimed that the non-utility marketing applications were "premature" because they lacked electricity sales contracts in the US, and transmission access in Canada, and because the long awaited federal-provincial electricity wheeling accord, slated to become Chapter 12 in Canada's Internal Trade Agreement, is still incomplete (IPPSO FACTO, September 1995, p 18). The Internal Trade Agreement is a domestic "free trade" accord designed to encourage all types of trade between Canadian provinces. The ITA is in force except for Chapter 12 and several other clauses.
A number of the utilities who intervened at the NEB against the new marketers have simultaneously resisted the finalization of Chapter 12, which would start to open up the Canadian electric industry by facilitating trade between Canada's statutory utility monopolies.
The non-utility marketers told IPPSO FACTO that the favorable NEB rulings offer them leverage in persuading Canadian utilities to wheel electricity through their systems to the international border.
Keck said that the export permit application process is "both a practical exercise in getting ready to export power when transmission access opens up, and an ideological push on the utilities to bring about such reforms."
Comparability as a regulatory principle
The Board found the four applicants' export cases "comparable" to those of the electric utilities who have long received NEB export authorizations, and that for the purposes of power export, the new marketers should enjoy privileges "comparable" to those of the traditional utilities.
Comparability and reciprocity of electricity services are two of the key concepts in recent open access regulations including the US Energy Policy Act of 1992. FERC decisions, most recently Order 888, have helped to create an environment which has encouraged the new marketers to seek NEB licenses to sell electricity in the US.
The NEB ruled in all four applications that there is no reason "to differentiate the public interest analysis given to applications simply on the basis of whether the applicant is a utility or a marketer."
The NEB, whose guiding legislation excludes matters of transmission access, disagreed with several utility monopolies who claimed that NEB permits should follow, and not precede, the conclusion of wheeling agreements.
The NEB used the same language in all four cases: "Given the current status of transmission ownership in Canada, the terms and conditions of transmission access are generally a matter to be negotiated between interested parties."
The non-utility marketers intend to pressure all relevant authorities to deregulate the Canadian electricity industry and create a competitive marketplace, as in the natural gas and telecommunications industries.
Neither UTC or MEI own any power production facilities, but both intend to develop their own electricity production sources by 1998. MEI's power marketer Leo Desjardins said that MEI hopes to build cogeneration projects in the 10 MW to 20 MW range jointly with industrial cogenerators. UTC, for its part, hopes to gain equity in small hydroelectric generation facilities.
The natural gas connection
Explaining the initiatives of their firms in the electricity market, UTC's power marketer Jim Keck, and Desjardins agreed in separate interviews that it seems natural for many natural gas marketers to enter the electric power market. It took ten years to deregulate and open the North American gas industry for supply to end users. The dynamics of the electricity transformation resemble those in the natural gas industry after deregulation, but the transition will occur more rapidly for electricity.
They also found it logical for firms in the natural gas industry to transfer the experience and marketing infrastructure they gained during natural gas deregulation to the increasingly competitive electricity market.
Canadian Natural Gas Focus reported in April that of the 190 companies registering with FERC for licenses as power marketers, about 80 percent are also natural gas marketers.
In order to get amendments to the Income Tax Act in place by the end of September, a tight schedule is expected: A discussion paper assessing eligible costs is currently being prepared by Finance and Natural Resources Canada. It should be available in early June. The paper will be sent to energy organizations and ministries across Canada for their comments during June. Associations and interested parties will be expected to submit their reactions and comments in June, either verbally or on paper. Meetings for this purpose will be organized in mid to late June, likely in Ottawa.
At this point the federal government will assemble the comments and produce a draft "Guidebook," similar to the guidebook that used to be available for users of Class 34. This guidebook will be distributed for comment during July, and changes to it will be made during August. A near-final second revision to this book will be distributed in early September. After this point, it will probably be possible for only minor changes to be made.
IPPSO Director Jeff Passmore is co-ordinating the input from IPPSO members on this process. He notes that "the best time for reaction will be in June, before the Guide is written, so schedule some time." He also asks that independent power people try to co- ordinate with each other as much as possible, and inform others who may need to know about this important opportunity to have input into Canada's tax laws.
Mr. Passmore can be reached in Ottawa at 613-566-7005 or fax 233-9527.
IPPSO Vice President Jeff Passmore took part in the Canada Global Climate Change Negotiations meetings in Ottawa May 23 and 24. The immediate purpose was to prepare Canada's position for COP2 ("Conference of the Parties") which is to take place in Geneva in July.
The Canadian group talked about the state of climate change science and the second assessment report submitted to the group. Jeff Passmore is representing IPPSO and new energy source technologies to the "Non-government advisory group on international climate change negotiations." The meeting was organized under the auspices of Environment Canada. The Canadian arm of the process is just one of many similar efforts, internationally co-ordinated under the United Nations Framework Convention on Climate Change.
The Ottawa meeting discussed such things as targets and timetables for emission reduction; appropriate policies and measures that Canada could take to achieve emission reduction; what if anything Canada can do to encourage developing countries to become more active in emission reduction; short-term vs. long-term objectives and targets; should Canada support a "bubble" approach, which allows for emissions trading within an overall multi-country cap. Environmental groups have often questioned the bubble approach, unless it includes minimum targets for each participating country as well as the overall "bubble" targets.
Although the work of N306 has gone smoothly for the most part, IPPSO's representative on the Committee, Jake Brooks, is concerned that there have been problems in arriving at an agreeable method to recognize the value of efficiency. IPPSO has always argued at these meetings that the permissable amount of contaminants emitted by a process should increase only if the output of the process increases, but not if the fuel input increases with no corresponding increase in production. In other words, any combustion unit operator inventive enough to reduce emissions by increasing process efficiency, should be rewarded by the emission standards, since such improvements usually cost money. Such efficiency-based standards have been developed for N307, and are being considered for further work under N305, but are still under development for N306.
As noted in the meeting minutes however, the committee's working group "attempted to develop an energy-output format for NOx emission limits from boilers and heaters. Problems have arisen in defining an acceptable approach to determining boiler/heater efficiency. A sub-group is examining the issues andwill propose options for encouraging energy efficiency to the working group at the next meeting, at which time it has been agreed that a decision will be made." That meeting is scheduled for June 21.
Draft guidelines are to be developed and distributed for review by July 15. Comments on the draft are due by September 16. The full Committee will meet again on October 23, to agree on revisions for finalizing the Guideline. Final drafts should be out by November 6, and submitted for approval to the National Air Issues Co-ordinating Committee of the Canadian Council of Ministers of Environment on December 16.
For further information, contact Jake Brooks at IPPSO, or Geoff Ross at Environment Canada 819-997-1222.
The 45 MW Intercon cogen project is the largest of the two. It will provide electricity for sale to BC Hydro, and heat and electricity for Canadian Forest Products mill in Prince George in northern British Columbia. The 14 MW Stothern Power Purcell plant in Skookumchuck in the eastern Kootenays is the second project.
Final negotiations will centre on contract terms, risk sharing, and providing BC Hydro with maximum flexibility. The projects will create an estimated 380 person years of construction employment over 18 months, and about 50 permanent jobs upon completion.
One of the prime considerations in the original call for 300 MW of electricity supply was the social benefits that would result for the host communities and the province as a whole. These two projects rose to the top of the list because they use waste wood from adjacent industries that would otherwise be burned or landfilled. The projects also substantially reduce greenhouse gas emissions and improve local air quality.
A further five projects from the original shortlist could proceed to final negotiations by August 1996. Three of these are small hydro and two are cogeneration projects located on Vancouver Island. Before they proceed, the BC government wants to further investigate their environmental and social impacts.
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The Qu‚bec government, which released the report in early April, is expected to implement its key recommendations, including the creation of an energy board to regulate Hydro-Qu‚bec. The English language version of the report was scheduled for early June.
In its first recommendation on wind energy, the report urged Qu‚bec to consider the wind as a "national asset," just as it classifies some rivers as resources for hydroelectric development. Such recognition might take the form of legislation in the National Assembly. The report suggested that Hydro-Qu‚bec assume responsibility to map and classify the wind in different areas of the province. Protection of the scenic landscape would be considered in siting decisions.
Hydro-Qu‚bec would be expected to widely distribute information about wind patterns, the results of wind research and development, and wind plant operating data.
In another recommendation to promote the wind energy industry, the report urged the province to set aside for wind turbines a fixed share of Qu‚bec's future electricity generation capacity. The round table did not quantify the proposed percentage share, but suggested that Qu‚bec's proposed new energy regulator assist in making this decision.
The report encouraged the electricity industry in the future to build smaller, decentralized generation and distribution facilities, closer to electricity users. It said that wind energy will enhance the flexibility of Hydro-Qu‚bec's grid system, especially at times of low water and high consumer demand (the capacity of the grid is over 95 percent hydroelectric). During the winter, strong winds increase heating needs, and establish a direct physical link between energy supply and demand.
Intervenors in the energy debate supported more projects and recommendations for wind than any other energy source except water power.
According to a Natural Resources Canada inventory, Qu‚bec has 58 percent of Canada's theoretical wind energy potential. In Qu‚bec, wind can also be effectively twinned to diesel electricity generation in off-grid communities.
The Canadian Wind Energy Association (CanWEA) calculates a solid job creation potential of 16.8 person-years per million dollars invested in wind energy, assuming that all wind equipment is made in Qu‚bec. In its submission to the round table, CanWEA called attention to the flexible nature of wind energy: 150 wind turbines of 500 kW each installed each year in Qu‚bec from 1997 to 2010 would produce 56 percent as much energy as a 1,000 MW centralized generating facility operating at a 60 percent capacity factor. The modular addition of new wind capacity will help to avoid the risks of a single large conventional energy investment.
A number of intervenors in the energy debate favored the development of wind energy along the north and south shores of the Saint Lawrence River, including the Gasp‚ Peninsula, where Kenetech Windpower is developing a 100 MW (nameplate) wind farm for Hydro- Qu‚bec.
At press time it was learned that Kenetech Windpower has filed for bankruptcy in the US. See short story elswhere in this issue for further information.
Project developer Kenetech of California had decided to use its new KVS-45 520 kW turbine model, instead of the originally planned KVS-33 405 kW model, and this switch has caused a delay of about 5 months in construction schedule.
Kenetech also plans to build a 5 MW wind farm in the windswept, off-grid Magdalen Islands in the Gulf of Saint Lawrence, scheduled to be twinned by 1997 with the islands' 70 MW diesel generating capacity.
The report said that the manufacture of wind equipment in Qu‚bec will count as a major benefit to proponents bidding for electricity sales contracts to Hydro-Qu‚bec.
Over and above its encouragement of wind and other new renewable energy technologies, the report's major strategic recommendation was for the establishment of an independent and non- political energy board to regulate the electricity and gas sectors, with full public participation. At present, a committee of the National Assembly, which lacks energy expertise, is responsible for the regulation of Hydro-Qu‚bec.
The new regulator is expected to enhance the transparency, efficiency and rationality of energy management, and an energy efficiency agency would be created to operate as part of the energy board.
A second key strategic recommendation promotes the application of integrated resource planning in the energy field.
One Qu‚bec newspaper wrote that the report's emphasis on sustainable energy development heralds the passage from "a culture of quantity to one of quality ... The passage to quality means the end of big energy projects, and the depoliticization of decisions on electricity ... The creation of an energy board will take the politics out of Hydro-Qu‚bec's rates and project proposals."
The 13 panelists deliberated and signed the report as individuals, but brought energy concerns from their stakeholder constituencies, which include aboriginal groups, environmentalists, the Qu‚bec oil and gas industry, consumer and labour groups, and Hydro-Qu‚bec.
The report linked success in energy policy to the performance of Hydro-Qu‚bec, whose expenditures and economics have attracted much public criticism. The utility is burdened by a $40 billion debt, largely due to hydroelectric generating construction. Recent accusations by the Parti Qu‚becois government of excesses by the Hydro-Qu‚bec management include the utility's awarding of $500 million in untendered contracts annually, its overstaffing with 34 vice presidents, annually earning up to $150,000 each, and expensive social activities for executives and clients.
In a separate but perhaps related development, Hydro-Qu‚bec and its union of engineering employees, along with the Association of Private Hydroelectricity Producers of Qu‚bec all welcomed the establishment of a blue ribbon governmental commission of inquiry into allegations of political corruption, special favours and possible criminal activity in Hydro-Qu‚bec's private power program (IPPSO FACTO, July 1995, p 17). The commission is chaired by Francois Doyon, a Qu‚bec superior court judge, and is charged with examining the energy policy and economic opportunities of Hydro- Qu‚bec's private power purchase program, and determining if the utility, public officals and NUGs respected legal and regulatory directives and the "ethical norms and practices" of sound business management.
The deadline for release of the Doyon Commission's report has been postponed several times, and the report is now expected in the fall.
Some proposals advanced in the energy debate advocated the partial privatization of Hydro-Qu‚bec. Qu‚bec Premier Bouchard in late March suggested the sale of 10 percent of Hydro-Qu‚bec to the private sector. Privatization is also advocated by business groups including the Qu‚bec Employers Association.
However, the report emphasized that Hydro-Qu‚bec could become the most energy efficient utility in North America with no privatization but with better regulation by the proposed new energy board, and an opening to input from consumers, environmental groups and aboriginal peoples. The report strongly opposed privatization as a "bad deal," whatever percentage share is sold off, and stated that Hydro-Qu‚bec's costs would be reduced in competition between the utility under government ownership and private sector proponents of new renewable energy technologies.
The report acknowledged that the Qu‚bec government might privatize a portion of Hydro-Qu‚bec, for "financial reasons." In this case, the matter would lie "beyond the round table's mandate."
Round table member and windpower partisan Francois Tanguay of Greenpeace Qu‚bec said that Qu‚bec has the lowest electricity rates in North America, some 30 to 40 percent cheaper than those of Ontario. "Privatization will not benefit the consumer, who is both the customer and the owner," Tanguay said, adding that Qu‚bec electricity rates are so cheap that they are publicly perceived to be almost subsidized for the consumer.
Kenetech said it has no intention to file for protection for the parent company, although according to the US Electricity Daily on May 31, Kenetech itself is "in terrible shape and could be sucked into the financial whirlpool started by its once high-flying wind business." In a news release quoted by the Electricity Daily, Kenetech said "At this date, no determination has been made as to whether or not (KWI) will liquidate all of its assets or attempt to reorganize its financial affairs in connection with the continued operation of its assets."
Rather than relying solely on government regulations enforced by the courts, companies would negotiate pledges to reduce emissions of pollutants by set amounts over a set period of time. If targets are not met by the negotiated deadline, Marchi says the government would have a clear mandate to intervene with the support of the affected communities.
"If I sign a covenant with an industry and they haven't arrived at the line, don't expect me to give (them) any excuses, any comfort," he explained.
Although Marchi believes this tactic will be beneficial by forcing industries to deal directly with the people in the communities where they are located, rather than only with impersonal courts and government bodies, he does not intend to eliminate regulation.
Revising the Canadian Environmental Protection Act remains one of his priorities, as it was with his predecessor Sheila Copps (see IPPSO FACTO February 1996, p.26). Proposed changes include identifying key persistent toxics and eliminating them over a set time period, yet to be released. Environmental inspectors' powers to issue fines to polluters will be enhanced, and individuals will be able to sue industries for polluting if they feel the government has not responded.
Called the North Central Project, Manitoba Hydro, the Federal Department of Indian and Northern Affairs (INAC) and the North East First Nations and Community Councils will finance and construct the new system. INAC will provide 75 % of the estimated capital cost of the project.
Besides the new 138 kV and 25 kV transmission lines, there will be 178 km of distribution lines, four new transformer stations and general upgrading of existing distribution systems within the affected communities. Power will be provided by Manitoba Hydro's Kelsey hydroelectric generating station on the Nelson River in North Central Manitoba.
Planning and negotiations for the project began in 1992 and construction is now set to begin this winter as soon as the ground freezes over. Manitoba Hydro is waiting until this time so that construction crews have a minimal impact on soil, vegetation and shorelines.
Environmental concerns of the First Nations are being taken very seriously in the planning of the project. Manitoba Hydro has guaranteed no flooding of land and no raising of lake or river levels. Transmission lines will be hidden from view as much as forest conditions permit and clearing of trees will be limited as much as possible.
Manitoba Hydro estimates that 2,450 hectares of land will need to be cleared representing .01% of the total forest land in North Central Manitoba. The remote communities are currently served by diesel generators provided by the Federal Department of Indian & Northern Affairs (INAC). Manitoba Hydro pays for the diesel fuel and operation of the generators at a cost more than double the standard generating rates. In Winnipeg, standard residential electricity rates are $55.96 per kWh.
Manitoba Hydro has also pledged to remove all existing diesel generation stations and their related facilities and restore all construction sites to their original state. Environmental monitoring programs have already been established, staffed mainly by Hydro-trained community members, to observe and monitor environmental impact on an on-going basis.
The affected communities now have access to only 15 amp service as opposed to the standard 60 amp service enjoyed by the rest of the province. This has limited households to operate lighting and one household appliance. The new service is expected to result in a substantial increase in community electric bills and require some expensive retrofitting and upgrading of homes. This will seriously cut into First Nation budgets. However, the resulting opportunities for new business and growth is predicted to offset extra costs. The improvements in basic living standards alone make the project beneficial. As Chief Jack Flett says, "A new era has finally arrived whereby the northeast communities, the business community, governments and crown corporations like Manitoba Hydro, will join hands in combating the third world conditions that exist in our communities."
Electricity demand in the communities is expected to triple with completion of the project in 1997 to 75,000 MWh/year and increase further to 170,000 MWh/year by 2025.
The communities to be supplied by the project are: Oxford House, God's River, God's Lake, God's Lake Narrows, Red Sucker Lake, Garden Hill, Island Lake, Wasagamack and St. Theresa's Point. They range in distance from 350 to 450 miles north of Winnipeg.
For 10 years, drinking water had to be boiled locally or trucked in in bottles.
Ironically, on December 21, the shortest day of sunlight in the year, a unique solar-powered water pump and chlorinator went into operation and once again brought clean, safe water to this remote town in the Fraser Valley.
Another mountain stream, further from the town, had been identified years earlier as the best available new source of water, but the cost of providing electricity to operate the pumps and chlorinating equipment was too high. A $27,000, 2 km transmission line would have been required.
Instead, solar technologies developed by Siemens and Thermomax were used to generate electricity on site, reducing costs to the point where the project was cost-efficient. The entire project cost $54,000, half of which was provided by BC21/Powersmart and the rest by the Fraser Valley Regional District.
The solar system consists of a 1.3 kW, 18 panel Siemens photovoltaic array and a 30 square foot, 4 panel array of evacuated tubes from Thermomax. The tubes are used during the winter to create a solar-induced heat sink in the pumphouse floor to prevent freezing.
The facilities powered by the system include a 77,000 gallon reservoir and a 6 square metre shed containing automated water control and chlorination equipment, computerized water level controls, a propane backup heater, two 6-cell battery sets and system and monitoring equipment operated by phone from 120 km away. Half of the system went on-line in December and the rest in the spring of 1996.
In Toronto, the Healthy House project is under construction and due for completion in the fall of 1996. Four years ago, architect Martin Liefhebber won a competition by the Canada Mortgage and Housing Corporation (CMHC) to design an environmentally friendly house. While CMHC provided initial funding, the project was delayed until a developer could be found. That developer is now Creative Communities Research Inc. (CCRI) of Toronto.
Electricity for the project, which is actually two separate residences, is supplied by two similar, yet unique, PV systems. One residence is off-grid, the second is grid-connected. Both are supplied by two 2.3 kW PV arrays from ASE Americas. The off-grid residence stores PV supplied power in 48 volt battery with a Trace 4048 inverter. CCRI President Rolf Paloheimo says it utilizes, "All kinds of DC infrastructure, which in this case is more expensive than the panels."
The second residence's PV power is fed directly into the Ontario Hydro grid. "When the sun shines, the meter runs backwards," says Paloheimo. "It's net billing and 'time-of-day' billing. A first for Toronto." The inverters connecting the power supply to the grid were developed by Ontario Hydro. "They bolt right on the backs of the (PV) panels and direct directly into the house current," he explains.
The houses also have a unique backup source of space heating. The bulk of heating energy is supplied by the passive-solar design of the house, but a 'gasifier' is being installed as backup for periods of inadequate sunlight. Waste wood and paper will be converted to a gas and burned for heat.
Other energy saving features are: highly efficient appliances, an R-70 per inch 'super insulation' from Owens Corning, and an innovative water system that provides all water for the houses by filtering rain and snow-water, as well as waste water, on site.
Another project in Edmonton has recently gone on-line as Canada's 10th grid-connected PV home and has been given considerable media attention. The 2.3 kW PV system was built by Edmonton's Howell-Mayhew Engineering with Edmonton Power as a sponsor.
Local and national news coverage has been positive, says Edmonton Power Spokesperson Scott Marsh. "We've learned a lot on the operational side," he adds, "but we're also finding barriers." The Alberta Energy Utilities Board has notified them that the house needs approval under the province's Hydro and Electric Act because it is a source of electricity generation. More recently, developers were told the house was taxable under Alberta's Machinery and Equipment Code because it relates to industrial processes. Marsh says this is "just nuts."
photo being sent
Columbia Power Corp. and the Columbia Basin Trust, formed to pass economic benefits from Columbia Basin dams to local communities, will be partners in the deal. Both are publicly-owned agencies.
For $145 million, Columbia Power will purchase Cominco's 125 MW Brilliant Dam on the Kootenay River and transmission line to Kimberley and will secure rights to additional power output created by unit upgrades at the 375 MW Waneta Dam on the Pend d'Oreille River. Cominco will retain ownership over Waneta to ensure it has enough electricity for its lead and zinc smelting operations. Mining is Cominco's primary activity.
Columbia Power will spend an additional $147 million on a turbine upgrade program and expansion project at Brilliant and a generator upgrade plan at Waneta.
"These projects represent sound, low-risk public investments that will continue to bring benefits to the region for many decades after their completion," says Glen Clark, BC Premier who was Minister of Employment and Investment at the time of the announcement in January. "Moreover, the provincial government will earn a return on its investment equal to what the region (the Columbia Basin) will earn, making these power project investments a rich legacy for the region and a solid investment for the province as a whole."
The Columbia Basin Trust is a partner in the deal as part of a commitment made in 1995 by the BC government. The government committed at that time to make payments of $50 million a year for ten years toward developing power projects in the region. The Trust was formed last year to pass economic benefits from Columbia basin dams to communities adversely affected. The Trust also received $45 million in April 1996 for regional economic development projects.
Cominco is selling the assets because the electricity it produces from the Waneta Station is enough for its needs. Cominco estimates that an additional 500 MW of generating capacity could be supported at the sites, but is not interested in developing it itself. Excess power has in the past been sold to West Kootenay Power and will continue under a new, long-term contract. West Kootenay is seeking approval from the BC Utilities Commission for 60 year power purchase agreements, assuming the sale goes through. West Kootenay believes the deal will result in slight increases in rates, less than 1% per year, for the first 10 years, but substantial savings for its customers over the next 50 years.
The Maritime Life Assurance Company and Aetna Life Insurance Company of Canada will provide the financing for the 7 MW project, located 50 km southeast of Prince Rupert.
Synex's parent company, Synex International Inc., says the project is expected to be in service by November 1996 within the $11 million budgeted cost. It should provide Synex with $2 million in revenue annually through sales to the provincial utility.
The $10 million, 4.5 MW expansion brings the total capacity of C“te Ste. Catherine up to 11 MW. NUG developer Hydromega Developments Inc. of Montreal is the project owner-operator, and has a 25-year contract with Hydro-Qu‚bec to sell electricity from the site. The utility will purchase about 36 million kW-hours annually under the agreement.
Phase III, located on the St. Lawrence Seaway near Montreal, utilizes siphon penstocks built in Montreal by Druco, three French- built vertical semi-Kaplan turbines from Esac Energie, GE Canada generators, and switchgear from ABB Phoenix Controls. Lafarge Canada Inc. was the general contractor for this phase, which has an 11 metre head.
Besides the 11 MW C“te Ste. Catherine development, Hydromega also owns and operates the 8.5 MW Sept Iles project at the first falls of the Ste. Marguerite River off the Gulf of St. Lawrence on Qu‚bec's North Shore, and the 2.7 MW Mont Laurier project on the Lievere River in the interior north of Montreal.
The Canadian Institute for Energy Training (CIET) and the Bureau for Excellence in Durham Region, both based at Oshawa's Durham College, set up the network with the intent of bringing in business and residential partners.
These partners will go through a series of training sessions focusing on identifying areas within their own operations or homes where energy conservation and efficiency can be improved. CIET, which already provides training in the industrial, commercial, institutional and government sectors, will operate the training sessions.
Five companies located in Durham Region, immediately east of Metropolitan Toronto, became the first partners in the new network in April. Costeel-Lasco of Whitby, Woodbridge Foam Corp. of Whitby, Escalator Handrail Co. of Oshawa, Goodyear Canada Inc. of Bowmanville and the Works Department of the Regional Municipality of Durham are the new members. All five have set up 'energy teams' to study their operations, identify areas where energy savings can be realized, and apply the measures they identify.
If successful, CIET hopes to become a partner with other regions and municipalities in Canada. For information about CIET, or DREEN, call Doug Tripp at CIET at (905) 721-3050.
This conclusion is based on a recent study undertaken at Cambridge Bay on Victoria Island that determined the avoided costs of using PV in remote communities currently relying on diesel generation. Cambridge Bay, a town of just over 1000, is one such community. CANMET also considered wind generation and demand-side management options in the study which began in 1993.
Cambridge Bay is one of 55 communities currently supplied with off-grid diesel generation by the Northwest Territories Power Corporation (NTPC). Overall, 59% of NTPC's generation capacity is through diesel installations, with the rest coming from hydraulic sources. Both methods of generation have high environmental costs, being located in the ecologically fragile north. They also have high economic costs due to distance and isolation.
In this study, according to CANMET's Eric Usher, "An assessment of PV at various levels of penetration was undertaken, based on the savings derived from offsetting the load applied to the diesel generating station." The study used the Watsun-PV simulation program to determine annual PV performance based on climate data. The simulation system was a PV-upgraded version of the Atlantic Wind Test Site Wind-Diesel simulation program used on Prince Edward Island.
CANMET found that PV could be economically used to provide between 6.5 and 13.6% of Cambridge Bay's annual electricity needs, resulting in significant fuel savings and a reduction in the need to start up diesel generators of between 4.6 to 16%. Variations in percentages are due to the size of PV system installed.
CANMET's study recognizes that different characteristics of different communities will affect the results of PV use.
Seasonal variations in load affect the viability of PV use. Electricity demand in the Arctic peaks in the winter, but solar availability peaks in April. Therefore, the savings are not as significant as they could be if both peaks matched, as they sometimes do in southern climates.
The number of diesel generators currently in use in a community also affects the cost-effectiveness of PV use. Because PV is currently most economical when used to offset diesel generation, the more generators in use, the higher the savings of using PV are. This is because extra generators are not required to be started up to meet peak demand as often, and therefore less fuel is burned.
Availability of solar radiation on an annual basis is also a primary factor. Although higher latitudes have fewer hours of daylight than in the south overall, CANMET found that the climate, essentially a cold desert for most of the Arctic with little cloud cover, compensates for the shorter number of hours.
In conclusion, CANMET found that higher energy costs in the Arctic make PV benefits similar to those found in the south which has higher solar availability, but also lower overall electricity costs. As well, Usher adds, comparable studies in the US include the use of environmental benefit credits for greenhouse gas reductions which are not used as yet in the Northwest Territories. He believes that, as the cost of PV equipment gradually comes down, "The application of PV to diesel grids in the NWT will start to make economic sense, whether or not hidden environmental costs are considered."
The Cambridge Bay study is the latest development in the 'PV in the North' program which is based at Nunavut Arctic College in Iqaluit on Baffin Island, over 1000 km east of Cambridge Bay. CANMET and SINT installed a 3 kW grid-connected PV test facility there in 1995. This facility will act as learning opportunity for the scientists involved, for NTPC and for students at the college.
Another operating PV facility in which CANMET is involved is located at one of Canada's most northerly points. In July 1994, SOLTEK Solar Energy installed a PV/wind generation system at Tanquary Fjord at the northern end of Ellesmere Island. Tanquary Fjord is a small base camp operated by the Ellesmere Island National Park Reserve between May and August of each year. It acts as the starting point for incursions into the park by scientists and tourists.
To offset the use of diesel generation, a 576 W PV array was mounted on a 360 degree single-axis tracker to catch the maximum amount of sunlight possible. Since the camp only operates during summer months, when 'white nights' occur, solar availability is high. White nights refers to the fact that the earth's axis in summer months results in almost 24 hours of daylight in the high arctic in the summer. A 750 W wind generator and a 17.2 kWhr battery pack were also installed. DC power is converted to 120 VAC with a 4 kW sine wave inverter.
The system's performance has been monitored over the summers of 1994 and 1995 and it was found that the diesel generator running time was reduced significantly. Prior to installation of the PV/wind system, the diesel generator ran an average of 18 hours per day, average running time for the two summers after installation was 15 hours per week. The PV array now provides 45% of Tanquary Fjord's electricity needs, with wind and diesel picking up the rest.
photo of Iqaluit available.
According to a BC Hydro press release, "This will ensure that BC's electricity rates, which are already among the lowest in North America, will stay that way."
Over the previous five years, residential rates have risen by an average of 1.7% per year. The freeze will therefore mean an estimated $16 million in savings for residential customers over the length of the freeze, or about $50 per household. Commercial customers will save an estimated $15 million and industrial customers an estimated $9 million.
Small, family-owned farms are expected to be the largest beneficiary of the freeze, with an estimated $300 annual savings.
While residential rates are frozen across the board, commercial and industrial rates may change, as long as their overall average increase is zero. New service options may also be introduced with different pricing structures.
While Ontario Hydro has also announced a rate freeze, it is a freeze in average overall rates. Residential rates are actually expected to rise, while Ontario Hydro continues to offer load retention deals to industrial customers.
chart of various N.American rates
Kemano was to be a 285 MW, $1 billion station to supply power for expansion of Alcan's aluminum manufacturing plant in Kitimat. After beginning construction and spending half a billion dollars, the BC government forced Alcan to stop construction permanently in January 1995. The government cited concern over the effect the plant would have on salmon stocks in the Nechako River, which is an important spawning ground.
In the summer of 1995, Alcan reached an agreement with the BC government to forego legal action until March 31, 1996 and to enter into discussion during that time on compensation. An agreement was not reached by the deadline, but Alcan spokesman Ray Castelli said after the April 2 announcement that talks were progressing and, "our preference is still a negotiated solution."
He explained that the province understands Alcan's main objectives; "To secure our existing operations and to provide a reasonable option to expand the aluminum industry here in BC over the next 20 years so we can take advantage of the exploding demand for aluminum in Asia."
Alcan took a $280 million writedown on the project, but wants the province to compensate it with replacement power at a cost equivalent to what Kemano would have generated.
Paul Ramsey, Prince George North MLA, education minister and chief negotiator for the province, says talks are progressing well. He says the province's motives in the talks are to, "find ways to wind down (Kemano) while protecting existing jobs at Kitimat and encouraging additional industrial activity by Alcan in British Columbia."
According to Colin Jackson, President of Energy Consulting Inc., 8 municipalities have already done this and many others are investigating the option. "Of course, small towns can't do this individually and make it economic," he says, "But if we can pull a group together, representing an aggregate load of 40 or 50 MW, then it becomes relatively simple to establish a control centre somewhere, install a computer system and remote meters and jump into the (power) pool."
By taking this route, municipalities can purchase bulk power from the Alberta Power Pool and distribute it at cost, as opposed to customers purchasing from utilities who make a profit.
The four largest municipalities in Alberta (Edmonton, Calgary, Lethbridge and Red Deer), all have independent distribution companies serving their residents. Four other smaller municipalities, Ponoka, Fort McLeod, Cardston and Crowsnest Pass have also set up distribution companies and formed a loose organization called the Alberta Municipal Power System (AMPS). Together, they represent a load of 12 MW, serving 25,000 customers.
Jackson says several other municipalities, including Drayton Valley, Airdrie, Strathmore and the Sarcee First Nation, are considering following suit.
The first priority of AMPS, for whom Jackson is working, is to amend the Alberta Electric Utilities Act to allow the smaller municipalities to purchase bulk power directly from the power pool. Currently only the four largest municipalities can.
After this, Jackson says the priority is to end the current ban on municipalities selling self-generated power directly to their customers. Currently, municipalities are allowed to own electricity generation assets, but must sell all electricity produced into the power pool. They must then purchase the power back from the pool for resale to customers within the municipality. Jackson says this process, "Eliminates any cost benefit of self- generation," and is, "Really rather a step backward." He explains that municipalities used to be able to sell self-generated electricity to their own customers before the power pool system was created.
Jackson predicts the barrier to self-generation could be removed with a year, opening up major opportunities for electricity savings for small-town customers. He also believes overall energy efficiency will increase in Alberta as municipalities take advantage of highly efficient cogeneration opportunities. "This can result in an added economic benefit to the municipal utility as the majority of customers in small municipalities are residential and commercial customers who currently are the customers paying the highest kilowatt-hour costs," Jackson says.
Ontario, which already has 307 municipal electric utilities (MEUs) established, could also benefit from the proposed structure for Alberta municipalities. Several MEUs in Ontario have already recognized the benefits that can be realized through self- generation, but have been thwarted in their efforts by Ontario Hydro. London Hydro is the latest example of Ontario Hydro's aggressive anti-independent generation practises. Ontario Hydro is suing London Hydro to prevent them from purchasing electricity from a cogeneration facility (See this issue, p.1).
BC Hydro has signed a 20-year agreement to purchase the station's electricity at 4.53 cents per kWh for the first year and escalating at 3% per year.
The main most unique feature of the project is its 630 m head, one of the highest in North America. It draws water from Doran Lake, just west of Port Alberni and discharges it into the Taylor River.
Summit Power Corp. of Vancouver was the project developer which was built by UMA Spantec of Calgary under a $5.7 million design-build contract. GEC Alsthom Neyrpic Minihydro of Granby, Qu‚bec supplied the single twin jet Pelton turbine under a water- to-wire subcontract. Financing was provided by Mutual Life of Canada.
International News
The utility's board voted to invest in as much renewable power as possible within a 4% rate cap, which it estimates will allow the utility to obtain 15% to 20% of its power from renewables.
The Bonneville Power Administration (BPA), a federal power marketing agency, now supplies all of Salem Electric's power and could dedicate a portion of the output from its planned renewable energy projects to the utility, but Salem Electric is looking at other possible renewable energy suppliers as well.
"We think that BPA should blend in the price of renewable power the same way that it blends in the cost of dead and dying nuclear plants," said Steve Weiss, who serves on the utility's board. "We want our purchase to result in renewables that would not otherwise have occurred, not pay for what BPA should be doing anyway." Salem Electric has issued a request for proposals (RFP) for a consultant to assist it in acquiring renewables and, if it stays with BPA, to help fashion a contract for renewable power.
The board's decision was based on customer support for renewables that was demonstrated when nearly 100 comments were received in response to an article in Salem Electric's newsletter. Near the end of the article that discussed BPA's renewable energy projects, customers were asked whether they would be willing to pay more for renewable power. Two methods were proposed:
(1) Offering each customer the opportunity to raise his or her own rates for the amount of green power desired; and
(2) Raising everyone's rates by 4-8% to make Salem Electric 20-40% green.
Over 75% of the responses, which consisted of notes written on bill stubs as well as complete letters, supported paying more for renewables. Of those expressing a preference for a particular method, the majority supported the "all-in" approach. One customer wrote, "Since everyone will benefit, everyone should pay."
"We've never gotten that kind of response on anything," said Weiss. "It convinced the board that our customers want us to make a collective choice to green our system rather than leave it to individual choice where the outcome would be uncertain. It also goes along with the Board's thinking that renewables aren't just a 'social obligation,' but a prudent, conservative business decision to invest in diversity--especially in a resource with low O&M and no fuel risk."
- Wind Energy Weekly
Alex Benedek hosted the Chinese delegation on its Ontario tour. He says, "We are presently establishing a multi-disciplinary management team to co-ordinate our export promotion activities and are looking for strategic alliances with Canadian industry to provide for a sound economic and technical base." Benedek believes there is significant interest in NUG amongst the Chinese representatives. His specific intent is "to promote Canadian enterprises capable of offering energy efficient technology and services that can contribute to sustainable industrial development solutions in China." He hopes to develop a long-term working relationship between ECSO (Energy Conservation Society of Ontario) and CECA (China Energy Conservation Association).
Benedek is currently on a delegation visiting Beijing, but when he returns in late June, he can be reached at alex_benedek@ARQX.com.
Called the Taranaki Power Project, it will be built in Stratford in the central area of New Zealand's North Island about midway between the capital city of Wellington and the largest city, Auckland.
Stone & Webster Engineering of Boston has been awarded a $1.8 million (US) contract to manage all phases of construction which will begin in June 1996 for completion in early 1997.
The contract, awarded by project developer Sumitomo Corp. of Japan, is ongoing. The first phase is valued at about $5 million (Can). Sumitomo and Consolidated Electric Power Asia Inc. are the turnkey, build-own-operaters of the 660 MW project.
SNC Lavalin International, Esperco Ltd. of Montreal, and ELC Electroconsult of Italy have also been awarded a contract by the Vietnamese government to rehabilitate and reinforce electrical distribution networks in Hanoi, Haiphong and Nam Dinh.
The contract gives the consortium control over all aspects of the project. It will cover a 42 month period and will employ 12 people, through the consortium, for that period.
An estimate has not yet been given for the value of that contract, but it marks a significant entrance into the potentially lucrative Vietnamese electricity market. This market is only now beginning to be opened up to foreign involvement, but Vietnam's entrance into the Association for South East Asian Nations (ASEAN) is expected to bring greater need for electricity and greater opportunity for foreign companies in the field.
Writing in a guest column for Energy Analects magazine, Adams says, "Although ecology was the last thing on Margaret Thatcher's mind (when her government began privatizing the country's electricity industry), the power privatization in the United Kingdom has been a stunning environmental winner. Before Thatcher's privatization, the UK power monopoly relied on coal and nuclear production and was justifiably dubbed one of Europe's worst polluters."
After privatization, says Adams, expensive, inefficient and unreliable coal and nuclear facilities proved to be uncompetitive against more efficient gas-fired generation. These generation plants could be installed relatively cheaply and operate more cleanly and efficiently resulting in a surge in construction of new capacity. For example, Canadian firm Atco Inc. is a partner in the 1000 MW combined cycle Barking Station in London's east end (see IPPSO FACTO December 1995, p.36). Cogeneration and windpower are also increasing their share of Britain's electricity market due to their high efficiency and relatively low operating costs.
Though British nuclear generating facilities have not yet been privatized, Adams believes when they are they will prove to be too costly, as compared to the alternatives, and will inevitably be retired early. While the British government had been investigating the possibility of building new nuclear generating facilities before privatization, this possibility has now been abandoned.
Adams says that financial matters were not the only reason behind the greening of Britain's electricity sector. After privatization, the British government was freer to strengthen environmental regulations affecting coal-fired generation facilities, "once government was no longer in a conflict of interest as both regulator and polluter."
Adams believes this conflict of interest also affects what he sees as the Ontario government's poor performance in environmental regulation, its support of nuclear production, and its allowing Ontario Hydro to block cogeneration projects. "Cogeneration is a threat to Ontario Hydro," says Adams, "because the energy efficiency of cogeneration translates into lower cost power than the monopoly produces at its inherently inefficient coal and nuclear plants."
He believes that privatization and an end to Ontario Hydro's monopoly will inevitably lead to a switch to cheaper, more efficient and cleaner sources of electricity for Ontario customers. He disagrees with IPPSO's recommendation to the Macdonald Committee on the restructuring of Ontario's electricity sector for a "regulatory setaside" for renewable energy. "The unspoken assumption," he says, "is that renewable electricity generators could not compete on a level playing field and would need preferential treatment." He says the British example proves this to be false. He says, "An open market and thorough application of the principle of polluter pays, instead of subsidies and special protection, could provide the best mechanisms to promote the development of renewables." IPPSO Executive Director Jake Brooks notes that renewables in the UK benefit from a setaside established by Margaret Thatcher.
A study by London-based Adam Smith Institute commissioned by Ontario Hydro (see IPPSO FACTO April 1996, p.6) backs up Adams' contention that privatization led to cost savings for British customers. It agrees that generation and other facilities have been made more efficient, but indicates that the bulk of savings (10% for residential customers and 6 to 17% for commercial) came from administrative savings. According to Bob Menard, a staff officer with the Power Worker's Union that is opposed to privatizing Ontario Hydro, "They privatized a bloated, over-staffed system and the new owners immediately made major reductions to the staffing levels." Ontario Hydro, he argues, has already done this downsizing which means the savings brought about by privatization in the UK will not materialize here.
Ontario Hydro Chair William Farlinger, who supports privatization, refused to predict rate reductions in light of the release of the Adam Smith report. "I don't know how anyone can guarantee anything," he said. "Maybe the rates are going to go up. I promise you if we stay in this inefficient monopoly situation, your rates will go up. It's going to be better privatized. Are (rates) going to go down? Probably. I think there's room for them to go down."
The Adam Smith Institute report also says that the British should have broken up electricity generation into smaller pieces to ensure true competition. The UK currently has three generating companies, two of which are privately owned. The report says these two utilities still have too much power in determining market rates.
The risk of the private market recreating monopolies, or creating oligopolies (where a small number of companies control the market) exists. This was demonstrated in the last week of April 1996 when the British government had to step in to prevent the two private generating companies from purchasing two of the country's 12 regional electricity distribution companies. Parliament prevented National Power PLC and PowerGen PLC from purchasing Southern Electric PLC and Midlands Electric PLC respectively. The government cited "significant detriments" to competition if the sales had been allowed.
The move by the government caused stocks in the two generating utilities to fall about 6% in one day. The London Stock Market as a whole closed down after the government announcement. On May 8th, Midlands Electric PLC was purchased by two American utilities, sparking fears that more foreign companies will purchase British utilities.
Changes Needed in Implementation Details
"We are pleased that the utilities have indicated they can support this simple, market-oriented policy which could be achieved inexpensively and efficiently," said Nancy Rader, AWEA's West Coast Representative. "However," she added, "some details of the SCE/PG&E proposal are off the mark and will need more work."
AWEA developed the RPS concept to help foster the use of renewable energy in a restructured utility market by compensating for market barriers facing renewables. The RPS would require each seller of electric power within a given state to obtain a minimum percentage of its power from renewable resources through a system of tradeable renewable energy credits. The CPUC embraced this policy in its restructuring decision, and several other groups, including the Union of Concerned Scientists and the Center for Energy Efficiency and Renewable Technologies, have backed it.
AWEA, the California Biomass Energy Alliance, and the Geothermal Energy Association have proposed a 10% standard for renewables in California with an annual increase of 0.2% until the CPUC's previous additional renewables set-aside of approximately 1% (planned prior to utility restructuring) is achieved. The standard would include a 2.4% solid-fuel biomass energy "technology band"--a set-aside specifically for biomass. To ensure compliance, sellers who fail to obtain the required level of renewable energy credits would be charged a penalty of six cents for each credit not obtained.
PG&E and SCE also proposed a renewables standard of 10%, but with no increases over time and no technology band. The penalty for non-compliance would be only two cents per credit under their proposal, with collected funds being spent on renewables development.
Rader took particular exception to the two cent penalty for non-compliance in the utility proposal, calling it "clearly inadequate." Under the RPS, she explained, "a market for renewable energy credits will develop, with a spot market price that represents the marginal cost of electricity from renewable resources. The two-cent penalty could be lower than the spot market price, in which case a seller would have no incentive to buy renewables. Even if it is above the market price, it may still be so close that it undermines the credit market, and thus the standard.
"The whole point of the standard is to create a competitive market for renewables. A low penalty would encourage non-compliance and create a pot of money that must be publicly administered. With a higher penalty, we can rely on the market to allocate those funds through competition, avoiding the bureaucracy."
Rader also expressed dissatisfaction with the lack of incremental increases in the standard in the utilities' proposal. - Wind Energy Weekly
The three private and one publicly owned utilities incurred debts of 419 billion pesetas (about $3.3 billion US) during the 1970s and 1980s through poorly-timed investments in nuclear generation. Ontario Hydro also ran into debt problems during this period as it invested heavily in nuclear generation.
In 1984, the government halted all nuclear plant construction and set aside 3.5% of all electricity revenues to pay off the debt. Rising interest rates and a falling peseta forced the debt higher despite the special funding, however. By December 1994, when the government shut down all nuclear generation plants, the debt had grown to 722 billion pesetas (about $5.7 billion US).
The government has tried various means of tackling the utility debt problems, including a complicated pricing system designed to guarantee a rate of return on assets. They also promoted a series of asset exchanges, where heavily indebted utilities unloaded some of their nuclear assets on more financially stable utilities in exchange for some of their less costly assets.
Under the current plan, 718 billion pesetas of the debt will be converted into variable-rate securities and auctioned off to banks and international investors. 215 billion pesetas of that amount will be sold as bonds, the rest will be restructured as two structured loans. The Spanish government is guaranteeing a minimum interest rate and annual return for all investors. They are also guaranteeing full payment of principal within 25 years.
According to Jorge Lucaya of Morgan Stanley, the US investment bank that acted as advisor to the utilities involved, this "is a very innovative solution to a problem that many debt laden utilities in the US and elsewhere in Europe are suffering from."
Comprehensive standards of conduct instituted
In an historic deregulation decision, the United States Federal Energy Regulatory Commission (FERC) in late April ordered U.S. electric utilities to open their transmission systems to competitors and create nondiscriminatory wholesale transmission tariffs, thereby allowing bulk power customers choice in electricity supply. The ruling's ramifications will affect operation, financing, and regulation of electric generation and transmission for years to come. "Historically speaking, this may represent the watershed moment in the transition from monopolism to competition," said IPPSO Executive Director Jake Brooks.
FERC's final "Notice of Proposed Rulemaking" (NOPR) Order No. 888 comprised two main components: "Promoting wholesale competition through open access non-discriminatory transmission services by public utilities" (Docket RM95-8-000), and, "Recovery of stranded costs by public utilities and transmitting utilities" (Docket RM94- 7-001).
Order 888 requires all utilities owning, controlling or operating interstate transmission lines to file nondiscriminatory open access wholesale transmission tariffs that contain minimum terms and conditions of non-discriminatory service, and which offer competitors and others the same transmission terms and service they provide themselves. FERC regulates only the interstate bulk power market, comprising about 12 percent of the total U.S. electricity business as measured by revenues. However, state regulators have tended to make rulings that are in harmony with the overall regulatory directions of FERC, by and large.
This measure is designed to encourage wholesale competition and bring lower cost power to electricity consumers, ensure continued reliability of the electric power industry, and provide for open and fair electric transmission services by public utilities.
The Order 888 document is known as both the "Mega NOPR" and the "Giga NOPR," and takes effect in late June, by which time utilities must be in compliance. With its associated appendices, the document is more than 1000 pages in length. This final rule clarifies with considerable detail FERC's draft, proposed NOPR of March 1995.
A third major inter-related FERC rule issued with Order 888 is FERC Order 889, "Open Access Same-time Information System [OASIS] (formerly Real-Time Information Networks) and Standards of Conduct" (Docket RM95-9-000), which requires utilities to create an information system "that will provide open access transmission customers with information, provided by electronic means, about available transmission capacity, prices, and other information that will enable them to obtain open access non-discriminatory transmission service" (see below).
"The legal and policy cornerstone of these rules is to remedy undue discrimination in access to the monopoly owned transmission wires that control whether and to whom electricity can be transported in interstate commerce," states Order 888.
The new rulemaking transforms electric utility transmission systems into open access wholesale common carriers, and resembles the deregulation of the North American natural gas industry and other deregulatory decisions such as open access of the telephone and air transport sectors. Order 888 will lead to lower electricity costs and strengthen electricity in inter-fuel competition, and also have major implications for the independent power industry.
Commenting on the impact of the FERC orders, Merribel Ayres, executive director of the U.S. National Independent Energy Producers said, "The commission's final rule on open access is a monumental and historic event. It is not, however, the end of the process. But it is the end of the beginning. After today, there will be no turning back from a more competitive, more efficient and more pro-consumer industry."
Competition and cost savings
"The future is here - and the future is competition," said FERC chair Elizabeth A. Moler on April 24, the date of her agency's announcement. She declared that "Today's actions by the commission will benefit the industry and consumers to the tune of billions of dollars every year. They will give us an electric industry ready to enter the 21st century. These rules will accelerate competition and bring lower prices and more choices to energy customers."
Among the major economic effects of the order, FERC estimated that Order 888 will produce direct cost savings totaling $5 to $7 billion, "in addition to the non-quantifiable benefits that include better use of existing assets and institutions, new market mechanisms, technical innovation, and less rate distortion."
Electricity costs vary widely in the U.S., where some regions such as California and New England have prices more than twice those of the northwest and certain southern states. The FERC order will allow electricity trading over greater distances, which tends to lower prices and equalize them across the country.
Independent power producers supplying the lowest cost power in a region from natural gas fueled cogeneration stations could in particular benefit under the new regime. However, the technical limits on the capacity of transmission systems restrict such interstate flows of power.
The Order 888 transmission tariffs
Order 888 does not set rates for transmission and ancillary services as originally proposed. Instead, order 888 enables utilities to file a single nondiscriminatory transmission rate, which allows them to recover their costs, including opportunity and expansion costs. The rule requires this be a pro forma tariff covering minimum terms and conditions of non-discriminatory transmission service, and offers a model pro forma tariff of such service.
Order 888 requires utilities to file a single open access tariff that offers "network, load-based" service, and also, "point- to-point, contract-based" service with the same terms, conditions and rates as the transmission providers charge themselves. (These two types of rates are explained below.) In the year since the draft NOPR was issued, many U.S. utilities have already filed wholesale tariffs with FERC.
FERC indicates that the "network transmission service" in Order 888 defines rights and sets prices based on customer load. "It allows the transmission customer to use the transmission provider's entire grid to serve designated loads from designated resources without having to pay a separate charge for each pairing of resource and load. Thus, network service enables the transmission customer to use the network flexibly to integrate its resources and loads efficiently and to dispatch economically its system, in the same way as the owner of the transmission system."
"Firm flexible point-to-point service...on the other hand, defines rights and sets prices based on transmission capacity reservations. The transmission user designates points of delivery (PODs) and points of receipt (PORs) and makes a capacity reservation for each POD and for each POR."
"In the year since the proposed rules were issued, the pace of competitive changes in the electric utility industry has accelerated," states Order 888. "By March of last year, 38 public utilities had filed wholesale open access transmission tariffs with the Commission. Today, prodded by such competitive changes and encouraged by our proposed rules, 106 of the approximately 166 public utilities that own, control, or operate transmission facilities used in interstate commerce have filed some form of wholesale open access tariff. In addition, since the proposed rules were issued, numerous state regulatory commissions have adopted or are actively evaluating retail customer choice programs or other utility restructuring alternatives."
FERC's core requirements on transmission access and pricing also apply to power pools, requiring them to restructure their operations and admit non-utility members by the end of December 1996.
The order also mandates the principle of "reciprocity," where those who own, control or operate transmission facilities and receive open access service must in turn provide open access service to the transmission utility. This applies to municipal utilities and cooperatives that own, control or operate interstate transmission facilities and take service under the open access tariff.
"Foreign entities" (Canadians and Mexicans) may also obtain transmission services in the U.S. to sell their electricity in the U.S. under order 888, subject to the terms and conditions of the open access tariff. However, they must also provide reciprocal transmission service, a condition with major ramifications for Canadian utilities (see sidebar).
FERC also indicated that utilities seeking market-based rates for power plants not yet constructed would no longer be required to demonstrate a lack of market power, although the Commission will still check for other barriers to competition. "In light of the industry and statutory changes that now allow ease of market entry, no wholesale seller of generation has market power in generation from new facilities," said Order 888.
FERC versus the monopolists
Fundamental to the FERC rulemaking is the identification and prevention of anti-competitive practices in wholesale transmission. In a passage which evokes the situation in Ontario and other jurisdictions with utility monopolies, Order 888 states:
"We conclude that unduly discriminatory and anticompetitive practices exist today in the electric industry and, more importantly, that such practices will increase as competitive pressures continue to grow in the industry, unless the Commission acts now to prevent such practices. It is the economic self- interest of transmission monopolists, particularly those with high- cost generation assets, to deny transmission or to offer transmission on a basis that is inferior to that which they provide themselves. The inherent characteristics of monopolists make it inevitable that they will act in their own self-interest to the detriment of others by refusing transmission and/or providing inferior transmission to competitors in the bulk power markets to favor their own generation, and it is our duty to eradicate unduly discriminatory practices...We set forth examples in the NOPR of undue discrimination that we believe are occurring in the electric industry and invited commenters to identify any discrimination that they have experienced. In response, commenters presented numerous additional examples of undue discrimination."
Citing Destec in this regard, Order 888 asserted that, "the posturing of Ontario Hydro before U.S. regulators pleading for open access and non-discriminatory transmission treatment - even for extraterritorial entities, should be met with a strong reply that such provisions should be afforded transmission dependent entities on the Canadian side of the border. Ontario Hydro's aggressive pursuit of U.S. market opportunities while simultaneously blocking competitors through the control of their transmission assets can not be ignored" (see sidebar, and related article in this IPPSO FACTO on Canadian power marketers).
Capacity reservation
The order also proposes that each utility replace the two previously outlined tariffs (network, load-based and point-to- point, contract-based) with an entirely new "capacity reservation tariff" (CRT) by December 31, 1997, as a means "of remedying undue discrimination" and ensuring comparability (see "Capacity Reservation Open Access Transmission Tariffs," Docket RM96-11-000). The proposed capacity reservation open access transmission tariff, if adopted, would replace the open access transmission tariff required by Order 888. Utilities and all other power market participants could thereby reserve firm rights to transfer power between designated receipt and delivery points in a "gas pipeline model."
This document indicates, "The Commission proposes to replace the network and point-to-point services...with a CRT that would accommodate both network and point-to-point needs. The CRT would be based on the point-to-point service in the Final Rule tariff and would allow all jurisdictional transmission customers to have the same degree of flexibility in reserving and using transmission service. Under the CRT, all transmission customers would specify the amount of power to be received and delivered at multiple receipt and delivery points, and would have substantial flexibility in rearranging these receipt and delivery points. All nominations for capacity reservations would be evaluated in the same manner."
FERC indicated that the reservation-based system would be more compatible with open access than the Open Access Rule pro forma tariff, since market participants could learn how much transmission is available for electric power purchases and sales through the new OASIS requirement (see below), and better accommodate competitive changes occurring in the industry.
Recovery of stranded costs
Another major component of Order 888 allows the full recovery by electric utilities of certain investments in facilities and contracts that may become uneconomic, or "stranded" by wholesale open access competition resulting from the FERC rulemaking, when customers suddenly obtain cheaper electricity from other sources.
However, the only costs that are recoverable are "legitimate, prudent and verifiable" stranded costs.
Stranded costs recoverable under the rule are those associated with wholesale requirements contracts signed before July 11, 1994. After that date, recovery must be specifically provided for in the contract, according to FERC. The commission ruled that such costs should be recovered only from the utility's departing customers, known as "direct assignment," to prevent the shifting of these costs to the utility's remaining customers.
Clarifying this requirement, FERC commissioner James Hoecker speaking at the Canadian Electrical Association's annual conference and exposition in Montreal held April 28 to May 3, indicated, "It is often said that we have guaranteed 100 percent stranded cost recovery. The Commission will permit recovery of all legitimate, verifiable, and prudent wholesale stranded costs. But, a utility must show it had a 'reasonable expectation' of recovering even beyond the term of current contracts. And, it must mitigate its stranded cost exposure. This strikes me as a demanding standard. The intent is that utilities be left in the same relative economic position in which they found themselves before the Commission altered the use of their transmission systems. Finally, the Rule does not insulate utilities from the normal risks of competition, such as self-generation, cogeneration, or industrial plant closure that do not arise from the new availability of non-discriminatory open access transmission."
FERC's order 888 indicated that if costs are stranded by retail wheeling, utilities should look to the states for recovery of those costs. In most cases, FERC has left retail wheeling decisions up to state authorities.
Independent transmission operation
FERC does not require the establishment of "independent system operators" (ISOs), which several U.S. jurisdictions may establish to manage regional electricity transmission systems on a non- discriminatory basis. ISOs would operate the transmission systems of one or more utilities. However, Order 888 encourages the formation of "properly-structured ISOs," and thus sets out certain principles for the establishment and operation of ISOs when they are employed, to ensure that the management and control of ISOs is completely independent of generation owners, and ensures fair access to the transmission system.
Order 888 does not require corporate unbundling and divestiture, or corporate restructuring, although it does require "functional" unbundling, which "is necessary to implement non- discriminatory open access transmission."
Functional unbundling means:
- a public utility must take transmission services for all of its new wholesale sales and purchases of energy under the same tariff of general applicability to others;
- a public utility must state separate rates for wholesale generation, transmission, and ancillary services;
- a public utility must rely on the same electronic information network used by its transmission customers.
Environmental issues
FERC claims that Order 888 poses no environmental threat. FERC's recently issued Final Environmental Impact Statement (FEIS) on the Mega-NOPR focused on possible increases in emissions of nitrogen oxides (NOx) from fossil-fuel fired generators, and indicated, "The environment will benefit from reduced NOx emissions if it is cheaper to generate electricity with natural gas than with coal. But even if this is not the case, the effect on the environment would be minor."
Order 888 states that "The FEIS finds that the relative future competitiveness of coal and natural gas generation is the key variable affecting the impact of the Final Rule. If competitive conditions favor natural gas, the Rule is likely to lead to environmental benefits. Both the Environmental Protection Agency and the Commission staff believe this projected scenario is the more likely one. If competitive conditions favor coal, the Rule may lead to small negative environmental impacts. However, even using the most extreme, unlikely assumptions about the future of the industry, the negative consequences are not likely to occur until after the turn of the century. Because the impacts will remain modest at least until 2010, there is no need for an interim mitigation program."
On the broader issue of environmental concerns related to Order 888, FERC Commissioner James Hoecker indicated, "After giving it some thought, I have concluded that restructuring opens up new possibilities for addressing long-standing environmental problems associated with utility operations. Open access enhances the prospects for environmental dispatch on a regional basis. It gives isolated renewable plants, particularly hydroelectric and wind power units that are tied to specific geographical features, better market access...as restructuring makes electricity a more customer- driven business, the public's documented preference for environmentally benign power will take on more significance. For the environment, the prospects offered by restructuring are exciting."
For information on the reaction of environmental groups, see the section on "Challenges to Order 888," below.
Transmission reservation/information systems
FERC's OASIS NOPR order 889 requires transmission owning utilities to create or participate in real-time electronic information systems on the Internet in order to fully share information about their available transmission capacity. The commission proposes a new system for utilities to use in reserving capacity on their own transmission lines or those of others. This rule requires utilities to make available essentially identical information to themselves and to their competitors, with respect to their transmission system for wholesale power transactions, such as available capacity, prices, and other information necessary to obtain service according to FERC technical standards and protocols.
"FERC deserves a lot of credit for recognizing that you can't just mandate open competition in a situation of unequal access to transmission. You have to go a long way to ensure that the players actually operate openly, and a big part of that is making sure that all relevant technical information is fully available to all potential competitors," said IPPSO Executive Director Jake Brooks.
The specifications for an OASIS system appear in a separate document titled, "Standards and Communications Protocols for Open Access Same-Time Information System (OASIS)" (Docket RM95-9), to help ensure that all OASIS systems will provide information in a uniform manner. These protocols are still under development.
The rule indicates, "This information will be provided both through displays and through standardized files that users can download to their own computers. Certain information will also be uploaded through standardized forms and files transmitted from customers' computers to the OASIS."
The rule applies to both interstate wholesale transmission customers and retail transmission customers that can receive unbundled retail transmission. The order requires utilities to completely separate their wholesale power marketing functions from their transmission operation functions.
Rule 889 also requires standards of conduct which ensure that transmission owners do not gain unfair competitive advantage by exploiting their transmission function to sell power, or from "engaging in unduly discriminatory business practices." Utilities must comply with this order by the end of August.
Impact on retail markets
While only just beginning in the U.S., the potential for direct, retail electricity sales is huge, perhaps rivaling even direct natural gas sales. There are numerous retail direct access pilot programs underway or planned in many U.S. states, allowing businesses to directly purchase power from suppliers (see article elsewhere in this IPPSO FACTO on Hydro-Qu‚bec's potential involvement in the New Hampshire retail pilot). These programs are under the jurisdiction of state regulators, and Order 888 defers to state jurisdiction in this area.
However, while Order 888 deals with interstate wholesale electricity markets, it will also have a major impact on retail markets according to FERC commissioner Donald Santa.
Santa said, "In the open access rule, the commission clarified that customers that gain direct access through either a utility's voluntary retail wheeling program or a state-mandated program will be eligible to obtain service under a jurisdictional utility's transmission tariff."
Order 888 found that FERC had jurisdiction over the rates, terms and conditions of all unbundled retail transmission in interstate commerce. Retail customers obtaining such service must file an open access transmission rate with FERC.
Challenges to Order 888, and support
The issuance of the FERC rulemaking has sparked a groundswell of support for its measures, as well as initiatives in opposition.
Seeking to head off a Congressional lobbying campaign to roll back Order 888, soon after it was issued, Peggy Welsh of the Electric Generation Association wrote President Clinton asking him "to reject efforts to delay implementation of the order or to require that the order incorporate environmental mitigation measures," as reported in Electricity Daily. Welsh said Order 888 "represents a reasoned, thoughtful and important step forward in developing an efficient competitive wholesale electric market," citing the recent "Economic Report of the President" which called for an open, non-discriminatory transmission system. Welsh said that complaints from political leaders in the U.S. northeast that the order will increase pollution in their region are unfounded.
However, Democratic U.S. Senator Patrick Leahy of Vermont soon obtained senatorial support for a letter which calls for White House intervention in Order 888. It claimed increased NOx emissions flowing from the midwest would increase ozone levels and result in 10,000 to 16,000 excess deaths in the northeast.
According to Electricity Daily, the White House has been under pressure from the Natural Resources Defense Council and other environmental groups to examine the FERC environmental statement. Additionally, high-cost northeast utilities "have also been pressing to add environmental mitigation to FERC's order, in part as a way to increase the costs of their potential competitors."
Last November, in commenting on FERC's draft environmental impact statement, a coalition of environmental groups and the American Wind Energy Association (AWEA) charged that it failed to adequately address the effects of the Mega NOPR. While both supported the goals of open access, AWEA argued that the draft EIS fails to consider potentially discriminatory impacts of open access that could impede development of renewable energy resources and their environmental benefits.
On May 13, the EPA referred FERC's open access rule to the White House Council of Environmental Quality (CEQ) in its concerns about NOx emissions. In her referral letter, EPA Administrator Carol Browner said, "EPA has determined that the open access rule is unlikely to have any significant adverse environmental impact in the immediate future, and that in light of its anticipated economic benefits, implementation of the rule should go forward without delay."
However, Browner indicated that EPA was concerned that steps it is planning to reduce NOx emissions in much of the U.S. through an emissions trading program, or cap on emissions, might not work , or work soon enough. Although she expects the EPA's Ozone Transport Assessment Group will create a consensus trading program, "EPA is prepared to establish a NOx cap-and-trade program for the OTAG region through Federal Implementation Plans." If the OTAG plan fails "to produce the necessary pollution limitations in a timely manner," wrote Browner, "EPA will call upon all other interested federal agencies to assist in solving the problem. In this context, FERC could contribute to this effort."
Browner also raised the issue of CO2 emissions which might increase as a result of the FERC order. "Increases in CO2 would exacerbate the difficulty of carrying out the administration's commitment to reducing emissions of greenhouse gases under the president's Climate Change Action Plan and the Framework Convention on Climate Change," she wrote.
On May 29, FERC told the EPA and the White House CEQ that it objected to the referral and that it did not intend to participate further in the referral process. "It is difficult to understand why EPA believes a referral is necessary where there is no immediate adverse effect and, as EPA notes, our analytical differences over longer term consequences are in effect differences in assumptions that lie within a reasonable range of each other," indicated FERC.
The full recovery of stranded costs under Order 888 when large wholesale customers leave a utility system has also been criticized by certain stakeholders. Large industrial electric customers on May 23 asked FERC to rehear Order 888 to change its provisions on recovery of stranded costs. Among its major objections, the industrials say FERC fails to adequately explain why 100 percent of stranded cost recovery is appropriate, as opposed to utility- customer sharing of transition costs. The Citizens Action Coalition called the stranded cost rules a "bailout of the nuclear industry. How many more times must consumers pay for the management mistake represented by nuclear power?"
However, the Edison Electric Institute and others have praised FERC for its stance on stranded costs.
Meanwhile, the association representing U.S. state utility regulators, the National Association of Regulatory Utility Commissioners (NARUC), has also asked for rehearing of the order, indicating that the open access Order 888 usurps state authority. Previous challenges of this nature have generally failed, but Order 888 may be judged to be unlike FERC's previous rulings.
Availability of FERC documents
The FERC order 888 documents are available from the Commission Issuance Posting System (CIPS), an electronic bulletin board service, accessible from Canada by Internet (telnet to fedworld.gov and type /go ferc), or by modem dialing 202-208-1997. Document filenames on the CIPS are the docket numbers. The Order 888 and related documents are packaged in a single file called "RM95-8.ZIP" (For further information, see item on "New WWW Resources," elsewhere in this issue of IPPSO FACTO, or contact IPPSO.)
This is according to FERC Commissioner James Hoecker, addressing the Canadian Electrical Association's annual conference and exposition in Montreal, held April 28 to May 3.
U.S. transmission tariffs will require that all customers, including non-public utilities, must provide reciprocal service over their own transmission facilities, Hoecker said.
"To the extent that a foreign entity takes advantage of access to the transmission facilities of U.S. utilities to reach American markets, we believe it is important and fair that such [an] entity comply with the terms and conditions of the open access tariff that it takes access under when it accesses the U.S. market," he said.
He indicated that three key points of the reciprocity rule are:
- the obligation to provide reciprocal service is essentially bilateral, that is it gives rights mainly to the transmission provider from which service is obtained;
- reciprocity is aimed at ensuring that utilities operate as feasibly as possible as a part of an integrated network; and,
- a foreign entity is not required to file an open-access tariff with FERC. It may voluntarily file a tariff, however, if there is some dispute with the transmission provider about compliance, thus allowing FERC to arbitrate the dispute. The foreign utility would also be required to participate in an OASIS.
Waiver of the reciprocity requirements may be possible, according to the commissioner, although FERC would apply the same criteria to domestic utilities as well.
On the issue of reciprocity and Canada-U.S. international trade concerns, Hoecker said, "We have tried to ensure that the reciprocity provisions contained in the Final Rule are consistent with the provisions of NAFTA, GATT and other trade agreements and regulations. I am comfortable that we have provided what is referred to as similar 'national treatment' in trade circles...I believe that Canadian utilities and marketers have much to gain from participating in open access transmission programs including reciprocity of service. Your Minister-Counsellor for Economic and Trade Policy in Washington urged us to implement our open access regime consistent with fair and competitive access. I believe we have."
In 1995, the U.S. imported 40,500 GWh of electrical energy from Canada, excluding non-cash exchanges. In contrast, the U.S. electricity imported into Canada in recent years was only about 2 percent of that exported, indicating substantial new reciprocal imports may be required to match and maintain the current level of Canadian electricity exports to the U.S.
Montreal: HQ Energy Services, a subsidiary of Hydro-Qu‚bec, has recently joined with one Qu‚bec and two US energy companies to form Green Mountain Energy Partners (GMEP) in Vermont, to compete in the emerging US retail electricity market and to target a retail wheeling pilot program in New Hampshire, one of the first in North America.
Other GMEP participants are subsidiaries of the Vermont utility Green Mountain Power (GMP), Consolidated Natural Gas (CNG) and Noverco. CNG and Noverco are major players in the North American natural gas market, and their participation in GMEP reflects the quite logical efforts of firms in the natural gas industry to transfer the experience and marketing infrastructure they gained during natural gas deregulation to the increasingly competitive electricity market
Hydro-Qu‚bec, Noverco and CNG Energy Services have already developed a cooperative arrangement for wholesale energy sales in the US, called the Energy Alliance Partnership.
The New Hampshire retail pilot
GMEP has targeted the New Hampshire electricity retail wheeling pilot program as the first market in which it will compete for retail customers. The pilot is the first time that electric service will be opened to competition in New England, and allows retail electricity customers to purchase electricity directly from the generators or suppliers of their choice, rather than relying on local utility supply. The pilot is thus analogous to direct natural gas marketing, and is being observed carefully as a test of electricity consumer responses to various marketing approaches.
The retail pilot commenced on May 28 and will run for two years. It will enable about 16,000 randomly chosen residential customers and 1,000 business customers to pick their electric supplier. All classes of customers are eligible for participation, but only 3 percent of each franchised electric utility's existing peak load will be open to competition. Participants in the lottery were announced on May 1. They were chosen from among 34,000 New Hampshire residents who signed up in hopes of being selected.
At least 28 electricity marketers are competing aggressively in the New Hampshire pilot project. The rivalry is so fierce that one marketer involved in the project quipped to the US Northeast Power Report that "the whole idea of this test is to learn what dirty tricks to use and we've learned four or five in the first week."
GMEP partners
Representatives of the four parent companies in GMEP said their combined strength will ensure that the new enterprise can be a reliable supplier and a strong competitor for energy sales to all classes of retail customers. They added that the partnership was not the prelude to a further merger of the companies.
Green Mountain Power is an investor-owned electric utility in Vermont serving 80,000 customers. It has long-standing ties to Hydro-Qu‚bec, including purchased-power agreements and a research and development agreement. GMP's primary responsibility in GMEP will be marketing and retail sales.
Consolidated Natural Gas is participating in the enterprise through its CNG Energy Services Corporation subsidiary. Based in Pittsburgh, CNG Energy Services provides electricity, natural gas, other energy and related services to customers across North America. Through an affiliate, CNG Energy Services is the fourth largest wholesale power marketer in the US, with sales of nearly 2 million MWh in 1995. Consolidated, with 1995 operating revenues of $2.4 billion, is one of the largest integrated natural gas companies in the US.
Publicly-owned Hydro-Qu‚bec generates 97 percent of its electricity from hydropower, equal to 1.5 times the entire electric load for New England. Hydro-Qu‚bec's revenues in 1995 were Can$5.3 billion.
Noverco is a Qu‚bec energy holding company among whose properties are Gaz Metropolitain Limited Partnership, Qu‚bec's natural gas distribution company, and Vermont Gas Systems, Vermont's natural gas distributor. Noverco's operating subsidiaries had revenues of almost $1.1 billion in 1995.
GMP president and CEO Douglas Hyde said that GMEP would enable GMP to provide retail power in Vermont once industry restructuring there is completed. He noted that the alliance will not alter GMP's existing power supply arrangements or its relationship with existing customers. "It sets the stage for pursuing our market strategy in the retail energy business, creating opportunities for GMP to grow outside traditional boundaries."
Richard Zachariason, CNG Energy Services director of strategic market development, called the new four-company agreement "a strategic fit that adds a strong retail-sales capability to a business alliance that has been successful in the wholesale markets. We believe our new company will be an important player as restructuring of the electric industry begins to break down the franchise barriers to competition."
Claude Dub‚, vice president of external markets for Hydro- Qu‚bec, said "Hydro-Qu‚bec is pleased to add Green Mountain Power to its network of partners. We were looking for an electricity partner in the US who had a proven track record for customer satisfaction and who had a clear vision for competing in the retail markets. Along with CNG and Noverco, our goal is to provide a full array of energy services to customers at the retail level."
Sophie Brichu, director for Noverco, said the formation of the new company "rapidly diversifies the energy solutions our company can offer customers and further ensures our strategic position toward US northeast energy markets."
"EcoCredits"
GMEP has developed an innovative marketing technique, which offers a new type of credit as a bonus to New Hampshire customers who signed up with GMEP by May 20. The bonus, called "EcoCredits," will be given to electric customers in the New Hampshire retail wheeling pilot program.
Customers who choose GMEP as their electricity supplier will get 20 EcoCredits, each worth a dollar on a future electric bill, and can earn more EcoCredits by participating in programs that promote energy efficiency and environmental protection. GMEP customers eventually will be able to use the credits towards the purchase of environmental products and services, some of which have not yet been disclosed.
To promote its products and services, GMEP has been floating a large green hot air balloon over New Hampshire, which carries the message "Choose Wisely, It's a Small Planet."
GMEP said it will provide its New Hampshire customers with reliable, renewable, environmentally friendly energy from sources like hydropower to the greatest extent possible. According to GMP's manager of corporate communications Dorothy Schnure, the claim that GMEP will deliver environmentally sound electricity is based on the fact that Hydro-Qu‚bec produces 97 percent of its electricity from hydropower, and about 90 percent of GMEP's energy will be supplied by Hydro-Qu‚bec.
GMEP's assertion does not appear to acknowledge the sharp objections of environmentalists, aboriginal people and other critics who have long argued that Hydro-Qu‚bec's hydropower megaprojects are environmentally harmful.
The formation of GMEP also follows a recent deal between GMP and Hydro-Qu‚bec, granting Hydro-Qu‚bec the use of GMP's transmission capacity through Vermont into Massachusetts, which can deliver power to New Hampshire and Massachusetts markets.
Ontario Energy Environment Caucus meeting
Dunrobin, Ontario: Ten years to the day after the Chernobyl nuclear catastrophe, participants at the Ontario Environment Network's (OEN) Spring Meeting had a chance to share their insights and recollections of this tragedy at a commemorative gathering on Friday, April 26. Over 70 people attended the conference (held in Dunrobin, near Ottawa), which featured a seminar on renewable energy "Safe Energy Alternatives to Nuclear Power", with Jeff Passmore, Duncan Noble and Ziggy Kleinau.
Canadian Wind Energy Association representative Jeff Passmore discussed the issue of levelling the playing field for renewables in Canada's economy. Passmore described how Natural Resources Canada had wrongly determined that the field is level by assuming that financing was already in place, and how renewable energy still faces market barriers because of unequal tax treatment of competing energy systems.
Duncan Noble, editor of the Canadian Renewable Energy Guide, presented good news about solar technology. Noble said that wind energy, photovoltaic (PV) systems for off-grid locations as well as hybrid wind/diesel and pv/diesel systems are cost effective now. The clear benefits of PV systems are coverage of the peak air conditioning load and suitability for remote locations. Noble presented some case studies of solar installations and noted that Germany and India are world leaders in installed capacity for wind generation.
Ziggy Kleinau, who recently founded Citizens for Renewable Energy, (see IPPSO FACTO, April 1996, page 11) discussed the need to push for renewables at every opportunity when decisions are being made about energy supply options. He emphasized the need to stop public expenditures on repairs to aging nuclear reactors in Ontario, noting these should be phased out of service and replaced with energy efficiency programs and renewables.
Other sessions at the OEN meeting included a media skill workshop and a strategy session on the Environmental Bill of Rights. Three panel sessions provided inspiration and information for the participants, and highlighted the programs of several groups working on environmental issues in Ontario. The "Canada's Nuclear Affairs Panel" reviewed the activities of the nuclear industry in Canada and abroad, and shared campaigns and strategies. Dorothy Goldin Rosenberg of the Women's Network on Health and the Environment moderated the panel. Dr. Gordon Edwards (Canadian Coalition for Nuclear Responsibility) spoke on nuclear exports and the plutonium fuel import proposal; Irene Kock (Nuclear Awareness Project) covered standard setting for radioactive contaminants and outlined Bill C-23, the new legislation proposed to replace the Atomic Energy Control Act; Brennain Lloyd (Northwatch) spoke on the environmental assessments underway on high level waste burial and uranium tailings remediation; and Kristen Ostling (Campaign for Nuclear Phaseout) spoke on federal subsidies to the nuclear industry.
The customary Saturday evening "Local Issues Panel" brought some interesting programs and campaigns taking place in the Ottawa Valley to everyone's attention. Panelists discussed nuclear waste, wetlands preservation, workplace health and safety, and native land claims in the context of environmental protection and social justice. The moderator was Mike Kaulbars of Ottawa Peace and Environment Resource Centre. Ole Hendrickson (Concerned Citizens of Renfrew County) spoke about the proposal to ship radioactive wastes from the Port Hope area for disposal at AECL's Chalk River Nuclear
Laboratories. Dan Kohoko (Golden Lake Algonquin First Nation) spoke about the Algonquin Nation land claims and tactics used to ensure progress on the claims. Meg Sears (Wetlands Preservation Group of West Carlton) spoke about strategies for wilderness preservation campaigns with local examples of success. And Anthony Pizzino (CUPE Health and Safety Officer) spoke about workplace environmental protection initiatives.
The third panel, "Bridging the Gap - Labour and the Environment Movement" brought home the message that workers are on the front lines of environmental protection on the job. Panelists shared their own experiences of fighting to protect workers' health and the environment at their jobs, showing how progress has been made and attitudes are changing. Speakers included Jim Mahon (CAW Local 1520), Ralph Barron (CAW Local 707), and Nancy Byly (Wildlands League). The need to involve workers in any campaigns or programs aimed at their employer or workplace was stressed.
- Irene Kock
Nuclear Awareness Project
OEN Conference Committee member
To: ippso@web.apc.org
To the editor,
The assertion that "rime icing is a major barrier to efficient wind generation in the sub-Arctic" ("Cold Weather Wind Turbines Performing Well", IPPSO FACTO -- April 1996), which appears to be one conclusion of your article, is misleading. While this can be a significant problem at certain sites, not every sub-Arctic site will be prone to rime icing.
Rime icing occurs when airborne liquid water droplets, which can be "supercooled" to sub-zero temperatures without freezing, strike a surface and freeze very rapidly. It is principally associated with ridges and mountains, where a change in elevation causes the air to rise and cool; supercooled water droplets can also be found in fogs in the high Arctic and in air containing sea, lake, or river spray. A sub-Arctic wind turbine that is not located at a significantly higher elevation than its surroundings will not, in general, be prone to rime icing. The real difficulty, therefore, lies in trying to find a windy site that is not on a ridge or a mountain top.
Under the "PV for the North" program, the Energy Diversification Research Laboratory has been studying the associated problem of rime accumulation on photovoltaic panels; we encourage people with questions or information about rime icing to contact us.
Michael Ross
Energy Diversification Research Laboratory (EDRL)
CANMET -- Natural Resources Canada
Varennes, Qu‚bec (514) 652-5278
michael.ross@cc2smtp.emr.ca
BC Hydro's wholesale transmission services (Wholesale Point to Point Transmission Services) The Wholesale Transmission Service is accessed using id "http://ews.bchydro.bc.ca". This will get the user directly into the SCC home page. Transmission capacity availability, prices, ancillary services etc. are posted and opened by clicking on the highlighted fields.
Information on California's Renewables Portfolio Standard and other
matters of interest to renewable energy interests: are available on
the Web at
The Grid Company of Alberta Inc. is pleased to announce the launch
of their WWW site located at http://www.gridco.ab.ca In the fall of
1993, the Minister of Energy directed the Department of Energy to
work with power utilities, power consumers, independent power
producers, and industry regulators to develop a new electric power
industry structure and regulatory reforms that would preserve and
enhance competitive electricity pricing in the Province of Alberta,
Canada. The framework for the new structure is the Electric
Utilities Act which obtained legislative approval on May 17, 1995
and took effect on January 1, 1996.
Under the terms of the act, supervision of the Alberta
interconnected power transmission system was consolidated under a
Transmission Administrator. The Grid Company of Alberta Inc.
("GridCo") was appointed the Transmission Administrator for 1996.
As Transmission Administrator, GridCo manages all regulatory and
financial requirements related to the buying and selling of
transmission and system support services, including:
- the development of transmission tariffs and schedules
- the prudent management of the costs of providing transmission and
system support services and collecting the required revenues to
recover those costs
- the planning and provision of additional transmission facilities
as required, and
- ensuring that financial arrangements are sufficient to provide
these additional facilities.
The new structure provides all power producers, consumers,
importers and exporters who wish to either purchase energy from, or
sell energy to, the Power Pool of Alberta, non-discriminatory
access to the integrated electric power transmission system. As
Transmission Administrator, GridCo desires to satisfy the required
information needs of both existing and possible future customers.
The Grid Company of Alberta Inc. has therefore established a site
on the World Wide Web located at http://www.gridco.ab.ca
In addition to some supplementary information regarding the
new industry structure, the web site contains:
- additional information about The Grid Company of Alberta Inc.
- general service classification and tariff structures
- historical and six-day advance forecasts of transfer charges,
available transfer capability, and allocated losses for import,
export, and domestic service, and
- links to other associated sites that may be of interest.
Provision has also been made for email interaction to respond
to specific information requests and to assist GridCo in
continuously improving the web site.
The City of Calgary Electric System
http://www.gov.calgary.ab.ca/11/11-index.htm
The Globe Resource Centre is a new website that offers searchable
databases and secure discussion groups on environmental topics.
http://www.globe1.apfnet.org
Organizational news
On May 22, the IPPSO Board appointed directors to its
"Intervention Committee" to oversee the work at the OEB. It also
gave tentative approval to a draft information package on non-
utility generation.
At the April 17 meeting, the Board discussed plans for a media
relations effort and public information package. It also discussed
plans for the annual conference, and letters to Cabinet ministers.
There was general agreement that every issue of IPPSO FACTO from
here on should include a box containing IPPSO directors' names and
their phone numbers.
Plans were made to develop a revision to IPPSO's bylaws to
enlarge the Board such that the immediate past president becomes
automatically a member of the Board, until there is a newer past
president. These bylaws will likely be brought to the members for
approval at the Annual General Meeting, which is expected to be
called for October 22.
A number of constraints limited the participation of independent
power producers in Ontario Hydro's six month "Hourly Market
Experiment" (HME) from July 10 until December 31, 1995 (IPPSO
FACTO, Fall 1995, p.4).
The HME participants were Hydro's three generation business
units (nuclear, hydroelectric and fossil) and a group of Ontario
based non-Hydro participants called the "externals." These players
were able to submit bids to Hydro's Electricity Exchange at the
Clarkson System Control Centre to provide short-term, hourly
peaking electricity in blocks of megawatt hours. The spot market
player with the lowest bid price was chosen from the HME
participants. Thus the externals were able to displace hourly
electricity normally supplied by the business units.
Under the experiment, the Exchange purchased a total of 63,000
megawatt-hours of electrical energy, valued at $1.1 million. Of
this total, 53,987 MWh was supplied by Hydro generating business
units (see table). The average monthly cost of power purchases in
the HME ranged from $13/MWh to $37/MWh.
"Although the participation by non-Ontario Hydro generators
was modest, lessons were learned by the generators and the
Electricity Exchange in conducting the experiment that will assist
in preparing for future competition in the Ontario electricity
market," said Hydro's HME assessment report of March 29, 1996.
"In particular, the experiment highlighted the need, to not
only carefully structure the purchase agreements, bidding rules and
processes for the market, but also to develop supporting software
and information exchange tools, to allow a spot market to operate
effectively."
Of the externals, the two private Ontario utilities delivered
the largest amount of electrical energy. Canadian Niagara Power
(CNP) delivered 8,900 MWh, while Great Lakes Power sold 280 MWh.
A total of only 10 MWh was accepted by the HME from two non-
utility externals. These were Lake Superior Power, and an unnamed
independent generator. Thus only four out of the nine externals in
total sold electricity to the HME.
In announcing the experiment last summer, Ontario's Minister
of Environment and Energy Brenda Elliott said that the HME would
emulate a free market and thus give Ontario Hydro valuable
experience in competing against other North American electricity
generators.
According to the Hydro report, the HME was also designed to
provide learning and feedback on the potential short-term power
market in Ontario; to investigate and develop processes and tools
that would be required in a more open market; and to estimate the
near-term market price for electricity in Ontario.
Hydro also billed the HME as a means to improve the efficiency
of electricity generators in Ontario; to lower electricity prices;
and to allow market forces to determine near-term prices and
occasional power purchase rates.
HME participants
Five of the externals were natural gas cogeneration firms:
TransAlta Energy (Ottawa); Westcoast Energy (Fort Frances); Lake
Superior Power (Sault Ste. Marie); the Dow Joint Venture, a
contractual joint venture of Dow Chemical Canada, Novacor Chemicals
and Bayer Rubber, formerly Polysar (Sarnia); and Cardinal Power of
Canada. The other externals were:
. Eastern Power Developers Corp. (Keele Valley) and Eastern Power
Developers Inc. (Brock Road), which could bid from either of two
landfill gas and natural gas fired generating sites in Toronto and
Pickering.
. two private hydropower utilities: Great Lakes Power Limited and
Canadian Niagara Power Company, Limited.
According to the Hydro report, CNP enjoyed the unique
advantages of low-cost production and access to both the US and
Ontario markets. CNP staff "took a keen interest in learning and
profiting from their participation and submitted bids for most days
of the experiment." They made "extensive use of both the day-ahead
and the day-at-hand HME markets to maximize the value of their
power."
CNP's energy deliveries to the HME were in most cases
generated at Ontario Hydro hydroelectric stations, including the
Sir Adam Beck plant. Under a water exchange agreement with Ontario
Hydro, CNP's 75 MW Rankine station remains on standby to meet
Ontario Hydro's electricity demand. When CNP has energy surplus to
its contractual obligations to the Ontario municipalities of Fort
Erie and Cornwall, CNP is free to bid the surplus into the HME. CNP
is owned by Niagara Mohawk of Syracuse, NY.
Walter Lord Charest, CNP's operations supervisor, said that
the HME was "a worthwhile experiment because it allowed CNP to
participate in a product for Ontario developed by an Ontario
utility. We learned how Hydro accepts bids in their markets, and
that CNP could participate successfully in the market. We would
welcome the chance to bid in a new hourly market."
Lord Charest noted that CNP does not have a long term power
purchase agreement with Ontario Hydro, whereas a number of other
externals had such agreements. The HME assessment report listed key
explanations provided by externals with power purchase agreements
(PPA) for their low HME participation. These include their
preference for PPA rules for baseload electricity delivery rather
than the hourly pricing and bidding required in the HME, and their
scant interest in competing to sell energy at prices less than
about $30/MWh, partly because the bidding effort is apparently not
justified for small amounts of power at low profit margins.
The period of greatest HME activity occurred during the August
1995 heat wave, when energy was accepted from three externals. The
average monthly HME price peaked in August at $35.8/MWh. The price
was high as a result of Hydro's large export commitments, tight
supply in the interconnected market, high cost generation on the
margin, and transmission restrictions.
When all of these occurred on August 12, HME energy was
purchased at up to $120/MWh. At the other end of the scale, the
September average HME price dropped to $12.8/MWh when all of the
HME energy delivered was baseload generation.
During the HME, Hydro's three generating business units
continued to supply the lion's share of electricity in Ontario
under annual contracts, options and spot bids in the "Transfer
Pricing" scheme to the Electricity Exchange. The units were paid
for capacity and energy at competitive prices.
Table: The HME participants who bid and delivered electricity
MWhs MWhs Av. delivered Months
del. bid Price ($/MWh) bid
TransAlta Energy 0 192 Aug.
WestCoast Energy 0 339 Nov., Dec.
Name withheld 3 3 4 Nov.
Lake Superior Power 7 117 95 Aug.
Great Lakes Power 280 740 100 Aug.
OH Hydro. B.U. 1134 1701 17.6 July
CNP 8868 58360 20.2 July-Dec.
Bruce "B" - OHN 25713 25713 12.4 Sept.
OH Fossil B.U. 27141 42367 20.3 July,Aug.,Oct.-
Dec.
OH Hydro BU = Ontario Hydro Hydroelectric Business Unit
OHN = Ontario Hydro Nuclear Business Unit
OH Fossil BU = Ontario Hydro Fossil Business Unit
RFP for scrubbers
The Israel Electric Corporation is accepting tenders for
scrubbers for the country's new Ruttenber 2 power station, now
under construction. Ruttenber 2 will be a coal-fired station with
1100 MW capacity. Estimated budget is US$120 million. For more
information, contact Dr. Hadar Almog, Head of Environment
Department, Israel Electric Corporation, Haifa, Israel, 972-4-868-
4200 fax 972-4-868-4091.
IPPSO Board plans new bylaws
Toronto: IPPSO's Board met on April 17 and May 22 to deal with
plans to intervene at the Ontario Energy Board, amongst other
topics. The intervention was approved. (See article "OEB to examine
surplus" elsewhere in this issue.)
Hourly Market Experiment a qualified success
By David Bright and Stephen Salaff