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Ratepayers suffering for Hydro's past sins.

The flagship of the province's Crown corporations, Ontario Hydro, must set a new course before the many leaks on board cause it to sink, observe its critics.

Hydro, created in 1906 by founder Sir Adam Beck, has lived by Beck's phrase, "Nothing is too big for us, nothing is too expensive to imagine." However, it has become too big and too expensive for Ontario's taxpayers to manage.

Ontario Hydro's nuclear reactors need billions of dollars in unanticipated maintenance. The utility said last year it would spend $854 million for a major rehabilitation of its Bruce A nuclear station on Lake Huron near Port Elgin.

The utility's new Darlington nuclear plant, located on the north shore of Lake Ontario, does not work properly according to Energy Probe of Toronto, despite a price tag of $13.8 billion.

Hydro has spent $23 billion on nuclear plants that are out of commission three days of every 10.

Hydro and government officials blame the utility's present financial crisis on decisions made by managers in the 1980s when the utility limited rate increases to the rate of inflation. To keep rates artificially low, the corporation deferred needed maintenance which now must be performed if the generating system is to achieve a high level of performance.

Costs at Hydro are sky high. The utility's 29,000 employees draw on a $1.5-billion payroll. In 1992 the average salary was $54,000 and total average compensation, including benefits and overtime, was $69,000.

At one time an abundant supply of inexpensive electricity was a major selling point for Ontario in attracting industry. Now Ontario's industry is loudly complaining about high costs. The cost of generating one kilowatt hour of nuclear power is 4.3 cents, compared to the 1.8 cents of 10 years ago.

Falconbridge Ltd., the utility's largest single industrial client, is facing stiff power costs at its Sudbury and Timmins operations. Last year's 11.8-per-cent Hydro rate hike boosted Kidd Creek's power bill to $58.5 million, and with another 7.9-per-cent increase on the way, Falconbridge seems to have had enough.

Falconbridge has proposed constructing its own 100-megawatt gas-fired generating plant in Timmins. It would cost Falconbridge $100 million to build.

Eric Belford, the president of Falconbridge's Sudbury division, says Ontario's power costs must be kept to a minimum if the mining industry is going to compete with cheap metals flowing out of Russia.

However, the utility is throwing up road blocks to one private-generation proposal which could cut Falconbridge's costs.

Citing a surplus of electricity, Hydro has refused to approve a $70-million mixed ether and cogeneration plant proposed for Sudbury by Toronto-based Sunthetic.

The utility and government officials claim that if Sunthetic and similar projects were approved, Hydro would be forced to increase its rates by five per cent to offset the lost revenues.

However, Tom Adams, a utility analyst with Energy Probe, questions the accuracy of Hydro's forecasting and suggests that competition would help reduce rates.

Adams recommends that the government privatize Hydro and leave the generation of electricity to the private sector.

"Hydro's actions don't stand up to business scrutiny," he claims. "They're too big and too powerful. We need to cut our losses and break up Ontario Hydro."

The province, however, disagrees.

Northern Development and Mines Minister Shelley Martel says the government is advocating cutbacks at the mammoth utility.

"The position we find ourselves in is to cope with it (Hydro's debt). We as a government are clearly concerned about people's hydro bills. That is why the minister of energy is asking Hydro to cut costs," indicates Martel.

Hydro has already undertaken several measures over the past few months.

Most recently Hydro announced that it would trim $7 billion of capital spending over the next decade by deferring projects involving conservation, new generating capacity and transmission lines.

Hydro is also reviewing an additional $3 billion in cuts that will be announced over the next few months.

The corporation claims the spending reduction will reduce rates to 10 per cent less than what they were originally projected for the year 2000.

A $10-billion cut is equal to 23 per cent of the utility's $42-billion capital spending program over the next decade.

The utility is also reviewing capital spending of $2.5 billion at its Bruce A nuclear generating station.

It is claiming that $4 billion in savings will be achieved through a five-year deferral of a contract to buy one million megawatts of power from Manitoba Hydro.

In September Hydro announced that it was cutting 2,000 jobs, reducing capital spending by $115 million and abandoning a plan to give cash incentives to customers who switch to more energy efficient sources.

"I think (Hydro's) announcement (of cutbacks) clearly shows Hydro is offering a response to the public's concern about competitive rates," Martel points out.

However, the downside is that by trimming staff and eliminating capital spending the utility will further hurt the province's construction industry and weak job market.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Ontario Hydro
Author:Brown, Stewart
Publication:Northern Ontario Business
Date:Nov 1, 1992
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