Montreal, April 15, 2004  /  No 141  
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Harry Valentine is a free-marketeer living in Eastern Ontario. He can be reached at
by Harry Valentine
          Over the past month, the new Ontario Liberal government ended the province's electricity price freeze and made two announcements about the future of that province's electric power. One was the release of the former federal Industry minister's report on Ontario's electric power situation. The second came from the province's Energy minister, who advised that Ontario needed to invest some $40-billion to rebuild and upgrade the province's publicly-owned electric power utility.
          Prior to Dalton McGuinty's Liberals governing Ontario, the province was governed by the conservatives under Mike Harris and Ernie Eves, preceded by Bob Rae's NDP government. Eves enacted an electric power deregulation farce, which was followed by an electric power price freeze. Rae left office with Ontario Hydro holding a $32-billion debt. In his report, former federal minister John Manley blamed political interference in Ontario's public utility for having caused the province's present electric power problems. 
Bureaucrats regulating bureaucrats 
          To remedy this problem, the Manley report has recommended that the Ontario electric power utility be government-owned, but not government-run, be independently regulated and managed by top-notch managers. The report also recommends "effective regulation of Ontario's electric power industry" claiming that "regulation can drive better performance" and that "a strong regulator will ensure that the company, not ratepayers, picks up the tab for its missteps." It ignores that companies earn revenue from selling goods or services to customers, who in this case are also Ontario's ratepayers. It ignores the existence of an extensive body of academic research proving that economic regulation fails in the long term, achieving something other than what was originally intended. Appointing one group of bureaucrats to regulate the activities of another group of bureaucrats, both of whom are mandated to carry out a political agenda, sets a new standard in government waste and inefficiency. 
          The Manley report recommends that state-owned nuclear electric power generation be a priority for Ontario's future. Ontario's troubled nuclear power industry has had a history of system breakdowns and cost overruns. Nuclear power stations also rank high on the list of potential terrorist targets. It may be co-incidental that Atomic Energy of Canada, which makes the Candu reactor, is a federal crown corporation. The report supported Ontario's intention to close its coal-fired power stations by 2007, then ruled out using natural gas to generate electricity due to expected wildly fluctuating future gas prices. Ontario's summer time hydro-electric generation capacity has been steadily declining over the past decade, due to reduced water levels in the Great Lakes. 
          Allowing more privately generated electric power to be sold in an unregulated Ontario electric power market could go far in easing Ontario's annual summer-time electric power shortage, when higher costing electric power has to be imported from the USA. A few successful small private operations actually do produce and sell power in Ontario, serving both commercial and residential clients. However, the present Ontario government and a segment of Ontario's population are firmly opposed to unregulated, privately-owned electric power stations generating and selling power commercially in the province. This continued hostility could cause future economic development intended for Ontario, to locate elsewhere in Canada. 
          Quebec presently has a winter-time electric power shortage and like Ontario, has potential to privately generate electric power from alternative energy sources. In the U.K., the 250,000-Kw Thetford thermal power station uses a steady supply of low-cost solid fuel (biomass) from poultry farms. Poultry farms exist in Ontario and Quebec and a version of the Thetford power station can be built in either province. The solid fuel has never been known to undergo wild price fluctuations and using it to generate electricity solves an environmental disposal problem. Solid fuel is best burnt in external combustion engines such as steam turbines or closed-cycle Brayton air turbines. Quebec industry is able to build the latter, which are basically converted small aircraft turbine engines driving electrical generators and operating on heat from heat exchangers. A wide range of locally available low-cost solid fuels can be combusted to produce electric power plus heat. 
          Research underway at two US universities aims at converting hog farm effluent into a combustible fuel. Large industrial hog farms that generate several tons of effluent per day, along with methane gas, have encountered strong public opposition. Effluent from a variety of animal farms can be mixed with coal, straw (even saw dust) and lime, then processed in large "digesters" where methane (natural gas) is released. This process solves the farm effluent problem. Decomposing bio-organic material in garbage dumps also releases methane, which small power stations can use to supply rural villages, towns and even small cities with heat and electric power (CHP or co-generation power stations). During summer, co-generation or CHP stations can operate as high as 70% efficiency, delivering power plus cooling. During winter months, unregulated private CHP stations could operate at energy efficiencies as high as 90%, providing power and heat to customers. Several such small, unregulated, privately-owned power stations located around Quebec, could help alleviate Quebec's winter-time electric power shortage. 
     “Ontario's state-owned power utility already has a track record of cost overruns and could incur even higher ones rebuilding its nuclear power industry and long-distance electric transmission lines.”
          Quebec's government is as strongly opposed as Ontario's government to allowing unregulated privately-owned electric power companies to operate in the province. If the Quebec government resolved this opposition, Quebec could attract the future economic development that would otherwise locate in Ontario. Former Ontario premier Harris unsuccessfully negotiated through indirect means, to arrange to import Quebec electric power into Ontario, mainly during the summer months. The prospect of such an arrangement was strongly opposed within Quebec. Only a very small region of Eastern Ontario located along the St. Lawrence River, with limited potential for future economic development, is presently supplied with Quebec-generated electric power. 
          Modern technology does enable small, independent, automated power stations to operate using a variety of fuels. Even automated small, mini and micro nuclear power stations are possible, a result of advances in the newer, safer nuclear "pebble-bed" technology which uses spherical fuel pellets instead of fuel rods. The spent material from this new technology has such low levels of radiation, that it can be used for nuclear medicine. Having been developed abroad, nuclear pebble-bed technology would find little or no political favour inside Canada. This technology could otherwise safely operate inside industrial areas, supplying electricity for commercial and industrial use. 
Cost overruns 
          Any initiative by the Ontario government to "invest" $40-billion to repair and upgrade its public power utility will divert resources away from wealth creation activities underway elsewhere in Canada. Historically, governments spend more revenue than private undertakings to achieve the same end. Ontario's state-owned power utility already has a track record of cost overruns and could incur even higher ones rebuilding its nuclear power industry and long-distance electric transmission lines. It may prove less costly to the Canadian economy if a portion of Ontario's intended future private economic development did locate into other regions of Canada, where a reliable electric power industry exists and is able to provide power and increase power supply at a lower cost than what would otherwise happen in Ontario. The Ontario government's continued adherence to centralized electric power production in a few state-owned mega-power stations would merely set the stage for major future cost overruns. 
          Government bungling of electric power deregulation, combined with renewed political hostility toward unregulated private power, could result in Ontario experiencing more frequent power black-outs in the future. This is already occurring in some of Ontario's rural regions.  Historically, state-ownership and/or state control of the means of production has resulted in market distortions such as shortages or cost overruns. The Ontario electric power debacle that began under Premier Rae and was carried forward by Premier Eves, could reach its apogee under Premier McGuinty. In view of this possibility, Ontario citizens who are able to do so would be well advised to invest in home-based, off-grid electric power technologies. Industries unable to generate their own electricity on-site, using co-generation (CHP) technology, may need to reconsider the location of their future expansion plans. Those industries which adopt such technology should expect intimidating inspections by power regulators. 
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