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11 June 2014 @ 05:46 pm
Have to get this off my chest - Political Power Plant Pandering....  
I should have written this post a long time ago. This is sort of about the current Ontario election in that it frames my lack of faith in all parties and to a lesser extent the electorate. I wish I had something positive to say or do. WE CAN DO BETTER!

The first election I paid any great attention to was the 1993 Canadian Federal election that saw Kim Campell's Progressive Conservatives facing off against Jean Chretien's Liberals along with Preston Manning's Reform Party and Lucien Bouchard's Bloc Quebecois.

One minor issue that stuck out to me was the question of the procurement of military helicopters to replace Canada's aging Sea King helicopters by the Conservative administration before the election. Chretien decried this as a waste of money (and I think as patronage to Conservative friends but I can't back that up) and vowed to cancel the order, even though the ink was dry on the contract and that would therefore involve breaking a contract. When elected Chretien made good on his promise and so paid something like half of the cost of the helicopters in order to not get any helicopters. Meanwhle the Sea Kings saw large amounts of funds spent for a not altogether satisfactory refurbishment that hobbles the efficacy of Canada's naval forces to this day. (source1 and source2)

I found it then and still find it now illustrative of the irrationality of partisan politics. Even if the helicopters were a bad deal, was breaking the deal and paying the large cancelation price really better?

Starting around 2008 there was talk of a large new gas fired power plant in the Southwest GTA (somewhere in Etobicoke, Mississauga or Oakville area). The large Lakeview coal fired power plant had recently been decomissioned and demolished and various other changes to the grid were occurring (interesting story). It was deemed that a large power plant in the Sotuhwest GTA would help achieve better load balance on the grid. Eventually through a bidding process run by Ontario Power Authority a site in Oakville was selected on property owned by Ford of Canada in 2009. Even before the exact site was selected opposition was vocal. With the specification of a site it became focused with the town passing bylaws attempting to make the plant illegal, buses transporting people from Oakville to Queen's Park (Ontario's provincial parliament) to protest fearing the reduction in air quality (and as one of my friends suggested reduction in the value of their homes). The local MPP resigned his position in the ministry of energy so that he could oppose the power plant openly and attempted to pass laws on citing the location that would have rendered the site illegal. Signs for the C4CA (Citizens for Clean Air, Oakville) began sprouting up like weeds. In the United States a gas power plant exploded killing workers, creating a new source of fear. The Oakville power plant nestled between rail tracks and the QEW/403 was within a few hundred meters of houses and a school and opponents now foresaw that these would be put in danger by the plant's potential to explode.

Despite this the company that had contracted to build the cite TransCanada seemed confident that the power plant would be built. Muncipal powers to block these developments are limited by their limited powers to enact laws, the courts or the Ontario Muncipal Board could have overturned or rendered meaningless their attempts to block the power plant. The province might have overridden them as they did elsewhere in similar circumstances. The plant violated no existing health and safety laws and passed the environmental assessments etc..

My own opinion was that this attempts to block the power plant were not based on a consistent set of environmental concerns but an irrational fixation on one potential source and tended to be put in histronic terms. People would write to the local paper indicating that any decrease in air quality would be unacceptable. I find it unlikely that many people expressing that sentiment applied it when deciding to drive (and even if the plant had been built it would have been commuter cars that created by far the bulk of air pollution in Oakville). Similarly no doubt there is some chance a power plant might catastrophically explode and do some damage to the environs, but assuming it is well built the chance will be far less than the certainty of further carnage from car traffic. The difference in my estimation being people see that taking such a zero tolerance approach to cars would have massive costs to them, they are able to ignore the costs of not building power plants much more easily.

Still pressure mounted and in October of 2010 the Provinicial government announced that the power plant was unnecessary and the contract canceled. Both major opposition parties (the Progressive Conservatives PCs and the New Democratic Party NDP) had taken the side of the opponents and said the plant should be canceled.

Soon it came out that in fact another power plant would be built in Napanee (250 km to the East of Oakville) and this would provide the power the Oakville plant was supposed to and that TransCanada had been paid for the sunk costs on the Oakville plant ($40 million). In the heart of the 2011 provincial election a smaller plant in Mississauga was canceled, it turned out its replacement would be in Sarnia (well in Lambton county 250km west of Mississauga).

The Oakville site had been selected because it was near where the power was needed (the Southwest GTA), was on major transportation routes (the rail lines and QEW), and had good access to major natural gas pipeline. The new cite lacked basically all of these ammenities. So it soon became clear to independentobservers that the cancelation and replacement of the Oakville plant must have cost far more. Also in order to convince TransCanada to quickly cancel/move the plant the terms of the new contract must have been favourable suggesting more costs. The opposition parties (who had favoured not building the Oakville plant) now hounded the government demanding to know the real costs, which were soon estimated to be in the hundreds of millions or totalling $1 billion or more. In an attempt to defuse the opposition, charges of cover-up including lieing to parliament Premier porogued parliament resigned as premier and a new Liberal leader Kathyln Wynne became premier of the province the scandal still dogs her.

Two auditor generals reports were put out in 2013 detailing the estimated costs of the cancellation/move of the Oakville and Mississauga power plant, confirming the scale of the cost. Note that most of the costs are projected future costs based on the estimated costs of running the power plants at the new location versus running them at the old given the change in payment schemes etc.. Note the payment scheme is set up so that if power demand at times drops below expectations the owners will get some money for their trouble anyway among other things, so how much the arrangement will cost is necessarily dependent on some speculation.

So this is all the money of talk and not genuine coin of the realm, this is why the Liberal government had felt free to use the low ball figure of what actual money had changed hands at the time. While I think the costs are probably going to turn out accurate it is worth remembering these are estimates for what will happen over the 20+ year life of two power plants, not sacks of money with "$" printed on them.

No one should be surprised that the two companies building those power plants demanded compensation for the contract being changed on them. If the province had not given it to them they would probably have won it in the courts because of the breach of contract. The companies had taken actions to meet the contracts that precluded other actions that might have made them money (an opportunity cost in economist terms) they were bound to try and get their own back. As when a hotel charges for a room that it kept open because of an uncancelled reservation (or one canceled to late), the hotel may have turned away customers who could have stayed at the Inn.

The auditors general report makes it clear that the two companies benifitted from the need for the province to announce a cancellation within their election time table. They probably got more money because of this then they might have under other circumstances for the same kind of contract cancellation/change.

I am skeptical about the auditor general's claim that the Oakville plant might have failed to materialize because of lack of municipal cooperation and that this might have created a no damages for the province cancellation of the contract. I am skeptical because as I said my sense was that municipal decisions in this arena can easily be overturned by provincial courts and bodies. Either TransCanada expected with good reason such a successful appeal of municipal restrictions, it thought that lack of municipal support would allow it argue that the failure to build was not its fault but the OPA or the government and get money back from them, or they played a very good high stakes game of poker with the town and province.

In any case the auditor general's reports reveal that a substantial portion of the cost of moving the Oakville plant came from the increased costs of building the infrastructure far from where it was needed and made sense to build. The Sarnia plant also had significant infrastructure costs associated with its move, but these are dwarfed by other considerations.

So in the case of the plant relocated from Mississauga to Sarnia the costs due to transmitting the power at $40 million and another $13 million to upgrade the local electricity infrastructure to compensate for the lack of the power plant.

Greenfield was the contractor for this plant and managed what by all reports seems to be a sweat heart deal. The plant was already under construction and Greenfield had taken out a large loan. The province paid for the sunk costs of Greenfield, paid of its suppliers and paid for loan totalling $290 million. This was somewhat compensated for by lower rates for power from the Sarnia plant, but the auditor general was less generous than OPA in calculating the value of the rate change and gave a net cost of $275 million for the move (again to the province and rate payers). This means about a fifth of that cost is from the costs of the physical move. However because Sarnia is essentially the source of all natural gas in southern Ontario it apparently will cost somewhere between $35 million and $65 million less to buy natural gas for the turbines there, this will all be gravy for Greenfield, but if a more canny OPA or government had decided to build a plant in Sarnia in the first place instead of Mississuga, they might have paid for the transmission and gird costs to pump the power in long distance with the cheaper gas costs. I can only conclude that all gas fired power plants should be built around Sarnia (this would probably have bad consequences like driving up rates elsewhere), I had no idea the natural gas market/transport was so inefficient.

In the case of the Oakville plant the costs of moving the plant are as a majority due to increased infrastructure and transmission costs. $355 million dollars extra to deliver gas to Napanee over Oakville based on current toll rates (or $577 million total, the auditor uses this number because of the change in who pays for the gas in the two contracts), $81 million comes because of its remote location the Napanee plant can not play the same role in power balancing in the grid so grid upgrades will probably be required, and $32 million in line losses due to transmitting the power the greater distance. So this is $468 million in additional costs no matter who ran the plant, what they were compensated for doing it and whether there had ever been an Oakville site in the first place. The auditor estimated the net costs of the move for the province and rate payers to be $675 million. Some of the costs are simply changes from whether TransCanada or the province/OPA pays up front for things like the gas, but also includes the $40 sunk costs, paying for an upgrade to the generators that makes them less efficient in their new role (the Oakville plant was to be a peaker and so turn on rapidly but rapid turn on turbines had worse efficiency), buying replacement power for the gap between when Oakville was supposed to come on-line and when Napanee will and so on. Some of these costs were balanced by not having to pay TransCanada for power until Napanee comes on-line and other changes in how TransCanada is paid. Note perhaps $140 million more might be needed to pay for upgrading the natural gas pipelines that feed Napanee to keep the plant in gas although this remains uncertain.

What disturbs me about this is that everyone who called for the power plant to be moved/canceled should have been able to foresee both that the companies would have received generous compensation since the contract was broken without any legal grounds simply political fiat and that locations that would not see similar political opposition would be far distant and therefore less than ideal place to build power plants incurring unavoidable costs. Instead the political opposition parties chose to both eat their cake (decry the Oakville and Mississauga power plants) and still have their cake (complain about the decision to cancel power plants). I have no doubt that many in the electorate of Oakville and Mississauga have performed a similar feat.

One could argue that principled environmental and safety law would have prevented the initial contracts from being signed and saved those parts of the cancellation costs. Sure but then the physical costs of moving are just money well spent for environmental responsibility, people should not wave around the full $675 million estimated cost of moving the Oakville plant as the problem if they believe power plants should be built far away from people. Such siting laws might well mandate that existing plants be shut down and moved at what cost? Personally I feel that there is no hard basis to the opposition, I think it succeeded because Oakvillians and Mississaugans are relatively well off and so can effectively take their complaints to government, also the extra costs of the power plants will be borne by rich and poor alike. So I'm disgusted by all of it. I just can not see this as a win for principled environmentalism.

Also one could defend the PCs and NDP by saying that they were lying about wanting to cancel the power plants and so they would have saved us all the money. I admit I'm not sure whether it is worse to believe they were lying or telling the truth. Is it better that we know the Liberals are craven panderers?

Political leaders should not pander to people who have irrational desires (wanting a thing but not the costs associated with it and refusing to recognize the need to reconcile the two) they should seek the best interests of people not what feels good now. In this incident I feel all sides fell to the worst sort of pandering and that we are all worse of as a result. This sort of "policy debate" taken to its natural conclusions will lead to costs far more massive in the long term than that associated with these power plants over the next 20 years.

I see in my local paper today that C4CA continues to exist and apparently fight for cleaner air in the Southwest GTA, a visual inspection of lawn signs suggest support for them has disappeared since then. In so far as opposition to power plants is a principled and fairly applied stand that also looks at the damage done by things like cars, weighs the damage distantly sited plants will do to rural and wilderness areas and is based on passing laws that allow utilities and their contractors to make assessments about what is legal ahead of time. My opposition is much muted to such principled opposition as opposed to the naked NIMBYism I saw in Oakville from 2008-2010.

Personally I think the best way to ensure a cleaner environment is not to rearrange the siting of powerplants like the deck chairs on the Titanic, but to conserve more and more power so that new power plants are unnecessary and old ones can be closed until we have a sustainable power system based on resources like Hydroelectric. The same goes for our driving habits.

Auditor General's reports can be found here look for Oakville Power Plant Cancellation Costs (October 8, 2013) and Mississauga Power Plant Cancellation Costs
(April 15, 2013). Livejournal does not like linking directly to pdfs.

Current Location: Oakville, Ontario
Current Mood: fowl