Ontario Power Generation turning corner, president says

- Richard Dicerni, the acting president of Ontario Power Generation, the utility is 'turning the corner.'

Mr. Dicerni said OPG has learned from its mistakes and is now focusing on streamlining its operations. In the past year, Mr. Dicerni has cut administration costs by $260-million, scaled back a $100-million venture capital program and eliminated 14 vice-presidents (although there are still nearly 50). He also eliminated a customer golf tournament, gave up OPG's share in a box at the Air Canada Centre and slashed executive payroll to $13.5-million from $18.5-million.

Looking back, 2004 was a tumultuous year for OPG and Mr. Dicerni. The president took over the top job at the government-owned utility in December, 2003, after the province ousted the company's three senior executives, including chief executive officer Ron Osborne. Their removals were prompted by a scathing report that found massive cost overruns in the rebuilding of a troubled nuclear generating station. At the time, Ontario Energy Minister Dwight Duncan described the utility as a "horrible mess."

Mr. Dicerni, who joined OPG as an executive about six years ago after a long career as a public servant, said the company got the message and is beginning to sort itself out.

"We regularly drink from the fountain of humility here," he said in a recent interview with the Globe And Mail. "We lost a bit of the public's confidence. But we are gradually regaining it."

Turning OPG around is no simple feat. The utility is among the largest in North America and generates about two-thirds of Ontario's power. It has $6-billion in annual revenue, 11,000 employees, and owns a string of power plants, including five nuclear power stations, six fossil fuel plants, 36 hydroelectric facilities and 32 alternative energy stations.

The company has a troubled history. It was created in 1998, when the former Conservative government broke Ontario Hydro into two companies: one for power generation (OPG) and one for power transmission (Hydro One). At the time, the province's nuclear program was in disarray and seven of 19 reactors had been shut down because they were unsafe. The Conservatives had high hopes for the new companies and even planned their eventual privatization.

But the reality was proved quite different. Ontario Power's refurbishment of one unit at the Pickering nuclear station cost about $1.2-billion, three times the original estimate, and took two years longer than expected (it went on line in September, 2003). The government's brief experiment with deregulated electricity prices in 2002 also left consumers reeling and OPG saddled with a commitment to spend about $1-billion a year in consumer rebates.

"A lot of the key strategic assumptions that formed the basis of the OPG vision of the late 1990s, those assumptions came not to pass," Mr. Dicerni said.

The company is also forging ahead with rehabilitating a second unit at the Pickering station. The restart is expected to cost $1-billion and be completed by next September or October. He said that unlike the earlier refurbishment, managers are tracking this project on a weekly basis with detailed reports on 14 separate sections. "We have to convince ourselves, and convince our board and the public of Ontario, that this can be done in a competent, cost-efficient manner."

As for OPG's overall finances, Mr. Dicerni said the company is "revenue challenged." As part of the previous government's price deregulation, OPG is required to rebate a portion of its revenue when the price of electricity exceeds a certain level. Last year, OPG paid out about $1.1-billion in rebates. For the nine month period ended Sept. 30, 2004, OPG had a profit of $8-million, down from $115-million a year earlier.

The new government plans to introduce a hybrid pricing system that will regulate the price for about half of OPG's power. The remainder will fluctuate with the market. Mr. Dicerni said the new system should help ease the company's financial crunch. "I have faith in the government because they have taken advice from a variety of sectors and our job is to focus on delivering the power in the most cost-efficient, safe and environmentally responsible way," he said.

Mr. Dicerni said OPG is considering a range of alternatives for the two remaining laid-up plants at Pickering, including building a new reactor with a partner.

Getting environmental approval for a new nuclear plant could take years, he said. "There has never been an environmental assessment on a new build in this country," he said adding that the approval process could take a decade.

In the meantime, OPG will likely turn to other new sources of power including natural gas generation. "Gas is probably a lower hanging fruit in terms of what's accessible," he said.

Whatever happens, Mr. Dicerni won't be around to see it. He has made it clear to the company's board that he does not want to be a candidate in its search for a new CEO.

"I knew that there would be some hard decisions to be made, and I thought that it would be better, in terms of making those decisions, if I wasn't constantly thinking, 'Does this help my candidacy?' " he said.