Ontario, TransAlta in talks to solve power woes

The talks are part of several initiatives by the Ontario government to convince private-sector generators that the chaos that enveloped past efforts to restructure the province's huge power industry are over, Energy Minister Dwight Duncan said.

"We want to make sure that they continue to see that Ontario is a place to invest," Duncan told reporters after speaking to a business audience in Calgary.

"I had a good meeting with them recently, and I guess if I could say just anything at this point, I think we're going to be able to resolve this issue ... in a timely fashion."

Duncan is trying to spread the message that his Liberal government, elected late last year in the province of 12 million people, is setting policies to replace years of uncertainty that has led to insufficient generation capacity.

One thorny issue is the 575 megawatt cogeneration plant in Sarnia, Ontario, run by Calgary-based TransAlta. Completed last year, it is running at just 100 to 150 MW because sales into the provincial grid are not profitable.

TransAlta built the plant expecting Ontario's power market would be fully deregulated. When wholesale prices soared two years ago, the previous Conservative government capped soaring rates after a huge public outcry.

"We have essentially a brand new natural gas-fired plant that can produce 500 'megs' of juice sitting there not working," Duncan said. "That was huge cost to them through no fault of their own."

Ontario, Canada's industrial heartland, hopes to convince TransAlta and other Alberta players, like TransCanada Corp., Atco Ltd. and Epcor Utilities, to build more gas-fired plants as power supplies are expected to tighten again in about 18 months.

That is when Duncan moves ahead with his government's plans to start shutting down coal-fired plants to fight smog.

The province also must convince private-sector players that government-owned Ontario Power Generation will not have undue influence over the market, he said.

Ontario will require C$25 billion to C$40 billion in investment in new power plants, refurbishments of aging nuclear facilities and other items through 2025 in what Duncan said will be the country's biggest-ever peacetime investment.

Last January, Ontario called for proposals to build 2,500 MW of either new generation or conservation schemes, and aims to sign deals by 2005. It has also called on the industry for 300 MW of wind, solar or biomass energy capacity.

For its part, TransAlta is encouraged by Duncan's moves, if not still wary of making new investments that could end up hamstrung by unexpected policy changes, an official said.

"Are we ready to jump in with both feet? Right now we're taking the minister at his word. We believe that he's an honorable man and we have no reason to think otherwise. So we expect to be treated fairly," TransAlta vice-president Tom Rainwater said.

"When we are, then we would look at the next stage (of investment), once we've taken care of the Sarnia affair."