In shape for a hydro war

Deirdre McMurdy July 31 2000

In shape for a hydro war

Deirdre McMurdy July 31 2000

In shape for a hydro war

Deirdre McMurdy

Ron Osborne has one of the most unusual challenges of any chief executive in Canada: his primary job is to create competition for the company he runs.

Osborne, 54, is president and CEO of Ontario Power Generation Inc., the venture that now holds the electricitygenerating assets owned by Ontario Hydro before it was broken up in 1999. Osborne had joined Hydro in 1998, two years after the provincial government announced that it would dismantle the largest power utility in Canada and introduce open competition into a monopoly market. Since taking the helm at Hydro, he has been racing to overhaul the utility’s bloated bureaucracy. Within a decade, he must reduce Ontario Power Generation’s share of the province’s electricity generating market to 35 per cent from its present 90 per cent, to comply with the Tories’ Energy Competition Act.

To that end, Osborne recendy inked a controversial $3.1 -billion deal that will see British Energy PLC lease and operate the nuclear facilities at the Bmce generating plant on Lake Huron for 18 years, competing with OPG for their existing customers, as well as any new ones. In his view, the deal is a huge step in the right direction. “We’ve been mandated to help create competition under Bill 35 and we might as well get on with it,” he notes. “It’s not much of a game plan to have the sword of Damocles of decontrol hanging over your head for 10 years.”

The transaction has come under intense public scmtiny. For one thing, critics have expressed concern that after the lease expires, Ontario taxpayers will be saddled with an obsolete facility and a big tab for decommissioning the reactors and disposing of hazardous waste. There has also been a call for assurances that the money from the lease will be directed towards the reduction of the almost $8-billion “stranded debt” left behind after Ontario Hydro’s restructuring. Still others are worried about the environmental standards that will be enforced when Bruce—which is now only partially operational—is no longer under OPG’s control.

In his rapid-fire manner, Osborne briskly ticks off his answers to each of those issues. Ontario is on the hook for the cost of de-commissioning and disposing of waste regardless of who operates the plant. And a big block of the lease payments will be directed to those future costs. Both federal and provincial regulators will oversee the environmental standards at Bruce. Furthermore, Osborne points out that British Energy will try to restart several of the Bruce nuclear units that were mothballed between 1995 and 1998. “We can’t restore service at Pickering and Bruce simultaneously. That’s beyond any management team’s grasp,” he declares.

Even Norm Rubin of Energy Probe, a vigilant watchdog on nuclear issues, sees some benefit to the British Energy deal.

“There will be no more confusion surrounding this business. We all now know that we are dealing with a company that is out to win, to minimize costs and maximize returns.” He adds that “any clarity is welcome.”

Certainly, clarity is something that Osborne is struggling to achieve at OPG. He would support privatization of the utility—eventually. Although he emphasizes that the Ontario government has taken no formal steps in that direction, he also notes that the government did hire two teams of investment bankers in the spring to help it review options for OPG and its assets. “If we do a good job, the government will have several options to consider,” says Osborne. “If we do a bad job, it will have few options beyond the status quo or the breakup and sale of assets.”

For Osborne, the status quo has never been a viable option. A British-born chartered accountant, he worked for several years as a partner at Clarkson Gordon, before scaling the senior ranks at Maclean Hunter. After losing an acrimonious batde with Rogers Communications in 1994 over control of the publishing company, now called Rogers Publishing, Osborne resurfaced at BCE Inc. As president of the conglomerate, and then president and CEO of Bell Canada, he became direcdy involved in a painful process that taught him many of the lessons he’s now applying at OPG: the end of Ma Bell’s monopoly in Ontario, Quebec and the Northwest Territories.

Perhaps the most important lesson, says Osborne, is the huge cultural adjustment required for successful deregulation and competition. “In a monopoly, there’s a sense that you know what’s best and the customer has to take what he’s offered. You dictate to the customer, then all of a sudden you have to learn to listen and respond,” says Osborne.

In addition to his self-confessed practice of “preaching from the Mount whenever an employee will stand still long enough,” he is also tackling the cultural shift at OPG in a practical manner. “We’ve made it clear that we’ll continue to put bread on the table for our workers,” he explains. “But most of the jam for that bread has to come from earnings and corporate performance.” To reinforce that message, he has introduced a variety of profit-sharing plans which, he says, “have quickly gone a long way to building an interest in the financial success of OPG.”

Any such success will come under some serious strain by mid-2001, when full competition is anticipated to begin in the Ontario power market. Independent power generators, local distributors, aggregators, wholesalers and British Energy will all be vying for their piece of the $9-billion-a-year provincial power market. By then, Osborne intends to have OPG even closer to its fighting weight—and his fighting spirit.