Energy is an important issue for Ontario. The Federation of Northern Ontario Municipalities (FONOM) Leaders' Summit has put it at the top of the list. How important is it for Northern Ontario?

Electricity prices are the hottest topic. When Northern Ontario has a surplus of cheap hydro power, why should Northern industries pay southern prices? Northern Ontario competes with Manitoba, Quebec, and the United States,
which have lower power prices. The North has lost jobs as plants move to regions with cheaper power. Does it really make sense that one region that exports power should be losing jobs to another region that exports power?

The Northern Ontario Large Urban Mayors have called for a regional pricing policy. The government commissioned a study of regional pricing that concluded it would have little effect on Northern prices. The province rejected regional pricing, but it is providing a temporary subsidy for the largest pulp and paper plants.

Does regional pricing make sense? In the long run it does not make sense to depend on cheap electricity. The major trap around electricity prices is the danger of spending money subsidizing industries that are on their way out, instead of putting resources into the future economy.

Additionally, it needs to said that the power from Northern Ontario is cheap and clean, yet the region derives only modest benefit from this gift to the province. There needs to be some realignment.

To see how seriously Ontario has fumbled on energy planning, consider the fact that on July 19, 2005 the cost of importing power reached 39 cents a kilowatt hour, seven times what consumers were paying. New England states could provide power to Ontario because they had added 8,000 megawatts of generating capacity between 1999 and 2005. That's equivalent to about one-third of Ontario's total capacity. In 2005, Ontario was helping them pay for that new capacity. Northern energy exports, according to the Northern Ontario Large Urban Mayors, could be an important source of new revenue for the North. Ontario has approximately 190 potential hydro power sites, mainly in Northern Ontario, that could collectively generate 7500 MW of power.

Expanding hydro doesn't help us very much if it doesn't come with a specific Northern strategy. Power is a low-value commodity unless you own it or put it to work doing something that helps you develop. Resource companies historically had good reason to build their own power facilities. It insulated them from potential grid problems and more importantly external price hikes. They could predict their energy prices and plan accordingly. So there is a big difference between building power for a specific economic purpose in Northern Ontario and building a plant to contribute to the grid. The problem today is southern Ontario is outbidding Northern wood and pulp companies for Northern electricity. Some resource companies (Tembec, Abitibi Consolidated) are now separating their energy businesses from their resource business, so they can close or downsize the resource business without losing benefit of the cash flow from power. It is a classic choice between the welfare of shareholders and the welfare of Northern communities.

So, with today's structure, additional power in Northern Ontario creates few jobs and when power is exported and an external agency gets the revenues, little local development ensues. The cost of new transmission lines for most Northern sites would call for a huge investment.

Increasing hydro production doesn't automatically make power available more cheaply to Northern industry. The main role of Northern hydro exports is to supply peak power to the south. In effect, Northern Ontario is serving as a battery for the south.

Northern Ontario won't gain much by developing its untapped hydro potential. If we assume that benefits are shared equally among all the people of Ontario, only about seven per cent of the benefits return to the North. Almost all the environmental damage occurs in the North. In exchange, we get construction jobs when dams and transmission lines are built and a few permanent jobs maintaining and operating the facilities. Expanding hydro power won't add much wealth to the region.

But it could. If we look at hydro power as monetizing a natural resource, which is what it is. Northern Ontario deserves a piece of that wealth. It is part of the equation of what comes in and what goes out. Ontario Power Generation is making a lot of money on its relatively cheap Northern hydro power. New plants can be built and a new financial arrangement can be made.

There are exceptions to the current lack of benefits. The Pic Mobert First Nation has developed generation facilities and is able to drive community development using the revenues and the new access to power.

Providing power for the south is good in principle, but it shouldn't be a major priority for Northern policy makers. There is almost nothing in it for Northern Ontario.

Wind is a promising source. The major economic advantage of electricity generated from the wind is that the power plants can be owned by Northerners. The benefits of private power generation would then stay in the North. The North Shore of Superior provides the biggest opportunity to harvest wind power, but there are two problems. The wind doesn't always blow when it is needed, and transmission capacity is limited.

Can wind power justify expanding the transmission system? It is still hard to tell. Pumped storage may be the answer. It allows producers to bank wind power until it is needed. Wind power is used to pump water uphill to hydro dams when the price is low and the water is used to generate electricity when the piece is high. The method is used in many parts of the world and there are numerous opportunities for such applications in Northern Ontario. The problem is in co-ordinating dams, windmills and transmission systems over great distances. Pumped storage may help us deal with energy challenges in the coming years when the water supply is low, making existing dams more productive.

Bioenergy is getting a lot of attention as well. Bioenergy schemes are basically about turning wood into energy. The traditional method was just to burn the wood. Natural gas and electricity replaced wood in most places, being safer, cleaner, and usually cheaper. The major problem is that wood is too valuable to burn. With some of the newer technologies, even branches can be debarked and chipped for paper or other products. Much of the waste wood is already used in co-generation plants. Scrap piles and sawdust heaps provide a promising source of wood waste in the short run.

In general, it is more efficient to burn wood directly, than to convert it to bio-diesel or alcohol, but liquid fuels can be used for vehicles. It seems likely that locally produced bio-fuels might replace diesel and gasoline imports. That will only happen if Canada adopts an aggressive carbon-emission reduction policy. The federal conservatives have virtually promised not to do much about carbon emissions, limiting the opportunities. Finally, bio-fuels are much less environmentally friendly than electricity.

In the long run electricity prices are limited by the lowest cost source. The lowest cost, lowest carbon alternative will be fourth-generation nuclear plants. They would not be fully on stream until the 2020s at best, leaving a window for bioenergy projects.

In the long run Ontario will need to expand electrical generation to replace fossil fuels used in transportation and heating. The hydro and wind resources in Northern Ontario can only supply a small part of the newly required capacity. Most scientists and economists believe Canada will have to introduce a carbon tax soon and will have to increase it every year for at least a decade.

Suffice to say energy is going to be a hot spot for years to come. We need to deal ourselves in. Below are some recommendations.

Northern Energy Recommendation #1: Energy is important. As with most of our economy we have little influence over decisions that have great impact on our lives. We must establish a Regional Power Authority to review energy systems and make recommendations for improvement backed by the political will of the North. The status quo is unacceptable.

Northern Energy Recommendation #2: Delay expansion of north-south transmission lines until regional energy authorities have been created and power supply and transmission capacity decisions can be made that take regional interests into account.

Northern Energy Recommendation #3: Support hydro power projects developed by First Nation communities.

Northern Energy Recommendation #4: Transfer smaller hydro systems to communities to provide revenue and local development opportunities. The revenues will stay in the North.

Northern Energy Recommendation #5 Encourage municipalities, where there is opportunity, to consider hydro development projects in partnership with the private sector. All energy strategies need to be accompanied by industrial strategies or it isn't worth the effort.

Power and the people of WAWA: Bill 140- A cautionary tale

In 1983, Great Lakes Power brought forward a proposal to develop new dams on the Magpie River near Wawa. The company got support from the municipality by claiming it would add to the tax base, create jobs, and provide reduced power rates for businesses. With the new dams, Great Lakes Power was 50 per cent of Wawa's industrial tax base.

The company set out to get its assessment reduced. It claimed it was paying too much business tax, that dams should be assessed at 40 per cent of their value instead of 60 per cent, and that the dams were overvalued by 50 per cent. The effect would be to reduce the taxes owed by 66 per cent. And Wawa would owe Great Lakes Power close to $15 million for taxes wrongly collected.

In 2000, Bill 140 took away the rights of municipalities to tax power assets. In compensation, Wawa got an annual payment based on the 2000 assessment. An inflation adjustment was added for 2006-7.

The issue has been handed to the review of municipal finances undertaken by the province in conjunction with the Association of Municipalities of Ontario. The review is focused on downloaded social welfare costs and the dams question may never reach the agenda.

Northern Ontario's hydroelectric facilities (for the record)

Large hydroelectric
Abitibi Canyon (Abitibi River)
Harmon (Mattagami River)
Hound Chute (Montreal River)
Indian Chute (Montreal River)
Kipling (Mattagami River)
Little Long (Mattagami River)
Lower Notch (Montreal River)
Lower Sturgeon Falls (Mattagami River)
Matabitchuan (Montreal River)
Otter Rapids (Abitibi River)
Sandy Falls (Mattagami River)
Smoky Falls (Mattagami River)
Wawaitin Falls (Mattagami River)
Aguasabon (Aguasabon River)
Alexander Falls (Nipigon River)
Cameron Falls (Nipigon River)
Caribou Falls (English River)
Ear Falls (English River)
Kakabeka (Kaministiquia River)
Manitou Falls (English River)
Pine Portage (Nipigon River)
Silver Falls (Dog River)
Whitedog Falls (Winnipeg River)
Arnprior (Madawaska River)
Barrett Chute (Madawaska River)
Calabogie (Madawaska River)
Mountain Chute (Madawaska River)
Otto Holden (Ottawa River)
Stewartville (Madawaska River)
Small hydroelectric
Coniston (Wanapitei River)
Crystal Falls (Sturgeon River)

For your say come to www.rethinkingnorthernontario.org.

Next month Taxation.

Keeping energy revenues in the North is good for the south. Money always flows south eventually, so the more that gets spent in the North the richer the south will be.