Re-Energizing Ontario

Introduction

It is no small task to introduce someone whose life in the private and public sector reads like that of the hero in James Clavell's novel Tai Pan.

Maurice Strong left his home in Oak Lake, Manitoba, at the age of 14 to work on ships and ended up prospecting in the Northwest. At the age of 21 he helped create Dome Exploration. At 35, he had been President of Power Corporation. At 39, he was the partner of Paul Nathanson, a Canadian movie-distribution mogul. And at 46, he helped build Petro-Canada and was its first president and chairman.

He is probably best known to the public for his involvement in environmental issues.

In 1972 he was Secretary General of the first United-Nations-sponsored conference on the environment held in Stockholm. Twenty years later he revisited that role at the Earth Summit in Rio de Janeiro. He created the UN Environment Program and ran the office charged with addressing the 1985 famines in Africa.

I remember reading an article about him sometime last spring. The lead began with a story told by a young Danish woman about the time she introduced herself to Mr. Strong at a party in Manhattan. "I've heard two stories about you," she told him. "One that you're a genius, and the other that you're a fake." Ten years later she must have come to some conclusion because she married him.

I suspect Bob Rae reached a similar conclusion when he appointed Mr. Strong Chairman of Ontario Hydro last fall. The challenges facing that company seem staggering when one considers that its mountain of debt exceeds that of several countries. Certainly Mr. Strong's initiatives of the past few weeks suggest that he has firmly grasped that mettle. Perhaps there is something in a name.

Ladies and gentlemen please join me in welcoming our distinguished guest, Maurice Strong.

Maurice Strong

I am delighted to have the opportunity of returning to this important forum and to share with you some of my own thoughts concerning the dilemma confronting Ontario and Canada today and the relevance of this to the challenging task in which my colleagues and I are now engaged in the remaking of Ontario Hydro.

When I decided to return to Canada last fall following completion of my latest UN assignment, many of my friends asked me if I was retreating from my long-standing international interests. It is quite the contrary, in my view. What is happening in Canada today is both reflective of, and deeply relevant to, the processes of rapid and fundamental change that are reshaping our global civilization.

Our response to these processes of change will not only determine the place of Canada in this new global society, it will also determine the quality of the future we bequeath to the generations of Ontarians and other Canadians who follow us. For that future will largely be a product of the decisions and directions that we take in this, the final decade of the 20th Century.

Canadians are not an aggressively nationalistic people. Perhaps this is a weakness when we are striving to forge a new basis for national unity. But it is, in another sense, a very positive attribute, because we are also one of the world's most international nations--in the composition of our population, in our outlook and outreach, as well as in our dependence on the world economy.

What happens in Ontario matters to Canada, and indeed will be decisive to Canada's future. What happens in Canada will have a more important impact on the world community than most Canadians realize. For although we are relatively small in numbers we have custody of one of the largest and most richly endowed pieces of the earth's environment, and how we manage it will have a profoundly important effect on the global environmental future.

As the Earth Summit at Rio de Janeiro last summer made clear, our present patterns of production and consumption are not sustainable. We are now caught up in a turbulent process of adjustment in which we must learn to cope with a whole new generation of challenges. Divisions between rich and poor are deepening, domestically and internationally.

Growing numbers of distressed and dispossessed people are seeking refuge in countries like ours, whose borders are closing to them. Governments face continuing crises as they reach the limits of their capacity to meet the needs and aspirations of their people.

It is tempting to be pessimistic in the face of these daunting challenges. But pessimism would be self-fulfilling. Operationally, I am an optimist. I not only believe that we can deal with these problems, but that they open up an exciting new array of options and opportunities.

Canada is not immune to these changes that are recasting the nature of the modem nation state. And let us make no mistake, Canada is one of those cases in which the whole is clearly greater than the sum of its individual parts. We would all be diminished by its demise.

A failed Canada would be a significant blow to the prospect for a viable new world order--and a profound disappointment to a world which has long assumed that the Canada that has done so much to help deal with world problems can certainly resolve the problems it has at home.

It is in this broad context that I see the critically important role of Ontario in reshaping and revitalizing Canadian nationhood and the contribution that Ontario Hydro can make to this process. Ontario Hydro is, after all, the biggest single corporate enterprise in Ontario and one of the largest in the country. Ontario Hydro's role and its history are inseparable from that of the growth of Ontario and it has a vitally important role to play now in re-energizing Ontario's economy and refashioning its future.

What Ontario Hydro does matters to Ontario. Ontario Hydro is not an autonomous entity that exists to serve its own corporate purposes. It is an integral and indispensable part of Ontario society and it exists to serve that society. That is why I attach such importance to the formidable task we now face of building the new Ontario Hydro.

Spiralling rates and debt have produced an unprecedented crisis of confidence in Ontario Hydro, particularly at a time when the Ontario economy is reeling from the most severe recession since the Great Depression of the 1930s. But this should not obscure the fact that many of the elements which have made Hydro such a great organization and a primary engine of the Ontario economy in the past give it a unique capacity to make a major contribution to the indispensable task we now face of revitalizing and remoulding our economy.

The single most important impression I have had since coming to Hydro is of the exceptionally high quality of its people. Today, shocked and sobered by the surge of criticism to which they have been subjected, they are, nevertheless, rising to the challenge of the changes which they know we must make.

The quality of our facilities, of our service, and our record for reliability and safety have won for Ontario Hydro an esteem and a reputation that is second to none amongst world utilities. One does not need to criticize the past to acknowledge that what enabled Hydro to serve Ontario well in the past will not be sufficient to enable the Corporation to contribute to the same extent to the much more complex, diverse and dynamic processes that are shaping the new Ontario economy.

The measures our hard working Board of Directors has approved at its two most recent meetings are designed to address our most immediate and urgent priorities--to call a halt to rate increases and the growth of our debt. And we have embarked on a program designed to reduce the debt by about $13 billion over the next 10 years.

This is to be achieved by a massive program of cost reductions. Already, we have identified capital expenditure cuts of up to $23 billion and we have initiated cuts in our operating maintenance and administrative costs which will average more than $1 billion per year for the remainder of the decade. An unfortunate but inevitable consequence of this has been the need to reduce our workforce by some 6,000 people, which will bring it back to the levels of 1987.

The reductions will occur, primarily on a voluntary basis, from top to bottom throughout the Corporation. Indeed senior and middle level management will be reduced to a greater extent than our total workforce. Half of our vice-presidents will be leaving, most of whom have long periods of service and have made distinguished contributions to the Corporation.

There will be substantial, one-time costs of implementing this program. In line with the normal practice of the private sector, these costs will be charged against this year's accounts, giving rise to a deficit of some $1.3 billion for 1993. However, these costs have a relatively quick payout and represent a necessary, and a sound investment in our future.

All of this is being accomplished through a major program of restructuring following recommendations of the largely internal task force chaired by one of Canada's ablest and most experienced management consultants, John Wilson. I'm sure most of you have read media reports about our proposed reorganization, so I will re-cap only a few highlights.

The restructuring will consolidate Hydro's primary operations and activities into three major components--the Electricity Group, Energy Services and the Environment, and a Hydro Enterprises group. Each will have a high degree of operating and administrative autonomy and will be responsible and accountable to meet bottom-line returns and performance requirements.

The objective is to move responsibility and accountability down into the organization to the levels at which they are closest to the customer and can be most effective. It will bring to the organization a new generation of leadership and give people throughout Hydro the opportunity to take on new responsibilities and opportunities.

These changes are all designed not only to address the immediate problems of rates and debt, but to establish the foundation for a new Hydro that will be leaner, cleaner, more business-like, market oriented, competitive and responsive to the needs and interests of its customers. After all, our raison d'etre is to serve the needs of our customers and the Ontario economy.

Ontario Hydro's unsurpassed expertise and reputation will provide us with a great opportunity to respond to the growing international market for its services. We are thus expanding our international outreach and incorporating a new subsidiary, Ontario Hydro International, for this purpose.

We are also incorporating a new subsidiary, O.H. Technology, Inc., to make more profitable use of the extensive research, development and technological capacities of Ontario Hydro. This new corporation, which will work closely with the private sector, can make an important contribution to revitalizing Ontario's economy and establishing for Ontario a competitive advantage in technology-based industry.

The measures we have introduced respond to the immediate priorities Premier Bob Rae defined for me when he invited me to become Chairman of Ontario Hydro and I am grateful for the support and guidance we have received from him and the Honourable Bud Wildman, Minister of Energy and the Environment, to whom we are responsible, and their government. I want to say, too, how much we have appreciated the constructive support of the two opposition parties for the measures we have undertaken.

Let me also acknowledge our deep gratitude to the principal unions who represent our employees, CUPE and the Society of Management and Professional Employees, to our partners in the Municipal Electric Association and other key stakeholders for their advice and support.

As you know, we have also received an immense amount of helpful information, advice and guidance from the hearings of the Ontario Energy Board and the Environmental Assessment Board. In a very real sense, the changes we are in the process of making, represent our response to this invaluable process and the wise counsel which flows from it.

The changes we have initiated to date all come within the mandate and authority of Ontario Hydro. We have also begun a dialogue on other key issues that are basic to the future of the new Hydro, issues that can only be decided through the political process.

Some of the issues are fundamental to the future of Ontario Hydro and to the economy of the province. They include basic questions as to the nature of the relationship between Ontario Hydro and the government, as well as its relationship with the municipal electric utilities which were largely responsible for its creation and are Hydro's partners and principal customers as part of the province-wide electric power system.

Some of these questions are:

• Should Hydro continue to set its own rates and those of the municipal electrical utilities or should these functions be performed by the Ontario Energy Board?

• To what degree should the market for electricity be opened up to competition in light of the fact that if the Ontario economy is to be competitive, electricity prices must be competitive?

• How can this best be done without unnecessary impairment of the major investment Ontarians have in Ontario Hydro?

• What is the optimum mix of energy sources on which we should rely for our future electricity supplies? And what are the most promising alternatives to current sources?

• How much should we continue to depend on nuclear, how much on fossil fuels, how much on our own generation and how much from private, non-utility generators? And how should these decisions be made?

It is not for me to decide these issues. But let me make a few comments on some of the principles and considerations that I believe should guide these decisions and some of the things we are already doing at Ontario Hydro which bear on them.

Of particular importance is the question of how best to reconcile our energy needs with our environmental and social requirements and aspirations. Indeed this issue is of central importance, both for the future of our economy and the kind and quality of life which succeeding generations of Ontarians will enjoy.

In pursuance of the policies of the government we serve we have made a strong corporate commitment to leadership in protection and improvement of the environment through sustainable development. Our Board of Directors at its last meeting agreed to reformulate the mission of Ontario Hydro to "help Ontario become a world leader in developing an energy efficient and competitive economy and a leading example of sustainable development."

The evidence assembled for the Earth Summit made clear that if our civilization is to survive we must make fundamental changes in our economic behaviour and change course to a new pathway that will be more secure, more sustainable and more promising in economic as well as environmental, social and security terms.

It also made abundantly clear that the new generation of economic opportunity will be environment driven, as the Japanese have been among the earliest to appreciate. Energy is at the centre of this transition. And energy efficiency is an indispensable ingredient of an efficient, competitive economy.

Thus it is only sensible and responsible for us to help our customers improve their competitiveness by becoming more energy-efficient, even at a time when we have a substantial surplus of supply. But at the same time society must eventually recognize that energy prices still do not reflect its true costs. It is fully consistent with market economy principles that the full costs of developing, producing, distributing and using energy be incorporated in its price structure.

We intend to implement this principle of full cost accounting at Ontario Hydro as a guide to our own policy and decision-making, although clearly it cannot be applied to setting our rates until the society as a whole is ready to do this.

In light of our current surplus capacity, which we project will continue for the next 10 years, Ontario Hydro cannot commit to developing new capacity, to extending existing capacity by retubing the Bruce A reactors, or purchasing new supplies from non-utility generators at a time when we don't need the power. To do so would result in unnecessary rate increases at a time when our customers can least afford them.

On the issue of privatization, I would only say at this point that I see it as a means, not as an end in itself. In my view the real test of the efficacy of private ownership of all or any part of Ontario Hydro will be the degree to which this would ensure that the interests of its customers and of Ontario would be better served.

In the meantime we need not wait, and are not waiting, for the outcome of this dialogue to ensure that Hydro is appropriately structured and that it functions and is accountable in accordance with business standards.

In Hydro's relationship with the government of Ontario, one of the most important elements is the government guarantee of our debt. At a time when the province's own debt is mounting, it may be desirable to re-examine the extent to which the province's guarantee of Ontario Hydro's debt is still necessary.

I might note in this respect that we are, as part of the current restructuring process, re-evaluating our assets and allocating our debt within the Corporation to the assets for which it was incurred.

Another area in which we are already taking action is to put our relationships with the native communities in which we operate on a more sound, fair and equitable basis, redressing past grievances and establishing new co-operative programs and activities with them on the basis of true partnership.

My own view of the future of Ontario Hydro is based on the premise that Ontario is an integral part of a global economy that is becoming increasingly interdependent, competitive and subject to rapid, continuing change. Its driving forces are capital and knowledge applied through technology, design, marketing and management. And its parameters will be established by the environmental limits necessary to ensure our survival and maintenance of the quality of life to which we aspire.

In this context Ontario Hydro must become a more active and dynamic participant in the Ontario economy, more flexible and market sensitive. It must not only be more responsive to the processes of rapid change shaping our economy but a leading agent of change. This means it must become less monolithic, less monopolistic, more decentralized and competitive--a primary factor in the market economy of Ontario rather than merely a part of the apparatus of government.

All of this means that the new Ontario Hydro will be very different from the Ontario Hydro you have come to know--a Hydro that is the lynch-pin of a new, exciting and more promising Ontario economy. The steps we have already taken have set established foundations for these changes and have already set a new direction for Hydro.

But only through the political process can the fundamental decisions be taken that will ultimately determine the shape and nature of the new Hydro. These decisions cannot long be delayed and I hope, and expect, that the government will soon be able to consider and choose amongst a range of options now being developed as a result of the growing public dialogue now taking place on these issues.

Changes of the magnitude I have been describing require tough decisions. And we have made those decisions. But decisions alone will not accomplish these changes. Building the new Ontario Hydro will be neither quick nor easy. It will require the sustained commitment and efforts of all Hydro staff, the continued guidance and support of government and the advice and support of stakeholders, customers and the public.

I am encouraged by the response to the steps we have already taken and am confident that they have launched us decisively on the pathway to a promising new era for Ontario Hydro.

The appreciation of the meeting was expressed by Isabel Bassett, President, The Canadian Club of Toronto.