Canagen Energy Inc.--A Public Private Partnership

Head Table Guests

Robert J. Dechert, Partner, Gowling, Strathy & Henderson, First Vice-President and Director, The Empire Club of Canada and a Past President, British Canadian Chamber of Trade and Commerce; Rev. Captain Wendy Murphy, Rector, St. Bede's and St. Crispin's Anglican Churches; Michael Coates, President and CEO, Hill & Knowlton Canada Limited; Richard E. Venn, Chairman and CEO, CIBC Wood Gundy Securities Inc.; Alex Taylor, President and CEO, AGRA Inc.; Drew B. Fetters, Vice-President, Nuclear Planning and Development, PECO Energy Company, Philadelphia; Richard M. Thomson, Retired Chairman and CEO, TD Bank; Robert T. Wright, Managing Director, Utilities and Power Group, TD Securities Inc.; Terry Curran, British Consul General; David J. McFadden, Co-Chair, Electricity Transition Committee, Ministry of Energy, Sciences and Technology and a Director, The Empire Club of Canada; John N. Brooks, President and CEO, Toronto Hydro-Electric Commission; and Catherine Steele, Vice-President, Toronto and Partner, Gervais, Gagnon, Covington & Associates and a Director, The Empire Club of Canada.

Introduction by George L. Cooke

Dr. Jeffrey is a reasonably recent arrival into Canada, having come from Scotland, where he was instrumental in the privatisation and improvement of a very large energy operation, to Ontario where, if the accounts in the media are even partially correct, he is very interested in being part of the changes taking place at Ontario Hydro. Change implies that the old way of operation and business no longer applies. At the best of times, change can be unsettling. But the magnitude of change that is about to occur with Ontario's hydro system has significant public policy challenges and needs to be managed carefully. We have with us today as a head table guest the distinguished Co-Chairman who is leading that process.

It is fair to say that many of us in Ontario have a limited understanding of the extreme complexity of the change that lies ahead for Ontario Hydro. We tend to be very comfortable with the fact that the lights go on when we turn a switch and expect our bills to be reasonable. We accept the simplicity of this system without ever questioning whether it truly serves our needs in the best way possible.

But to believe that the structures that were relevant 50 to 75 years ago are still appropriate for our needs today suggests that times have not changed all that much, and we all know that simply isn't the case.

Clearly, the British have demonstrated to the world over the last 15 years how privatisation can produce tremendous consumer benefits, and how utilities, which may appear to operate poorly to those of us on the outside looking in, can be made much more consumer-friendly and efficient.

Dr. Jeffrey is here with us today to offer his views, I think, on any or all of these matters. And he is eminently qualified. In 1995 he became the Chairman of Scottish Nuclear and prior to that, in 1992, had been appointed Chief Executive Officer of Scottish Nuclear. Clearly, he has a distinguished career with experience in a variety of positions in the energy field, both with the utility and with engineering firms. He is a visiting Professor in Electrical Power and Engineering at Strathclyde University and a non-executive director of London Transport and London Underground.

Dr. Jeffrey, with our sincere thanks for being here today, the microphone is yours.

Robin Jeffrey

Thank you George for that kind introduction. It really is a great pleasure and honour to be here today at the Empire Club.

I should also like to thank the British Canadian Chamber of Trade and Commerce for jointly hosting this event and to TD Securities for sponsoring the occasion. To Dick Thompson and Rob Wright, many thanks.

Judging by the number of people in the room, there is a lot of interest in the very rapidly changing electricity scene here in Ontario, no doubt fuelled by the Ontario government's plan to reform the electricity sector in the province--a plan with a timetable that is aggressive but I believe is fair and forward-looking.

In my mind, this is the action of a confident and prosperous community with its eyes clearly fixed on the competitive business realities of the future; a recognition that a competitive electricity system will continue to be key to creating new jobs and a robust economy that is attractive to investors; and a supply of safe, reliable, environmentally sound and low-cost electricity which will be good for Ontario and good for Canada.

Firsthand I have seen the tremendous improvements in the U.K. electricity sector over the last decade resulting from the progressive commercialisation of the industry and the introduction of a competitive environment.

The numbers may astound you. Prices to consumers have been reduced by 15 to 20 per cent in real terms, the accountability, reliability and quality of service offered to customers has been significantly improved and Her Majesty's government has benefitted to the order of C$100 billion. These are the numbers I provided to the provincial Legislative Committee last November and I share them with you again today.

The people of this province have been fortunate. You have benefited from reliable low-cost electricity since Ontario Hydro was founded almost a century ago. But the world is changing and the challenge set out in the government's White Paper is something I now want to address.

Many of you will have seen the press stories over the past few weeks about British Energy's response to the White Paper. Some of you are no doubt sceptical but I'm sure all of you are somewhat intrigued. Who is this company that wants to invest in your nuclear assets? What are we planning? How might this benefit the people of Ontario, the ratepayers and tax payers of this province?

First of all, let me say that I believe in nuclear power and I believe nuclear power will play an essential role in helping the world achieve its Kyoto commitments to reducing harmful greenhouse gases which cause global warming.

And next I want to acknowledge that Canada has always been a leader in nuclear technology and Ontario has always been at the forefront of nuclear power generation and that based on all the studies we have made, our view is that Candu technology is robust. We are serious about investing in all the plants--at Bruce, at Pickering and at Darlington.

Our proposal is for a Public Private Partnership regarding all 20 of Ontario Hydro's nuclear reactors.

We have spoken publicly about such a scheme since we opened an office in Toronto last January and have discussed the concept of such a partnership with a number of stakeholder groups.

We recognise that because of the importance that Ontario Hydro has played in the development of this province that our partnership proposal will have to be perceived by the people of Ontario as a win/win situation. So to test this we commissioned some public research and the results show that the idea has broad appeal.

We believe that our concept of a Public Private Partnership fits within the framework of the government's White Paper. Let me read an excerpt from page 24:

... "The government would encourage the new commercial companies [meaning the Ontario Hydro successor companies] to explore opportunities for new partnerships with both the private sector and the local distribution utilities. New partnerships are important because they bring new perspectives, new energy, new resources, and discipline to help get costs down."

So what do British Energy and our North American partner, PECO Energy of Philadelphia have to contribute to this important issue?

Well in 1990, the U.K.'s Advanced Gas Cooled Reactors--the AGRs--were the dunces of the international league table, the worst-performing nuclear reactor type in the world.

And now eight years on, the AGRs are the world's best-performing reactor type and we have British Energy, a privatized nuclear generator able to operate safely and profitably in a competitive market and in one of the world's most tightly regulated industries.

So what changed during those eight years? The short answer is our entire corporate culture; how we work together as teams; how we communicate; how we reward and motivate our staff.

The methodology is simple. Examine every process. If it doesn't add value cut it out. If the process is essential examine it and simplify it. Simpler means less costly and simpler means people understand the process better. Better means safer. The simpler the process, the safer. And safety and commercial success go hand in hand. Quite simply if you are not safe, you do not run. There is clear evidence from other countries and companies to support our view on that.

Over the past few years we have increased the output from our plants by more than 50 per cent and at the same time the cost of manufacturing a kilowatt hour of electricity in constant money values has been halved.

And finally the volume of electricity produced per person employed has more than doubled.

Obviously, there are many and various reasons for this turnaround in performance. But basically the key factor was to create working arrangements which enabled people to be focused on helping the company improve and to share in the gain from the enhanced success of the company. And when I talk about gain to the employees, I mean not only financial reward but also the satisfaction of being part of a success, of having a company culture where your ideas about how things can be done better are listened to and implemented where it adds value.

And finally let me just add that 98 per cent of our staff are stockholders and that almost all of them belong to unions.

There is a real potential for synergistic benefit-shareholders and unions; staff and management; suppliers and contractors--a Public Private Partnership.

What the British Energy experience shows is how nuclear can be reborn; how investors can become familiar with nuclear power as a safe, profitable and environmentally friendly means of producing electricity; and how everyone involved in the process can work together in partnership.

Now let me talk about the relationship between British Energy and PECO Energy of Philadelphia. We came together more than a year ago because we found that both of us had a strong belief in the future of nuclear power because both of us had a track record of having turned around the performance of our respective nuclear plants and because both of us recognised that achieving success can only be made through hearts and minds, through staff participation and commitment. In addition to this PECO brought to the table a deep understanding of electricity markets in North America--a power trading team which is active throughout North America. Furthermore they know from firsthand experience the impact which deregulation and competition can have on a utility business. They have had to deal with the issue. Our partnership with PECO Energy in the United States will be purchasing potentially good nuclear plants at prices which will benefit both the buyer and the seller. Our collaboration in Canada to be called CanaGen Energy Inc. has a different objective. Here we want to be part of a Public Private Partnership--a vehicle whereby we could bring new perspectives, new energy, new resources, and the discipline to help get costs down.

We would like this Public Private Partnership to have a strong ongoing participation from the provincial government and we also believe that Canadian private-sector investors would be keen to participate.

Our partnership would bring a number of benefits. First it would secure the financing of the ongoing investment in Ontario's nuclear assets and then it would provide funds to the Ontario government, both through a cash payment by the private-sector partners and through better returns from enhanced operating performance. Finally we would like to be part of the team which makes nuclear power in Ontario a vital player in the North American energy sector.

That is what is in our minds and we plan to develop our thinking to the stage where we could table a proposal, but this is some months off. We need co-operation to help us with our thinking. How will the independent market develop and what will be the shape of the new staff agreement for this new company?

We are excited by the opportunities we see, not only for this proposal but in this community and in this province.

And so I draw your attention to CanaGen Energy--a company that will be based in and run from Toronto, part of a Public Private Partnership, which aims to deliver benefit to Ontario's ratepayers and taxpayers, to add value to the private-sector shareholders and to build success upon success.

To close I'd like to quote from the Scottish equivalent of The Globe and Mail of a few days back: "It would seem that the only loser in Dr. Jeffrey's move will be Air Canada!"

Thank you for your attention.

The appreciation of the meeting was expressed by Robert J. Dechert, Partner, Gowling, Strathy & Henderson, First Vice-President and Director, The Empire Club of Canada and a Past President, British Canadian Chamber of Trade and Commerce.