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Great Lakes Article:

Huge Hydro One project halted
Critics blame Ontario's reversal on deregulation
Paul Vieira
National Post

One of Hydro One Inc.'s key transmission projects -- giving Ontario reliable access to cheap U.S. power -- is in trouble, and observers say it may never be built now that the government has repealed key elements of its restructured electricity market.

The Ontario-owned transmitter has asked the National Energy Board to halt its environmental assessment on the Lake Erie transmission link initiative, a joint venture announced with much fanfare last year. Hydro One and TransEnergie, a unit of Hydro-Québec, were set to build an underwater cable (capable of transporting up to 975 megawatts, or enough power for a city of close to a million people) that would connect the province with the U.S. mid-Atlantic, home to the world's largest deregulated electricity market and an abundant source of cheap hydro.

"We didn't get any agreements negotiated to get the project to proceed at this time, so we are not proceeding," Terry Young, a Hydro One spokesman, said yesterday.

But industry analysts say Ontario's move this week to repeal elements of its restructured electricity market mark an end to Lake Erie.

"The project is dead," said Tom Adams, executive director of Energy Probe, an industry watchdog. "In a rational world, the project would be tested on its merits. But in the irrational world of Ontario, the project doesn't stand a chance. And that means another expected means of keeping the lights on in the long term has been lost."

Construction on the Lake Erie line was scheduled to start in 2003 and be completed by mid-2004. The project was to be financed by selling parts of the transmission line to merchants who believed they could make a profit by buying cheap power in the United States and selling at a higher cost in Ontario's deregulated power sector.

According to a Hydro One prospectus filed earlier this year, the transmitter said the project "will provide better access to out-of-province power suppliers and an incentive for further generation development in Ontario, which we believe will lead to a more competitive market in Ontario."

Another Hydro One watcher, who did not want to be identified, said merchant lines are of interest to energy merchants if the line connects two markets that are open to price competition.

"There might be some generators who would want to build in Ontario in order to export power through the line into the higher-priced United States markets," the source said.

"But I would say it's a very risky business proposition to build the Lake Erie intertie under the present circumstances of uncertainty of the marketplace in Ontario. It's kind of irrelevant."

The insider added that a widespread cash crunch at most U.S. power companies, as a result from the fallout of Enron, has also hurt Hydro One's efforts to get the project started.

Another key Hydro One intertie project that's been hit by delays is the 1,250 MW line that will link Ontario and Quebec. The company has said the Ontario-Quebec line would reduce energy prices, as well as enhance reliability and availability of supply.

The Ontario-Quebec intertie is waiting for regulatory approval. Construction was supposed to have been under way by now, for completion in 2004. If Hydro One can't recover the cost of building the line in its rates, the project will not proceed, industry sources say.

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