NB Power should mind Ontario Hydro horrors

Eric Reguly
Globe and Mail
March 14, 2002

The old Ontario Hydro was an epic disaster. Electricity bills in the province are about 35 per cent higher than they should be because consumers were forced to pick up the tab for $21-billion in liabilities that the Crown-owned utility could not pay off. The good news is that Ontario is unlikely to see a repeat of the financial horror story.

For its sins, Ontario Hydro has been dismantled and one of its two offspring, Hydro One, is being privatized. The other, Ontario Power Generation, will probably go the same route. The electricity markets themselves are being opened in May. In the future, private shareholders, not taxpayers, will bear the risks of bad management and bad spending decisions. The overhaul should have happened years ago.

You wonder whether other provinces are paying attention to Ontario’s cautionary tale. New Brunswick is evidently not. With a fall election looming, talk of privatizing NB Power, the province’s electricity company, has all but vanished as politicians make their mealy-mouthed speeches. Instead, the debate, such as it is, centres on how many hundreds of millions of dollars should be spent to satisfy NB Power’s voracious financial appetite. What we’re dealing with here, it appears, is an Atlantic version of Ontario Hydro. Taxpayers and ratepayers beware.

Not long ago, NB Power was among the proudest achievements in a province that needed something to brag about (remember the failed Bricklin car?). The utility’s showpiece was the Point Lepreau nuclear generator, which was designed by Atomic Energy of Canada Ltd. and delivered its first juice in 1983. Point Lepreau worked rather well and AECL used it to market its nuclear technology around the world.

NB Power pushed Point Lepreau hard. It operated at near full capacity and supplied about 30 per cent of the province’s electricity needs. But like a car with too many miles on it, it started to show signs of early stress. In 1996, experts said the plant would last until 2014. Three years later, they reduced its service life to 2008. As a result, NB Power took a $450-million charge to reflect the shortened recovery period for the investment made in Point Lepreau. Now, NB Power is predicting the plant won’t last beyond 2006.

As Point Lepreau gasped and wheezed, it couldn’t produce as much electricity as it once did. The lost generation pushed NB Power into the red in the last fiscal year. The losses couldn’t have come at a worse time: NB Power’s debt was rising — it stands about $3.5-billion — because the ailing dollar boosted the expense of its U.S.-dollar debt.

When a nuclear plant gets clapped out, two options generally present themselves. The first is decommissioning the plant. The second is giving it a tune-up job to extend its life. Both options are hideously expensive, and Point Lepreau will prove no exception. NB Power estimates the decommissioning costs at $843-million, which includes $389-million for the disposal of irradiated fuel. Too bad NB Power has charged its income statement only $205-million for these costs. The decommissioning money, in other words, is inadequate. Furthermore, it doesn’t really exist — the $205-million is not actually sitting in a separate account waiting to be spent.

Since that option doesn’t look very attractive, NB Power is now seriously considering Plan B — a $845-million project to overhaul the reactor. On paper, it’s not a bad idea. The fix-up job would extend Point Lepreau’s life to 2032. The problems are that nuclear overhauls rarely come in on budget, as the horrendous cost overruns in the refurbishment of Ontario’s Pickering plant show, and whatever the final bill comes to, someone has to pay for it. This means rate hikes. But jacking up electricity prices by 20 per cent or 30 per cent to pay for Lepreau would scare away industry.

The politically safe thing to do, then, is to raise rates just a little and worry about paying the overhaul bill some time down the road. That’s called mortgaging your future, and that’s precisely what Ontario Hydro did when it went on spending spree it couldn’t afford. Any mess created by Point Lepreau will have to be cleaned up by the next generation.

A proper debate about privatizing NB Power would be the politically bold thing to do. If NB Power were held by private shareholders instead of the government, the taxpayer wouldn’t be on the hook for a spending decision that could potentially cripple the utility. For NB Power, the future doesn’t look bright.

 

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