Power ‘fix’ costs $1B extra nuclear plant price has nearly

John Spears and Richard Brennan
Toronto Star
October 29, 2002

The cost of bringing the troubled Pickering A nuclear generating station back online has ballooned to $2.5 billion – almost twice its original projected price tag, the chief of Ontario Power Generation Inc. said yesterday.

And it will take a year longer than forecast to finish the project.

The news prompted Energy Minister John Baird to warn that part of the project might be scrapped – despite Ontario’s electricity shortage.

“I’m certainly concerned about the management of the project and I’m concerned about the delays of the project,” Baird told reporters yesterday afternoon. “They (OPG) made estimates that were overly ambitious . . . there has got to be closer scrutiny on this project.”

But at a speech just a few hours later, Baird said the project would likely go ahead.

“At this stage every indication is that it’s still commercially viable, and a clean source of power to the grid,” he told reporters at a meeting of the Independent Power Producers’ Society of Ontario.

Pickering A has four generating units and OPG says it will “reassess” the cost and schedule for bringing the remaining three units back to service once the first unit returns about the middle of next year.

It’s “appropriate” to review plans for the remaining three units, Baird said, then added, “I expect you’d see them proceeding, but that doesn’t negate the work that they should do after they complete the first one.”

In the Legislature earlier yesterday, Baird said “it is no secret that this project is not Ontario Power Generation’s finest hour. As minister, I’m not happy with what we’ve seen.”

Ontario Power’s chief executive Ron Osborne insisted yesterday he’s pushing ahead with the project, despite seeing the estimated cost rise to as high as $2.5 billion from an initial estimate of $1.3 billion. Preliminary estimates had pegged the cost at $800 million, but Osborne said they weren’t based in detailed analysis.

In its annual information form filed at the end of last year, OPG had pegged the cost of restarting Pickering A at $2 billion.

Earlier this year, Ontario’s auditor-general, Erik Peters, urged the province to probe the delays and cost increases at Pickering A, but the province didn’t act on his advice.

The Pickering A plant was supposed to have one of its four reactors in service early in 2003, according to the most recent estimate.

But Osborne said yesterday that starting the first unit has been pushed back to mid-2003.

As for the three other units, instead of coming on stream at six- to nine-month intervals as previously announced, they’ll now come back at one-year intervals, Osborne said.

That means the plant won’t be fully up and running until mid-2006, rather than the previous estimate of 2005.

OPG’s third-quarter earnings statement, released yesterday, warns “the cost and schedule to return the remaining units to service will be reassessed based on OPG’s experience with the first unit returning to service.”

Liberal MPP Sean Conway said if OPG halts the retrofit on the remaining three reactors, Ontario will experience a serious power shortage and will require action to find other sources in fairly short order. “I think we are going to face in the short and intermediate term, over the next two to three years, some really significant pressure in supply,” he said.

Critics also noted that OPG over the past several months has made windfall profits during a time Ontarians have seen their electricity bills double.

In a speech to the Independent Power Producers’ Society of Ontario, Osborne insisted OPG is still proceeding with Pickering A, despite the wording of the earnings statement.

“This is not intended to signal any lack of confidence in the Pickering A project,” he told his audience. “We are simply tired of setting artificial deadlines for the sake of having deadlines.”

Osborne said costs have increased because it has taken much longer than expected to rehabilitate the plant, and “time is money.”

It is Ontario’s oldest big nuclear plant, designed in the 1960s and built in the 1970s. It was shut five years ago, when the province’s power supply essentially met the then-lower demand.

But Osborne also acknowledged that OPG erred in not running the project as the primary manager from the beginning.

Initially, Osborne said, the restart was being run by a “three-headed monster” of which OPG was only one head. Atomic Energy of Canada Ltd., which provided much of the engineering work, and the building’s chief construction contractor, were also partners at the table, Osborne said.

In retrospect, Osborne said, “I would have outsourced less.”

Osborne said OPG has now taken over as the primary project manager.

He also blamed regulatory delays – such as a full environmental assessment that OPG had not expected to be required – for delaying work and pushing up costs.

The ballooning costs of the project have pushed up the cost of producing power at Pickering A to about 4 cents a kilowatt-hour from the initial estimate of 2.5 cents, Osborne said.

But he noted that the generating cost of a gas-fired plant is about 6 cents a kilowatt-hour.

Because OPG dominates Ontario’s electricity market, it’s required to refund customers revenue it collects if the average price exceeds 3.8 cents a kilowatt-hour. Since the average price to date is over 5 cents a kilowatt-hour, OPG has set aside about $500 million in refund money. That works out to about 1.8 cents a kilowatt-hour.

A consumer using 1,000 kilowatt-hours monthly would receive a refund of about $18.

 

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