April 19, 2007
The Ontario government had several objectives in entering into a sole-source contract with Bruce Power to buy electricity from Bruce’s nuclear expansion. One of them, detailed in the Auditor-General’s report, was to conceal the consumer impacts. Mr. Hawthorne’s letter (refer below) aids the government in achieving this objective.
Mr. Hawthorne takes issue with my characterization of the $720-million refurbishment as a “prohibitive” expense. The refurbishment, which was announced 23 months after the Harris government announced the lease that created Bruce Power, had an original price tag of less than half that – only $340 million. Further evidence of the refurbishment’s financial failure comes from one of the partners of Bruce Power, Cameco, which sold its share of the Bruce A project to its other partners, declaring a $60-million loss on its share of the refurbishment.
Mr. Hawthorne rightly points out that private investors, not consumers, paid. Under the new agreement, however, consumers will be on the hook for an unknown amount. The Auditor ignored my request to quantify the consumer hit should history repeat – a likely outcome, given the new, generous force majeur clauses that now protect Bruce Power to the detriment of consumers.
Mr. Hawthorne denies that Bruce B sells its power at a regulated price. Before the new deal, Bruce B sold its output at a fully deregulated price. Not now. When market prices are low, Bruce B is protected by a government-guaranteed price floor.
Mr. Hawthorne’s claim that Bruce A now receives 6.1 cents per kilowatt hour is misleading. As the Auditor outlined, Bruce Power now enjoys a new rent discount for the use of government assets, new income security for output from Bruce B and previously refurbished Bruce A units, and a steep escalation rate for prices that customers will pay in future. The Auditor’s report estimated that these measures add approximately 1 cent per kilowatt-hour to the actual cost of power from refurbished Bruce units.
Mr. Hawthorne effectively acknowledges that Bruce Power has no commercial incentive to generate power from Bruce A units during periods of highest customer demand when he correctly notes that he needs permission from a government agency to take Bruce A units down during peak periods. If he can convince the regulator, doing repairs on Bruce A during peak demand periods will minimize his costs and inflate revenues for his Bruce B units. My point is that replacing a market incentive with a regulatory mechanism can only cost consumers more.
The fault with the Bruce refurbishment contract lies not with Bruce Power, which has a fiduciary duty to maximize returns to its shareholders, but with the Ontario government. It was the government that manufactured a power crisis with its coal shutdown policy and then negotiated a very long-term power purchase agreement without competitive checks and balances.
Tom Adams is executive director of Energy Probe.