National Post   October 26/2005

Runaway nuclear   by Tom Adams

Without public review, let alone a consideration of competitive alternatives, the Ontario government has just entered into a 31-year contract for electric power with an odd consortium that includes TransCanada Pipelines, an investment wing of the Ontario Municipal Employees Retirement System and two electricity unions. The deal involves refurbishing the four oldest Candu nuclear reactors of the eight built at the province’s Bruce nuclear complex. It also involves risk-sharing provisions likely to lead to very costly power.

The four reactors at the Bruce A station, originally constructed in the 1970s by Ontario Hydro, fell into disrepair in the late 1980s and 1990s. To staunch the bleeding, then-Hydro chairman Maurice Strong wisely closed one of the Bruce reactors (Bruce 2) in 1995. Problems at the remaining three reactors forced Ontario Hydro to close them in 1998. The failure of Bruce A contributed to Ontario Hydro’s financial collapse that same year.

A private consortium, Bruce Power, then assumed operation of the four newer Bruce B reactors, with an option on the four non-operational Bruce A reactors, under a lease to Ontario Hydro’s successor, Ontario Power Generation (OPG), in 2001. The two most viable Bruce A reactors – units 3 and 4 – were partially refurbished between 2001 and 2004 at the consortium’s sole expense.

Ontario’s new Energy Minister, Donna Cansfield, reports that the cost to consumers to complete the refurbishment will be 6.3 cents per kWh. This claim is only true if nothing goes wrong.

The refurbishment costs could vastly exceed those projected. Consumers will be on the hook for every penny of the first $200-million of renovation cost increases for the Bruce 3 reactor renovation if the current estimate is adjusted upward before the refurbishment project commences in 2007. Three categories of force majeure events, many of which have previously occurred, will result in consumers absorbing up 25% to 75% of the cost overruns on all four planned reactor refurbishments.

No Candu refurbishment has been delivered on budget. The most cost-effective was the privately funded renovation of Bruce 3 and 4 between 2001 and 2004. Although investors were operating under the incentive of bearing all the costs, final costs were $725-million – 113% above the initial estimated cost of $340-million. Cameco, a firm that paid for about one-third of that refurbishment, declared a $63-million loss on it while exiting from the next Bruce A refurbishment.

Bruce Power blamed much of the cost overruns incurred during the Bruce 3 and 4 refurbishment on tougher security rules issued by the Canadian Nuclear Safety Commission, arising from 9/11. That factor, had the new contract been in place, could arguably be considered a force majeure event arising from "an order, judgment, legislation, ruling, direction or other intervention by a Governmental Authority restraining (the Bruce operator)". Such restraints are the normal approach to nuclear safety regulation in Canada. Once so identified, customers would be stuck with 75% of the extra costs. Applying the percentage overrun seen during the 2001-2004 Bruce 3 and 4 restart to the new refurbishment would result in consumers paying 11.1 cents per kWh.

This is almost 40% more expensive than recent wind-power contracts, whose 8-cents-per-kWh price also includes transmission costs, a factor not included in the Bruce deal. It is also more than double the current average frozen retail sales price for the commodity portion of household electricity bills. And it is as much as three times the cost of new power from a modern generation of clean coal plants.

The government’s four-reactor Pickering A refurbishment, undertaken from 1997 until 2003, fared much worse than its privately financed Bruce 3 and 4 counterpart. The Pickering A project was originally estimated in 1997 by Ontario Hydro to cost $780-million. In August, 1999, OPG estimated the cost for Pickering 1 alone to be $213-million as part of a then-estimated $840-million total package. In March, 2004, a committee chaired by former federal minister John Manley and including OPG chairman Jake Epp decided to complete the Pickering 1 refurbishment. The committee tallied the spending up until March, 2004, at $325-million and assumed incremental costs of $500-million while pledging vigorous cost control and tougher governance. OPG is now estimating $1.02-billion for the nearly completed project. Assuming no further problems, the incremental spending from March ’04 until project completion has been 39% more than the Manley committee’s judgment. Relative to OPG’s 1999 judgment, the overall increase has been 379%.

The new refurbishment agreements effectively convert Bruce A into an economically regulated utility. Fuel costs, refurbishment cost overruns and operating costs are all shared between the private operators and captive electricity consumers according to formulas resembling the arcane methods commonly used to determine rates charged to customers captive to monopoly energy pipelines. Inefficiencies typical of those that often plague consumers of other regulated energy services inhere to the Bruce refurbishment agreements. For example, there is no commercial incentive for the Bruce operators to deliver power when consumers need it most.

Although Bruce A has effectively become a regulated utility, its sister station – Bruce B – remains a largely unregulated station. Yet Bruce A and B will remain operationally integrated, sharing staff, overheads and in some cases revenues. This arrangement creates powerful incentives for the private operators to shift costs into the regulated operation and revenues into unregulated operations.

The success or failure of the Bruce project depends largely on the performance of the troubled federal nuclear agency, Atomic Energy of Canada Limited (AECL), which has guaranteed both the cost and completion time to replace key reactor core components at Bruce A. AECL’s only previous major nuclear refurbishment assignment was at Pickering A during the period of that project’s worst cost overruns. AECL was eventually removed from its management position by a frustrated OPG.

The obsolete Bruce A reactor design represents yet another problem for consumers. Although the scope of the refurbishment project is much greater than any previously attempted worldwide, the project makes no fundamental changes to the basic safety features of the reactor design. In a tacit acknowledgement of some of the safety concerns of its nuclear critics, the next generation of reactors proposed by AECL would fundamentally revise the physics characteristics of the reactor to correct inherent instability. A future regulatory decision to enforce modern safety standards could leave Ontario consumers in the lurch.

The Ontario government has signed consumers up for this sole-source contract to resurrect obsolete reactors without considering Ontario’s lower cost options for large amounts of much-needed new electricity supply. And without protecting Ontario taxpayers and consumers from a repeat financial meltdown.

Letters

Nuclear folly

Re: "Runaway nuclear," Tom Adams, Oct. 26

Tom Adams is strongly opposed to the contract between the Trans Canada Pipelines consortium and Bruce Power to refurbish the four units of the Bruce A nuclear plant.

Ideally, Ontario should invite proposals for state-of-the-art nuclear reactors from any possible supplier in the world, as China has done. The problem is time. Incompetence, neglect and weak government oversight have characterized Ontario’s energy policy for three decades. The current regime has neither the intellect nor the managerial ability to engineer a major change. Money and time have been frittered away on marginal projects involving wind, hydro and ethanol. Urgency is driving the government to refurbish Bruce A.

Tom Adams closes by urging the province to find "lower cost options for large amounts of much-needed new electricity supply". He does not say what those options are. Mr. Duncan, the recent Ontario Minister of Energy, has told us it would be natural gas. He has evidently not noticed that the price of natural gas has quadrupled in the last few years.

Energy Probe (which Mr. Adams leads) has recently demonstrated that state-of-the-art coal-fired plants are perhaps the best choice. But the Ontario government is too obtuse to consider this option. The minister said that proponents of coal were "Neanderthals." Should we laugh or weep?

Bob MacIntosh, Toronto, published by the National Post, October 29, 2005