Nuclear Surprise

Brad Faught
National Post Business (Special Issue)
October 1, 2001

On the windswept eastern shores of Lake Huron, the orange-coloured bulk of the world’s largest nuclear power station rises starkly against clear blue sky and the green trees that blanket the area. It’s a huge site, ringed by a security fence punctuated by motion detectors. You’d have to be a high-jumping deer to get in here. Within view, three of them have done just that, nibbling grass contentedly on the plant side of the steel mesh. Up close, the two main buildings look like a couple of Soviet-era apartment blocks. My two escorts and I are headed to Bruce B, which houses four of the plant’s eight reactors.

Once inside, one of my guides puts on his dosimetry badge, or Thermal Luminescence Dosimeter, a device that measures a person’s exposure to radiation. As we pass through the portals a disembodied computer voice assures us that we are "clean," which is precisely the verdict the long-suffering nuclear industry has been working hard to achieve. After all, for the past 20 years or so it has endured almost as much bad press as Saddam Hussein. The reasons? Three Mile Island, Chernobyl, cost overruns, radiation leaks, reactor shutdowns, The China Syndrome, capital costs twice those of coal or natural gas, government foul-ups….

Nuclear energy, which once promised to be the high-tech star of the postwar world, has become a byword for disaster and seemed, noted The Economist recently, to have been consigned to the "dustbin of history." So when British Energy plc said its Canadian subsidiary, Bruce Power Inc., had signed a $3.2-billion, 18-year lease with an Ontario Crown corporation to run the 24-year-old Bruce plant, most casual observers were surprised. Why on earth would a publicly traded British firm, one of the world’s largest power companies, bet billions that it could make money on an aging plant located 5,000 kilometres from its head office in Scotland? The British hadn’t shown this much interest in Lake Huron since the War of 1812. What has changed?

Upon entering Bruce B, I’m met by a wave of heat and a thundering roar that sounds like jet planes passing overhead. Plant workers, a few of the 3,000 who populate the site, walk or ride by on large tricycles, the use of which helps shrink the size of the behemoth building. The turbine hall, one floor above entry level, is a gigantic and spectacular feat of engineering. The turbines themselves look like steel-encased humpback whales. They are driven by the steam produced from the intake of 9 million litres of lake water per second. The power generated flows out to begin its high-wire journey across Ontario to Quebec and Manitoba, to New York, Michigan and Minnesota.

Bruce B can generate up to 3,140 net megawatts of electricity from its turbines, currently enough power to keep on all the lights and laptop computers – and do everything else – in a city the size of Toronto. By itself, Bruce B supplies 15% of Ontario’s electricity needs, which can reach some 25,000 MW during peak demand, such as on those muggy days that enveloped much of the province in August. That’s a lot of juice, but it’s an amount that will rise to 20% in 2003, when two of the four reactors at the dormant Bruce A will come online.

At present, North America, with just 7% of the world’s population, accounts for 30% of global energy consumption. Over the next 20 years, according to the National Energy Board, demand for power will rise in Canada by at least 25%. And with just 12% of this country’s electricity being generated by five nuclear plants – Bruce, Darlington and Pickering in Ontario, which together provide 41% of the province’s power, plus one each in Quebec and New Brunswick – British Energy, the U.K.’s largest generator of electricity, is gambling that it can convince Canadians that nuclear energy can play a greater role in supplying the country’s energy needs.

Ever since it was formed five years ago, following the merger and privatization of two government-owned utilities, nuclear has been at the heart of British Energy’s business: it owns and operates 15 U.K. reactors. In 1997, its first full year of operation, it made a profit of $134 million on revenues of $4.1 billion. Earnings rose sharply and steadily over the succeeding two years as the company expanded its operations and improved efficiencies. "They were very good cost cutters. But they argued safety and took no shortcuts," says Alistair Buchanan, head of utilities analyses at the ABN AMRO Bank in London.

By 2000, however, profits fell noticeably – to a mere $22 million. The main reason: a 30% drop in U.K. electricity charges brought about by, thanks to deregulation, an excess in generating capacity. Bringing British Energy a measure of fiscal salvation, though, is the US$66 million in earnings it’s expected to receive this year through a partnership in the U.S. with the Chicago-based Exelon Corp., an electric company that generates some 70% of its capacity through 17 nuclear reactors serving five million customers in Pennsylvania and Illinois. Barry Abramson, senior utilities analyst at UBS Warburg in New York, calls Exelon "one of the stars of the [nuclear] industry, with big economies of scale."

In the mid-’90s, Britain wasn’t the only country where government, fed up with high operational and refit costs, wanted out of the nuke business. All across America, public utilities were looking to sell off nuclear assets – and doing so at fire-sale prices. The two private utility companies that would merge last year to form Exelon were among the first to take out their chequebooks, believing that it could run the plants more efficiently, in part by importing the best practices that had been developed at the facilities it was already running.

For its part, British Energy, which utility analyst Ian Graham, of Merrill Lynch Global Securities in London, calls the U.K.’s "best operationally geared electricity generator," decided it also needed to look outside its home market for future growth. That led to America and Exelon. In 1997, the two formed AmerGen Energy Co. and now jointly operate three reactors, including one at Three Mile Island, site of the infamous 1979 partial meltdown.

Three Mile Island was a good deal: AmerGen paid just US$23 million, approximately 15% of its book value. But once low-cost plants were in play, rival companies began to compete more vigorously. Acquisition costs soared and put a crimp in British Energy’s plan, forcing it to look around for new, and cheaper, possibilities for investment. They found one north of the border – in Ontario.

At Bruce B, my tour leads to a periscope, which offers a glimpse of the inside of a reactor. I am amazed at the stillness. All I can see is a series of lights, much like those on an airport runway, which illuminate concrete cross-beams, under which sits the mechanism used to load aluminium fuel bundles that power the reactor. Nuclear fisson depends on highly radioactive uranium. When atoms are split after being bombarded by uranium, they release several hundred million electron volts of electricity. The energy is harnessed and eventually drives the turbines, producing electricity.

The man in charge of producing the electricity and profits here is Bruce Power’s recently appointed CEO, Duncan Hawthorne, a new breed of manager for a new style of nuclear plant, one on which the strictures of the marketplace are being brought to bear. Forty-six years old, balding and with the thick lowlands brogue of his home town of Greenock, Scotland, Hawthorne, an engineer, rose from the shop floor and now resides in Kincardine, a small town near the plant. Playing golf here isn’t his only reminder of home: "There are more bagpipes in Kincardine than in Scotland," he laughs. When I ask him why the company bid for the lease, he answers simply: "We were good nuclear operators in the U.K." That may be true, but not having to pick up debt or incur huge capital costs seems a pretty clear attraction. In some ways, the Bruce plant is a turnkey operation for Hawthorne and British Energy.

By the time Mike Harris and the Ontario Tories came to power in 1995, Ontario Hydro was over $30 billion in debt – most of it nuclear-induced – and listing badly. Harris wanted to deregulate Ontario’s energy market and so, in 1999, Ontario Hydro was duly dissolved, most of its operations emerging as Ontario Power Generation Inc. (OPG). Shorn of billions of dollars in debt transferred to the province, OPG was a much healthier Crown corporation than Ontario Hydro had been, but also a much less powerful one. The government’s ultimate goal is to make OPG one company amongst many in an increasingly privatized market. Within 10 years of the start of deregulation, OPG’s share of the province’s generating capacity must be reduced from its current 85% to 35%.

Hawthorne has been assigned to make sure British Energy grabs a big share of the market and to add to the approximately $240 million annually it says it will make through the Bruce lease. As his boss, Robin Jeffrey, who this summer was named chairman and CEO of British Energy – in part because of his strong managerial record in the U.S. – said earlier this year: "It is obvious how important the business in North America is to us." In fact, noted the Sunday Times of London in July, following the company’s annual meeting: "Jeffrey [was] rubbing his hands in anticipation of a windfall from British Energy’s operations in America and Canada."

The glassed-in control room at Bruce B looks like something at NASA. Screens and panels proliferate, over which hover a phalanx of nuclear operators trained for up to 12 years to handle every conceivable malfunction in the plant. To win the right to operate this facility and all the staff within it until 2018, with an option for 25 more years, British Energy beat out "about a dozen other bidders, U.S. and European," says Richard Discerni, executive vice-president of OPG.

Immediately upon the announcement, in July 2000, that British Energy had been awarded the Bruce lease, critics of the deal emerged. Probably the most trenchant is Myron Gordon, professor emeritus of finance at the Rotman School of Business at the University of Toronto, and a long-time advocate of public ownership of Ontario’s power generating assets. The lease, he says, is "utterly rediculous." He believes that Bruce Power will be able to generate profits out of all proportion to its $3.2-billion investment. He calculates that, at the very least, the British Energy subsidiary will be able to make $240 million, but $435 million per year, net of its annual lease payments, selling the power generated by six reactors. This figure is based on the four operational reactors at Bruce B plus two of the four laid-up reactors at Bruce A, scheduled for re-start in 2003. Do the math, says Gordon: 2003-2018 is 16 years; 16 times $435-million equals $6.96 billion – plus hundreds of millions from the first two years of operating the Bruce B plant only. But Gordon is sure the profit figures will be even higher, because electricity rates are bound to increase once NAFTA free-market rules apply in a deregulated energy marketplace, where higher American prices will prevail. That’s a return on investment of over 100%. Pretty good, says Gordon, "when the Bruce A re-start can be accomplished for the modest cost of $340 million."

But Gordon hardly dominates the range of views on the Bruce. Disagreeing with him for instance, is Jack Mintz, a colleague at the Rotman School and the president and CEO of the C.D. Howe Institute. "The lease," he says, "was in line with the valuation of OPG’s assets. There should be significant gains to privatization, especially in the areas of plant efficiency."

Most analysts agree, recognizing that, after 20-plus years of operational experience, the industry knows a lot more about how to squeeze more juice out of existing facilities. Advances in technology have also helped. "Yes," says Barry Abramson, senior utilities analyst at UBS Warburg in New York, "generating output of plants has improved over the past 15 years – by as much as 20%." Colin Hunt, director of policy at the Canadian Nuclear Association, an organization made up of utilities, nuclear industries and research institutes, has a similar view. "With private operators," he says, "efficiency will improve, because the generating capacity factor really matters when selling into the market, not to a guaranteed monopoly. Tht is what will drive performance." Accordingly, at the Bruce, the short-term goal is to increase generating output to 90% from 80% of capacity.

In any discussion of the future of nuclear power, safety concerns are always at the forefront, which is why I’ve asked my tour guides to show me where nuclear waste at Bruce B goes to die a very slow death. In an Olympic-sized pool, with a depth of 11 metres, lie some 330,000 spent uranium fuel bundles in stacks over three metres below the water’s surface. At 50 centimetres in length, they look like submerged cords of wood. The fuel bundles give off an eerie blue glow from the cobalt they release, making this water a deadly elixir of radioactivity. "In about 800 years," says one of my escorts, "it would be safe for one of these bundles to be passed between two people." What impresses me, however, is not the danger, but how little radioactive waste there is lying still and silent before me. The contents of this pool are the sum total of all the high-level radioactive waste generated since Bruce B first went into operation back in 1984. One could well argue that what this waste lacks in volume – some 9,000 tonnes, or approximately 20% of the Canadian total of high-level radioactive waste – it makes up for many times over in toxicity. Still, with Toronto sending daily 100 transport trucks brimming with the city’s waste down Highway 401 to Michigan, this pool seems pretty small. In relative terms, Bruce B’s waste is miniscule. Mining and burning coal fill the skies with carbon dioxide and scar the land. Hydroelectricity means dams and dislocation. Natural gas results in long, intrusive, cross-country pipelines.

But despite the tiny levels of day-to-day-pollution generated by nuclear energy, David Martin, nuclear affairs expert for the Sierra Club of Canada, sees public apprehension over nuclear plants as inescapable. "The risk of catastrophic events is always there," he says, and "35,000 tonnes of waste" are being stored in similar pools, or in "dry-storage" facilities across Canada. To him, nuclear energy has proven itself both unsafe and uneconomic and, ideally, should be phased out.

Others aren’t so sure. Gordon Laird, a Toronto-based energy specialist who is writing a book on electricity generation in Canada, Power: Journeys across an Energy Nation, sees nuclear power as an inevitable part of the energy mix. He argues that, even though "greenhouse gas mitigation is not really on the map yet, the different energy sectors are positioning themselves as climatically responsible." And the more society focuses on reducing carbon output, the better carbon-free nuclear energy looks.

As Robin Jeffrey said to the aptly named Power Breakfast put on by the Toronto Board of Trade in June, "As an industry we need to get much better in presenting the environmental case for nuclear power. We are a crucial part of the Kyoto solution, but meantime most environmentalists see nuclear as a bridge too far. But just think about those summer days when the generation system is flat-out: the smell in Toronto’s air and the orange pall of pollution…." He’s saying that a nuclear expansion would mean less smog and less damage to the ozone layer. For a lot of people, that’s a compelling argument.

What Jeffrey didn’t mention, however, is a point that animates Norm Rubin, director of nuclear research at Energy Probe. Yes, he says, Bruce Power can operate the plant better, more cheaply and more safely than its predecessor. But, unlike Ontario Hydro, it can do so without being on the hook for off-site waste disposal or plant-decommissioning costs, which remain under the auspices of the federal and provincial governments respectively. As part of the lease, Bruce Power must pay Ontario approximately $2.7 billion, or $150 million annually. Not enough, says Rubin. "Ontario Hydro’s last estimate in 1999 of decommissioning and waste cleanup was $18.7 billion," [including $7.5 billion for Bruce]." Still, he will take British Energy, which he calls a "bottom feeder," over the old operating model: "I used to be a socialist. Ontario Hydro changed that. An essentially unregulated monopoly is about the stupidest system designed."

Shelley Martel, NDP energy, science and technology critic and MPP for Nickel Belt, also has questions about the Bruce deal. "It is the largest lease of a public asset in the history of Ontario, which will come back to public hands at the end of its term. What are the people going to get back?" For Martel and others, the province may end up with a depleted asset and a mountain of waste.

In an attempt to clarify the terms of the Bruce deal, Martel moved in October 2000 to have the lease evaluated by the provincial auditor. The government agreed, but the audit won’t be completed until 2002. However, she thinks the process is an important one because the "Bruce agreement is a template for the next round of leases or sales." Next time, she adds, it could be the Pickering or Darlington nuclear plants, where the decommissioning and radioactive waste disposal questions are even greater.

Safety and costs also concern Sean Conway, Liberal energy critic and MPP for Renfrew-Nipissing-Pembroke, the constituency where Canada’s nuclear history began back in 1945 at Atomic Energy of Canada’s Chalk River site. But he stresses that Ontario must guarantee its future energy needs. Nuclear power is a fact of life," he says. "We have to get production out of the nukes if we are going to avoid an electricity crisis, which could put us into a California situation."

In front of the offices at the Bruce plant, a lone wind turbine swishes gently in the breeze coming off Lake Huron. More of these giant white propellers are to follow as part of the company’s nod to energy diversification. Still, its main goal is to expand nuclear generating capacity – and that may invovle more than just rehabilitating existing plants. In June, Robin Jeffrey announced that building a new nuclear plant in Ontario is "an issue that we are studying." Meanwhile, in the U.K., the Daily Telegraph reported in August that the Labour government had given its "strongest indication yet" that it will encourage a nuclear revival. In order to meet Kyoto greenhouse gas emission cuts, Tony Blair must reduce carbon dioxide released into the atmosphere by 10%. The British Department of Trade and Industry state in August that "if new build costs prove accurate, and allowing a reasonable value for carbon savings, there are prospects for new build to be economic."

The clear challenge, then, for British Energy and other companies like it is to make the building of new nuclear plants an attractive option for investors. Jeffrey is optimistic. "Market forces in a truly competitive environment will balance supply and demand and encourage investment," he said earlier this year. To do that, lower capital costs as well as faster construction times must become an industry standard. Currently, a small, 110-MW modular reactor – 3% of the size of Bruce B – is being constructed over a mere 18 months in South Africa. Bruce B, by comparison, took 11 years to complete. If successful, this small reactor could provide a model for nuclear power’s future.

But while the U.K., the U.S. and Canada may prove fertile ground for such investment, other countries appear to be heading in a different direction. In June, for instance, the German government signed a deal with energy companies to shut all of the country’s 19 nuclear plants within 20 years. But while no one will ever become rich betting against the moral outrage of environmentalists, the current climate of energy diversity might make nuclear power somewhat more palatable, even to them. That’s the measured view of energy writer Gordon Laird. He thinks that deregulation will increase energy diversity, which will push environmentalists to "make a more nuanced response than in the past to nuclear power." If deregulation means that some less traditional means of power generation – such as wind – receive a real chance to grow, then perhaps the big nuclear plants will be pushed more to the side. Nuclear power won’t disappear, but maybe it can be made smaller, and therefore less menacing, more of a niche player than the Goliath of energy production that it is in Ontario or France where 76% of the country’s power needs are nuclear supplied.

For David Martin of the Sierra Club, however, any amount of nuclear power is too much, whatever it may look like in the future. "There is no question that a hard proposal to build a new nuclear plant would be the environmental confrontation of the decade," he says. Back at the Bruce Power offices I recite the quote to Duncan Hawthorne. He shrugs. "There is no need to chain themselves to a tree." But if they do, there are plenty of trees around here.

Despite conservation’s apparent social strength, energy demand isn’t likely to abate. However, given its history of government dependence and high debt, nuclear power has yet to prove itself in the deregulated marketplace. And with waste disposal and decommissioning still open questions, skeptics remain. The Economist, for one, is less than sanguine. "If the private sector wishes to build new nuclear plants in an open and competitive energy market," it said recently, "more power to it. As [government] subsidies are withdrawn, however, that possibility will become ever less likely." On the shores of Lake Huron, as in the U.K. and the U.S. British Energy is hoping to do what the nuclear industry has never done: prove the skeptics wrong.

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