Paul Waldie
Globe and Mail
December 24, 2002

British Energy PLC is selling its 82-per-cent stake in Bruce Power LP to a group of Canadian businesses for $950-million, but a forecast shows the deal still won’t ease Ontario’s energy supply problems.

Under the sale, TransCanada PipeLines Ltd., Cameco Corp. and a unit of the Ontario Municipal Employees Retirement Board (OMERS) will become the new majority owners of Bruce. The three will each own 31.6 per cent of Bruce, while two unions will own 5.2 per cent.

Calgary-based TransCanada and OMERS are each paying $376-million for their stakes. Saskatoon-based Cameco, which currently owns 15 per cent of Bruce, is paying $198-million for the additional 16.6-per-cent ownership. All three will also pay an equal share of $225-million in lease payments that Bruce owes Ontario Power Generation Corp., which leased eight nuclear reactors to Bruce for 18 years.

Duncan Hawthorne, Bruce Power’s chief executive officer, who is also a director of BE, said he will remain with the company along with other senior managers. Five Bruce managers, including Mr. Hawthorne, came from BE.

Bruce Power operates eight nuclear reactors and is Ontario’s largest private sector power generator (the eight reactors can supply 20 per cent of the province’s power). The company’s future was thrown into doubt this summer when BE ran into financial trouble. Bruce Power, which had a $121-million operating profit last year, is considered BE’s best asset.

Negotiations between the three major partners nearly collapsed last month when Ontario Premier Ernie Eves froze electricity prices. The companies were concerned about the government’s intervention. However, they would not say yesterday how much Mr. Eves’ announcement affected the final purchase price.

Mr. Hawthorne and the new owners said the sale means the company will be able to restart four idle reactors by this summer as planned. Bruce is spending $400-million refurbishing the reactors, which have been shut down since the late 1990s. Last week, staff of the Canadian Nuclear Safety Commission recommended that the restart be delayed until the company’s ownership was resolved.

Under the sale agreement, if at least one of the reactors is not on-line by June 15, 2003, Bruce Power must pay a $20-million penalty.

"With the signing of the agreement, I can say that the restart of the reactors is on track," said Bernard Michel, Cameco’s CEO.

However, the laid-up reactors are expected to operate at 68-per-cent capacity when they restart. The four reactors currently operating run at over 80-per-cent capacity.

Even if the reactors come on-line as scheduled, Ontario faces a tight power supply next year, according to a report released yesterday by the province’s Independent Electricity Market Operator.

The province will still be required to buy power next summer if weather is extreme, the report said, adding that transmission lines may not be adequate to support major power purchases from outside Ontario. If the Bruce reactors and other expected nuclear supplies do not come on-line, the province could face a "risk of insufficient power," the report said.

"That is engineering jargon for rolling blackouts," said Tom Adams Energy Probe, a Toronto-based environmental group. "The report describes Ontario as desperately short of power. Neighbouring utilities are in a position to pick the pockets of taxpayers."

Mr. Adams said the Bruce reactors might come on-line as scheduled, but it will take months for them to operate at normal capacity. He also said the new owners have no experience running nuclear reactors.

Hal Kvisle, TransCanada’s chief executive officer, acknowledged his company’s lack of experience with nuclear power.

"While I recognize that some may be apprehensive about nuclear power, let me assure you that TransCanada is not getting into the business of operating nuclear facilities. We are investing with strong partners in an excellent facility operated by a proven and capable team."

He added that the purchase fits within the company’s strategy to expand its generation holdings. TransCanada’s share price closed up 40 cents at $22.87 on the Toronto Stock Exchange yesterday.

However, rating agency Standard & Poor’s put TransCanada on credit watch with "negative" implications yesterday in part because of concerns about the deal. The company said it plans to provide more information to the agency to ease its concerns.

Karen Taylor, an analyst at BMO Nesbitt Burns Inc., estimated the deal will add 1 cent to TransCanada’s earnings per share next year and up to 10 cents in 2004.

"We believe that the investment in Bruce has a higher risk profile than TransCanada’s existing portfolio of businesses," she said in a report yesterday.

Cameco expects its stake in Bruce Power to contribute between 90 cents and $1 a share in earnings next year and in 2004. The company’s shares closed up $1.46 at $38.99 on the TSX yesterday.

Dale Richmond, head of OMERS, said the pension fund viewed Bruce Power as a stable, long-term investment.

"We invest to pay pensions, so we have patient capital and we want a good, steady, predictable long-term return, which many of these large infrastructure projects provide," he said.

Highlights of the deal

Consortium of Cameco Corp. TransCanada PipeLines Ltd. and a unit of the Ontario Municipal Employees Retirement Board pay $950-million for Bruce Power.

Each of the three partners will own 31.6 per cent; the remaining 5.2 per cent will be owned by two unions.

Consortium members will also pay $225-million to cover lease payments owed by Bruce Power to Ontario Power Generation.

If at least one Bruce A unit has not restarted by June 15, 2003, the new owners must pay an additional $20-million.

Management of Bruce Power will remain, including chief executive Duncan Hawthorne who is a director of British Energy.