Thomas Adams
National Post
October 28, 1998

Shutting down Ontario’s nuclear plants should put $7 to $16 billion into the hands of Ontario taxpayers, according to new information released by the Ontario Ministry of Finance at a press conference Monday. This startling conclusion is based on the government’s $5 billion valuation of the power plants that the new government-owned generating company — a successor to Ontario Hydro — will be inheriting. There’s only one way for Hydro’s power plants — including Niagara Falls and other hydro-electric money-printing machines — to be worth so little. The province’s 20 nuclear reactors have a negative asset value.

The new power generation company — a de facto monopoly for at least 4 years — includes 68 provincially-owned hydro-electric stations and 28 fossil units. Based on recent sales of non-nuclear stations in other jurisdictions, Energy Probe estimates the worth of the hydro-electric stations to be at least $10 billion — perhaps as much as $15 billion — and that of the fossil stations to be no less than $2 billion, and more realistically $6 billion. Combined, they should fetch $12 to $21 billion. For the new generating company to be worth a mere $5 billion, those nuclear assets really represent liabilities of $7 to $16 billion.

To determine the value of Hydro’s existing generating assets, the Ministry of Finance has properly excluded historic debts, disposal costs for nuclear waste already created, and decommissioning costs — liabilities that will total tens of billions more — because Ontarians are saddled with these costs whether or not the nuclear plants continue to operate. Instead, the Ministry of Finance has examined only the power plants’ future operating costs and the expected future revenue from the electricity they would produce.

Although the ministry doesn’t say it in so many words, its valuation of the new company can only mean that the nuclear plants will be running losses in future. If Mike Harris believes his finance minister, and wants to enhance shareholder value, he should phase out the nuclear units as quickly as possible to cut his losses.

Mike Harris would be well advised not to put too much trust in the estimates from his finance minster, or his energy minister or the financial experts at Ontario Hydro. The only competent valuators of the province’s power assets are bidders in the marketplace.

By failing to restructure Hydro properly — which requires breaking up the generating monopoly and selling the system in a configuration that would fetch the highest price — Harris is squandering the province’s crown jewels. The nuclear plants have been a horrible mistake — they should never have been built — but that’s no reason to compound the error.

In fact, some of the nuclear assets, in competent hands, could be worth billions, perhaps as much as the $7 to $16 billion nuclear hole the government wants us to accept. British Energy, the privatized owner of the UK’s nuclear system, has purchased a plant in the U.S. — one of the units at Three Miles Island — and has been scouting around for other purchases — most recently New Brunswick’s Point Lepreau. It planned to put money on the table to buy into the Ontario fleet but, inexplicably, the monopolists at Hydro said no.

If Harris needs proof of his government’s incompetence at establishing fair prices, he need look no further than Monday’s announcement. Hydro assumes – and the finance ministry accepts — that all its nuclear units (except for Bruce 2) will operate at high production for 40 year service lives and that future payments will cover the total liability, now estimated at $19 billion. If the nuclear units are closed after 25 to 30 years of production — as experience with reactors in Ontario and elsewhere in the world suggests – then Ontario Hydro should be reporting a current liability for nuclear waste disposal and decommissioning that’s twice as high.

Ministry of Finance officials haven’t decided if the generation company’s new debts will be subordinate to the old debt. The new generation company will be financed with $1.8 billion in new private sector debt, unguaranteed by the provincial government, and $3.2 billion in equity held by the province. Getting a good return on this equity is important in discharging the liabilities remaining with the province for outstanding guaranteed bonds, overpriced power purchase contracts with independent producers, and nuclear waste disposal and decommissioning costs. If the new generation company pays the government ahead of its unguaranteed debt obligations, the public is likelier to get its money back. Alternatively, taxpayers are at risk of losing their capital and the generation company will be able to further deficit finance its nuclear ventures.

Thomas Adams is executive director of Energy Probe, a Toronto-based public policy organization.