James Rusk and Chad Skelton
Hydro fiasco to cost billions
August 14, 1997

 

Hydro fiasco to cost billions ‘Chickens are coming home to roost,’ Harris says after report cites management meltdown

TORONTO – The massive upheaval in which Ontario Hydro will close seven reactors was triggered by an internal report warning that the utility had to move quickly to improve the performance of its ailing nuclear division or the $24.4-billion in nuclear assets would have depreciated beyond recovery.

"I believe the people of Ontario probably thought our nuclear management and nuclear operation was better than we now know that it is," William Farlinger, Hydro chairman, said at a news conference yesterday in which the report was released.

"It appears that the chickens are coming home to roost," Premier Mike Harris told reporters. "It [Hydro] has not been well run. It has not been well managed."

The report was such a scathing indictment of the nuclear division that Hydro president Allan Kupcis resigned on Tuesday at a meeting of the public utility’s board of directors.

The board decided at the meeting to close down seven of the province’s 19 nuclear reactors while the utility tries to revive the nuclear operation.

Resuscitation will be costly. Hydro estimates that the recovery program will cost $5-billion to $8-billion over the next four years, which will hamper Hydro’s ability to strengthen its balance sheet as it prepares for the opening of the Ontario electricity market to competition.

Carl Andognini, executive vice-president of Hydro and head of a team of seven U.S. nuclear experts brought into the utility this year to clean up the problems in the nuclear division, stressed repeatedly at the news conference that the problems were people, not technology.

"I don’t think there’s been an adequate look at what is needed, adequate training programs put in place," Mr. Andognini said.

Indeed, it was the need to embark on massive retraining of Hydro’s staff that led the board to decide to close the four operating units at the Pickering A nuclear station just east of Toronto and the three operating units at Bruce A on Lake Huron west of Owen Sound.

Internal Hydro documentation obtained by The Globe and Mail shows that the utility would have had a shortfall in 1998 of slightly more than 4,000 in the staff of its nuclear division if it had tried to keep all of its 19 units open and do the necessary staff training. By taking a phased approach — closing the seven units and bringing them back into production later — staffing requirements will be minimized.

However, the documents also show that the phased shutdown plan makes it extremely unlikely that Bruce A, which would require hundreds of millions of dollars in technological improvements to bring it up to standard, will ever come back into production.

According to the documents, which were used to brief Hydro employees yesterday, the utility’s board will decide the fate of Pickering A in the summer of 1999, and all four units at Pickering A, into which Hydro has poured nearly $1-billion for new tubes in the reactors, could be fully operational by mid-2002.

Hydro’s board would not consider the fate of Bruce A until 2002.

Hydro must also act quickly to restore public confidence in its management and the safety of its nuclear operations, both of which were badly shaken by the 64–page report. It found that Hydro’s nuclear operations were operating at a minimally acceptable standard.

"Non-performance is accepted — or even expected — because senior management has neither set nor enforced standards for employees, nor have they assigned specific accountabilities and authorities to managers," the report said.

The report was also critical of labour relations inside Hydro, even suggesting that its employees lose the right to strike and be subject to mandatory testing for substance abuse.

Maurice Brenner and Doug Dickerson, two Durham regional councillors, interrupted the news conference numerous times to shout accusations at the Hydro executives.

Mr. Brenner told reporters later that Hydro "said there was no problem. We’ve got a community damaged financially, economically — both in property values and business. We’ve got 2,000 of our citizens that will be out of work. Why? Because they were lax, they had no ethics, they had no conscience about our community."

Hydro’s environmental critics said that the report and the decisions that flowed from it supported their past criticisms of nuclear power.

"This is clearly the beginning of the end of nuclear power in Canada," Dave Martin of Durham Nuclear Awareness said. "Seven reactors is the largest shutdown that any nuclear utility in the world has ever done. It’s unprecedented, and I think it’s going to send tremors in the nuclear community around the world."

John Murphy, president of the Power Workers Union and a Hydro director, said that "if the problem really is a management problem, which the report says, isn’t the simplest solution simply firing those managers who are incompetent and aren’t doing their jobs? Isn’t that a better and a cheaper solution?"

Mr. Murphy said he was pleased that the utility’s plans do not include massive layoffs, but conceded that there will likely be some people let go in the restructuring.

He called the recommendation that nuclear power workers not have the right to strike a "red herring" because the union’s past two contracts with the utility voluntarily gave up their right to strike in exchange for binding arbitration.

Mr. Murphy said the union has been working with management to help establish "fitness for duty" policies for nuclear workers. Calls for mandatory drug testing for employees would not fly in Canada, he said. "We have human-rights legislation in this country that is different than in the United States. And I think that has to be respected."

While not all the costs of the recovery program have been spelled out, Hydro said that about $2-billion will be spent in the nuclear division in increased operating and capital costs while it is being brought up to acceptable performance standards.

A further cost of $3-billion will be incurred because Hydro will have to replace power from the nuclear units being closed with electricity produced from fossil fuels at three generating stations — Lambton, Nanticoke and Lennox.

The remaining $3-billion has not been allocated yet — Hydro has yet to decide whether it will have to take capital writeoffs if it concludes that some nuclear division assets are eventually to be shut down.

Mr. Farlinger said at the news conference that Hydro will pay these costs out of its cash flow, which has been running from $2-billion to $2.5-billion a year.

That will mean that the utility, which has debt of about $32-billion, will not be able to meet its current target of reducing its debt by about $2-billion a year.

The diversion of cash to save the nuclear operations will create major problems for Hydro, as the utility has in recent years been paying down its debts as rapidly as possible so that it would be in a stronger position to face competition in the electricity market.

Hydro estimated late last year that if it lost its monopoly, it would not be able to pay the interest on about $12-billion of its debts.

Mr. Harris said yesterday that electricity markets throughout North America are becoming competitive, and that his government still intends in the near future to release a white paper on how the Ontario market will be opened up.

The switch to fossil fuels will also mean that Hydro’s production of the pollutants responsible for acid rain and global warming will increase.

John Fox, Hydro’s vice-president of electricity generation, said that he estimates Hydro will increase its production of electricity from fossil fuels by about 60 per cent, but because the utility uses coal with lower sulphur content, its output of acid-rain pollutants will not rise by that amount. He said Ontario Hydro will stay well below its acid-rain targets.

Kevin Jardine, a spokesman for the Greenpeace environmental group, said Hydro’s actions are a double-edged sword.

"We’re very pleased about the government decision to shut down the seven most dangerous nuclear reactors in the province," he said. "However, we’re very alarmed that Ontario Hydro right now has no ideas of how to replace that power, other than firing up its very dirty coal and oil plants."

Mr. Fox said Hydro calculates that it will be able to meet Ontario’s electricity needs despite taking seven units of nuclear capacity out of production, accounting for 54 per cent of Ontario’s electrical needs last year.

The production impact from the closing is minimized because the seven units were the least efficient in the nuclear division, he said.

Norman Rubin, director of nuclear research with Energy Probe, said that Hydro’s response to the report is like "having your Ferrari in the shop and taking taxi cabs."

Ontario Hydro’s mismanagement has created a situation in which very expensive nuclear operations will not be used while the utility still has to pay for coal–derived energy, he said.

The solution, he said, is to allow into the market independent power producers that can generate electricity less expensively and in a cleaner manner.