Thomas Adams
Ontario Select Committee
November 28, 1997

Derwyn Shea, M.P.P
Chair, Ontario Select Committee on Ontario Hydro Nuclear Affairs
by fax: 314-7783 (2 pages)

re: Nuclear Power Costs

Dear Mr. Shea,

On Monday, November 24, Ontario Hydro representatives Ms. Clitheroe and Ms. Ng were asked by M.P.P. Helen Johns what the real cost of nuclear power is. The representatives quoted from Ontario Hydro’s annual report, indicating that in 1996 nuclear power cost 5.5 cents/KWh.

That figure incorrectly reports Ontario Hydro’s actual costs in four main respects.

• The figure provided does not reflect of cost of nuclear-related write-offs. In 1996, nuclear writeoffs were $1.873 billion and in 1993 they were $2.42 billion.

   

• The depreciation costs used to calculate the figure assumes that all nuclear units will operate for 40 years. There is no nuclear power reactor experience in the world that substantiates this assumption. Rather, the average age of the nuclear units "laid up" under the NAOP and the Bruce unit 2 "lay up" is about 22 years. Even supposing that Bruce A restarts and runs to the end of its pressure tube life, it would not come close to 40 years. As is clear from Ontario Hydro’s testimony to the Committee, decisions on whether to restart will be made on the assumption that the initial investment is written off. Ontario Hydro’s depreciation practices should be revised to assume 25 year service lives for the remaining 12 reactors.

   

• The recovery of costs related to nuclear waste disposal and decommissioning reflected in the figures quoted are based on the assumption that the nuclear units will operate at a high level of output until the end of 40 years of service life-and on the continuance of other imprudent accounting practices which have left these enormous and vital tasks essentially unfunded.

   

• The figures understate the cost of current operations due to Ontario Hydro’s persistent use of capitalization for nuclear repair expenditures that are related only to ongoing operations and do not reflect investments in incremental capacity.

Even without corrections to Ontario Hydro’s reporting practices, nuclear costs should be expected to rise by about 10% this year over last year reflecting the shortfall in 1997 production now forecast.⁽¹⁾

If it were true that nuclear power cost only 5.5 cents/KWh, then Ontario taxpayers would face very little stranded nuclear cost.

A complete account of the cost of nuclear power would have to take into account of the value of the subsidies represented by third party liability exemption conferred by the Nuclear Liability Act, the value of the subsidy to nuclear power represented by Ontario Hydro’s access to taxpayer-back loan guarantees, and subsidies to nuclear research and development by the federal and provincial governments such as the direct investments of both these government in Pickering units 1 and 2. Even omitting these, and correcting only the four obvious omissions noted above, we estimate that Hydro’s current cost of nuclear generation is in the range of 8-11 cents/KWh.

These current costs reflect actual historical expenditures on Ontario’s nuclear reactors, and do not necessarily prove that these high-cost sources of electricity would be shut down immediately in a competitive market. Historic over-investments make up the bulk of nuclear power’s enormous costs. Sunk costs, though they must be recovered, should not influence future decisions. To the extent that sunk costs are stranded, they will be recovered some other way, and artificially written out of the cost of future nuclear power. If some of the reactors are allowed to run and can compete on their short-term marginal costs, they will do so, until they need a further infusion of cash that cannot be justified. (Of course, NAOP is just such an infusion of cash, and we have already presented our views on how Ontario should protect its taxpayers from the risks of that investment.)

Inaccurate and incomplete nuclear accounting is one of the reasons that Ontario developed the terrible electricity crisis we now face. Unfortunately, despite the crisis Ontario Hydro has not seen fit to produce better information for the Committee.

Sincerely,

Thomas Adams

Executive Director

c. Ms. Bryce, Clerk of the Committee, f) 325-3505 (to circulate to Committee Members)
Ms. Malen Ng, Ontario Hydro, f) 592-1864
Mr. Rob Power, f) 863-1938

1. According to Ontario Hydro’s October 1997 "Nuclear Report Card", issued November 28, 1997, 1997 total nuclear production is forecast to be 70.6 TWh. In 1996, it was 77.7 TWh.