Energy Probe

April Lindgren
National Post
November 16, 2004

Toronto: Ontario Power Generation’s habitual cost overruns on nuclear power plant refurbishment projects are continuing under the Liberals, OPG confirmed yesterday in third-quarter financial results that show efforts to upgrade a second unit at the Pickering A station are as much as $100-million over budget.

Energy Minister Dwight Duncan allowed that he is “concerned” by the projected overrun, which will see the price tag for retrofitting Pickering A’s Unit 1 reactor increase by between $75-million and $100-million.

Mr. Duncan, however, rejected suggestions the Liberals are headed down the same road as their Conservative predecessors, who were unwilling or unable to halt a 400% cost overrun on OPG’s refurbishment of Pickering A’s Unit 4 reactor.

“This is high-risk,” he acknowledged. “[But] we have the best management team available on it. We’ve outside auditors watching it. We’ve appointed new board members including board members that have nuclear experience.

“I believe that we’re managing the situation as best we can. I remind you that we did not put the province in the position of having to rely on nuclear power and generators that were 30-some years old when we came to office.”

He refused to speculate on whether there would be even further cost overruns on the 500-megawatt reactor that he says Ontario needs to avoid electricity shortages in the near term.

“I won’t say anything definitely one way or the other,” said the minister, who back in June boasted that “rigorous public scrutiny will ensure that the project stays on track and on budget.”

OPG’s quarterly report, however, warned that futher cost overruns are not inconceivable.

“Performance over the next three months in terms of schedule adherence and productivity of the major contractors and OPG resources will have a significant impact on the estimated cost and schedule to complete the project,” the company said in its report.

“Estimated costs could also be impacted by any additional repairs or refurbishment work related to the material condition of the station that may be identified during the course of the construction and commissioning phases of the project.”

In a conference call with reporters, OPG’s acting president, Richard Dicerni, blamed the cost overrun on “overly aggressive” assumptions about the company’s ability to recruit the skilled labour required for the project during the summer months, when the construction industry was booming.

“The cost increase flows from the fact that we incurred some slippage in terms of construction progress during the summer that we need to make up,” he said, noting that the project schedule has been extended and overtime bills are higher.

The reactor, now 56% complete, according to company data, was originally scheduled to go into full service in September, 2005, but that has now been delayed until later in the fall.

“The only person in Ontario that could possibly be surprised by these results is Dwight Duncan,” said Tom Adams, executive director of the energy watchdog group Energy Probe. “Everybody was expecting this.

“I’ve been arguing from the beginning that OPG should not be allowed to spend another dollar on new capital expenditures,” said Mr. Adams, who questioned how long the government-owned utility would be able to continue borrowing to finance the project without a major cash injection from the government.

NDP leader Howard Hampton noted that the cost of refurbishing the Unit 1 reactor was actually $825-million when former deputy prime minister John Manley delivered a full review of the Pickering upgrade project earlier this year.

“They should stop throwing money down a hole,” said Mr. Hampton, who insisted the resources could be better used to promote energy efficiency and conservation.

Canadian Press
CTV News
November 15, 2004

Toronto: The perils of Pickering returned to haunt the Ontario government Monday as Ontario Power Generation warned that its efforts to restore another of the problem-prone nuclear plant’s reactors could end up costing $1 billion.

When it was announced in July, the project to restart the mothballed Unit 1 reactor was supposed to cost $900 million, a budget that included a $65-million contingency fund that officials now say is already down to $20 million.

The cost of the restart now has the “potential” to climb by between $75 million to $100 million, and may not happen until next October, a month behind schedule, OPG chairman Jake Epp warned in a conference call Monday.

Difficulties getting the right tradespeople on the job site during the busy summer construction season helped delay the project and fueled increases in certain costs, such as overtime, Epp said.

As of the end of September, the provincially-owned power generator – already stung by the delays and massive cost overruns that plagued the botched refit of Unit 4 – had spent $526 million on the mothballed Unit 1.

Energy Minister Dwight Duncan – who pledged in July that Unit 1 would not repeat mistakes made on Unit 4 – said the latest problems are no reason to pull the plug on a complex project that’s more than half done.

“I continue to be concerned about it,” Duncan acknowledged in a news conference Monday.

“We’ll continue to report milestones, both in terms of the timelines and in terms of the costs and continue to keep on top of it as best we can.”

Duncan later told the legislature that the Unit 1 refit was a “high-risk” project that was necessary to ensure the stability of the province’s electricity supply.

In July, when the province gave OPG the go-ahead, Duncan promised to be “vigilant” and to ensure “rigorous public scrutiny” would ensure the project stayed on schedule and on budget.

On Monday, however, Duncan would not provide any assurance that costs wouldn’t continue to increase.

The Ontario government is “throwing money down a hole,” said New Democrat Leader Howard Hampton, who cited studies that show refits often only squeeze an extra 10 to 12 years out of an aging reactor.

“When you look at it from that perspective, these are incredibly costly refurbishments,” Hampton said. “This is just pouring more good money after bad.”

Duncan said he wasn’t about to walk away from the money the province has invested so far to say nothing of the additional 500 megawatts of electricity Unit 1 will eventually be called upon to generate.

Late last year, the province fired OPG’s top three executives for botching the restoration of Unit 4, which in the end cost $1.25 billion to fix, almost three times the original $457-million projection.

Acting chief executive Richard Dicerni emphasized that the project is being managed well and watched closely – two things that were absent in the case of Unit 4.

“We know where the project is at, we know what caused the slippage in terms of schedule, we know where we have to make up the progress,” Dicerni said.

“There is fairly tight control over project management, and we believe that we have a good understanding as to where the overall schedule for completion of the project is.”

Tom Adams, executive director of Energy Probe, an Ontario power watchdog, called Monday’s warning “deja vu all over again” and urged the government to phase out Ontario’s chronically troubled reactors.

“We should have pulled the plug on this a long time ago,” Adams said. “The sooner we pull the plug, the more of a headache we’re going to avoid.”

Ontario’s Candu reactors are old, complex, difficult to fix and prone to new and unforeseen problems that lead to soaring refurbishment costs.

Progress over the next three months will “have a significant impact” on the project’s overall costs and schedule, the company said – a statement Adams seized upon as a sign that costs are likely to continue to climb.

Dicerni said there are 1,600 workers on the site now, compared with 1,000 a few months ago.

Word of the project’s financial woes emerged as Ontario Power Generation reported a loss of $15 million, or six cents a share, for the quarter ended Sept. 30, compared with a year-earlier profit of $34 million, or 13 cents a share.