'Pricey' deal may be the best option available

'Only time will tell how good or bad the deal was that the Ontario government made with the private operator of the Bruce Nuclear Power Development that will eventually see all eight reactors in the nuclear complex producing electricity.

Back in the 1990s, four of the eight were officially mothballed as no longer required to meet the existing demand.

But a lot has changed since then, including a significant increase in demand (particularly on hot summer days thanks to a lot more use of air conditioning) and election of a government that promised to shut down all the province's coal-fired generating stations.

Clearly, the deal with Bruce Power, a private consortium, will go a long way toward making Ontario less reliant on fossil fuels for electricity production and significantly reduce the related production of greenhouse gases.

But, Ontario's auditor-general disclosed that in the deal the McGuinty government agreed to pay 44% above current market rates to buy the electricity from the longidled reactors on Lake Huron.

In his report, Auditor-General Jim McCarter said the province's success in negotiating a reasonable price for the electricity from the refurbished units is not clear-cut. He found that the government had negotiated a series of trade-offs that drove up the cost of electricity to 7.1 cents a kilowatt hour, significantly higher than the average market price of 4.9 cents over the last five years and some experts' projections of future prices.

Energy Minister Dwight Duncan said the government had successfully transferred much of the financial risk associated with the project to the private sector. "This was a good deal when we signed it, and it's a good deal today," he said, noting: "We will get a clean supply of affordable electricity for the next 30 years."

Clean? Affordable? Neither is all that obvious. Although nuclear power is a lot better in terms of air pollution, the sad fact of the matter is that governments and the nuclear power industry have failed miserably in rising to the challenge of coming up with either a suitable process or a location for disposing of spend nuclear fuel.

Interestingly, the deal for refurbishing the Bruce A-plant's two units has no equivalent at the Pickering Nuclear Power Development, which is both owned and operated by the government's Ontario Power Generation (OPG), which had enormous cost overruns from the restoration of Pickering A's unit 1 and 4 reactors.

Just why the government opted to work out the deal with Bruce Power while deeming similar restoration work at Pickering too expensive has never been adequately explained, but we're left speculating that one reason was the fear that OPG would again be unable to keep costs anywhere close to those predicted.

The government initially announced in October, 2005, that it planned to spend $4.25-billion refurbishing Bruce A reactors 3 and 4 and agreeing to have Bruce Power refurbish units 1 and 2. Unit 2 presented a huge challenge, in that it has never worked properly, apparently because of debris carelessly left in one of its boilers during construction.

At the time, then-energy minister Donna Cansfield pledged that Bruce Power would bear the entire $4.25 billion capital cost of upgrading the reactors. She made no mention of the fact that electricity consumers would be responsible for a portion of any cost overruns.

In addition to the trade-offs, the auditor identified other items that potentially could have reduced the price that will be paid by 0.36 cents a kwh, one being a "mechanical error" in calculating the tax on interest expenses.

Not surprisingly, NDP Leader Howard Hampton saw the report as showing that "this company is making money hand over fist and it's the ordinary Ontarian paying the hydro bill who's paying for it."

Progressive Conservative energy critic John Yakabuski said the auditor's report "would certainly raise some doubt as to whether the government acted in the best interests of its shareholders."

However, recent experience would suggest that no one can accurately predict the future demand for electricity, let alone the final costs involved in bringing 30-year-old nuclear reactors back into service and in an era of ever-changing safety rules being imposed by the Atomic Energy Control Board.