Nuclear Ontario: the end of the beginning?

What to make of the talks between SNC-Lavalin and the Ontario Municipal Employees Retirement System (OMERS) on a possible purchase of the CANDU division of Atomic Energy Canada Limited? I’d say it shows (1) how lucrative the nuclear business is when reactors are up and running and (2) that the AECL deal will be done in two stages.

On point #1: OMERS, a growing pension fund which is one of the majority partners in Bruce Power, is intimately familiar with the financial benefits of running a nuclear utility. Bruce Power, which as I write this is cranking out around 4,800 megawatts of electricity, is Ontario’s third-cheapest source of electricity (the first and second are Ontario Power Generation’s regulated hydro and nuclear stations—for details, see “Ontario nuclear power subsidizes gas and renewables”).

In spite of the low price that Bruce fetches for its output, OMERS earned a 12 percent return on investments in 2010, and a 10.6 percent return in 2009. Both years saw low electricity demand in Ontario; see “Trends vs. snapshots.” They also coincided with the Bruce A Restart, a $4.25 billion affair which is also Canada’s biggest infrastructure project. If OMERS earned those nice returns in those circumstances, how will it do when the restart is finished and electricity demand goes back up? I’d say pretty well. Nuclear is lucrative.

Incidentally, the Bruce A restart is a huge jobs engine: it has created 3,300 high paying, long-term jobs.

When I say long-term, I don’t mean those 3,300 people will work at the Bruce site for the rest of their careers. Some will—Bruce B is slated for refurbishment—but others will work on the Darlington A refurbishment, and others will work at CANDU 6 refurbishments in Quebec, South Korea, Argentina, and China.

The refurbishments beyond Bruce A are why SNC-Lavalin and OMERS are even talking about buying AECL. This is a lucrative business.

On point #2, if SNC and OMERS do agree on buying CANDU Inc., the overall AECL deal—the privatization of CANDU Inc. and Darlington B—will be done in two stages: I’d say this. The strategy of SNC-OMERS is to buy CANDU Inc., and make clear the purchase is only about the refurbishment business. Then wrangle a deal out of the Ontario government at a later date to build ACRs at Darlington. All the while hoping no one notices that by buying only the refurbishment business they actually also bought a new build project, and a Gen II+ design (AECL’s ACR 1000), for cents on the dollar.

Apparently the Prime Minister is very eager to have AECL’s CANDU division off the books by the 2011 federal budget, which is in March. If that is the case, he must be feeling a bit of heat to do a deal. So no surprise that an SNC-OMERS deal comes up at the end of February.

How would the feds explain away a fire sale of a lucrative business? They will get out of it by simply counting further ACR development, which AECL says in its 2010 Annual Report is 80 percent done, as “research.” The feds have said all along they will keep AECL’s research division.

But of course the central issue of who covers an unforeseen cost overrun at Darlington B remains unresolved. Ontario will simply have to suck it up. The province tried scaring the feds into backstopping Darlington, by opening up the decision of reactor design to international tender. No dice. The international vendors, Areva and Westinghouse, didn’t play along with Ontario’s demand that they agree to pay for Ontario’s vacillating (see “Fed-prov negotiation needs to continue”), and the feds called Ontario’s bluff.

How will Ontario manage Darlington B? Back in 2008 I told Steve Paikin that whichever provincial energy minister runs the process, he or she will have to have thick skin and nerves of steel. Obviously I was wrong: it’s not the energy minister who will need thick skin and nerves of steel. It’s the premier.

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