Identifier
Created
Classification
Origin
05TORONTO2737
2005-10-18 11:53:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Toronto
Cable title:  

Ontario Signs Deal to Refurbish Two Nuclear

Tags:  ENRG ELAB PGOV SENV CA 
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181153Z Oct 05
UNCLAS SECTION 01 OF 02 TORONTO 002737 

SIPDIS

USDOE FOR PI (Pumphrey, Ward and Deutsch)
STATE FOR EB/ESC/IEC/EPC (Erviti and McManus)
DEPT PASS FERC (Longenecker)

SENSITIVE

E.O. 12958: N/A
TAGS: ENRG ELAB PGOV SENV CA
SUBJECT: Ontario Signs Deal to Refurbish Two Nuclear
Reactors on Lake Huron

Ref: Toronto 1901

Sensitive But Unclassified - Protect Accordingly.

UNCLAS SECTION 01 OF 02 TORONTO 002737

SIPDIS

USDOE FOR PI (Pumphrey, Ward and Deutsch)
STATE FOR EB/ESC/IEC/EPC (Erviti and McManus)
DEPT PASS FERC (Longenecker)

SENSITIVE

E.O. 12958: N/A
TAGS: ENRG ELAB PGOV SENV CA
SUBJECT: Ontario Signs Deal to Refurbish Two Nuclear
Reactors on Lake Huron

Ref: Toronto 1901

Sensitive But Unclassified - Protect Accordingly.


1. (SBU) Summary: On October 17, the Ontario
government announced an agreement with the private
Bruce Power consortium to refurbish two nuclear
reactors at a capital cost of C$4.2 billion dollars.
The resulting 1,500 megawatts (MW) of additional
electricity will alleviate Ontario's tight power
supply. The deal was sealed when Bruce Power (the
private consortium operating the Bruce nuclear
facility) agreed to shoulder the capital cost and to
accept the risk for cost overruns - which, with past
nuclear refurbishing, have been substantial - leaving
no financial risk with Ontario's taxpayers. In return,
the province of Ontario agreed to guarantee a floor
price of C$63 per MW of electricity - slightly below
this year's average electricity cost of C$67.65 per MW.
This deal is widely seen among analysts and industry
insiders as a model for the future - both in terms of
the financing model and in terms of greater reliance on
nuclear power. The province must replace 25,000 MW of
electricity supply over the coming 15 years while
making drastic cuts to emissions in order to live up to
Canada's Kyoto commitments. End summary.


Ontario Signs Nuclear Deal
--------------


2. (U) On October 17, the Ontario government announced
an agreement with the private Bruce Power consortium to
refurbish Bruce A's nuclear units 1 and 2, which have
been out of service since 1997. This deal will secure
some additional 1,500 MW of electricity and somewhat
alleviate the province's tight supply. Bruce A's
nuclear units 3 and 4, also taken out of service in
1997, were refurbished in 2003. Four reactors at the
Bruce B power station were never taken out of
operation. Ontario's Bruce Power facility is owned by
the province of Ontario and operated by the private
Bruce Power consortium under a long-term lease
arrangement. Partners in this consortium include
Canada's largest uranium miner, Cameco Corp., energy
infrastructure giant, TransCanada Corp., and a unit of
the Ontario Municipal Employees Retirement Board.

A Finance Model Takes Shape
--------------


3. (SBU) Critical to the success of this nuclear
refurbishing deal was Bruce Power's willingness to
shoulder the full projected capital cost of C$4.2
billion. In addition, Bruce Power accepted full
liability for any cost overruns. These two elements
were critical in light of Ontario's history of racking
up over C$20 billion in nuclear cost overruns to date.
Recent refurbishing at both the Bruce and Pickering
nuclear stations turned to cost billions more than
estimated. Under the current financing deal, the
province's taxpayers face no financial risk at all. In
August 2005, the government scrapped plans to have
government-owned Ontario Power Generation (OPG)
refurbish two laid-up nuclear units at the Pickering A
station as economically not viable.


4. (SBU) In return, the province of Ontario agreed to
offer the Bruce Power Consortium a guaranteed floor
price of C$63 per MW generated - slightly below this
year's average electricity wholesale price of C$67.65
per MW. In essence, the Bruce consortium will sell
electricity into the wholesale market and qualify for
public support payments if the average annual wholesale
price of electricity drops below C$63 per MW for a
contractually fixed annual sales volume. For its part,
the government of Ontario would, if such support
payments become necessary, adjust the fixed retail
price for consumers upward. According to the Ministry
of Energy, the province will ensure that consumers pay
the "full cost" of generating electricity in Ontario.

Comment: More Nuclear Expected
--------------


5. (SBU) Ontario's move to refurbish the remaining two
nuclear reactors at the Bruce generating station is
indicative of things to come. Analysts and industry
insiders agree more nuclear power is the only way in
which Ontario can replace 25,000 MW of a total of
30,000 MW of generating capacity over the coming 15
years while making drastic cuts to emissions in
accordance with Canada's Kyoto commitments by shutting
down all of its coal-fired generators by 2009.
Insiders also believe that the financing model agreed
upon between Bruce Power and the province - already
used in various smaller Requests for Proposals (RFPs)
for green energy - is here to stay: the province will
guarantee a floor price for generators willing to
assume all market risk and invest in Ontario.

LECROY