NB Power rejected compensation in 2002

POINT LEPREAU, NEW BRUNSWICK - The New Brunswick government and NB Power are demanding compensation from the federal government for refurbishment delays at the Point Lepreau Nuclear Generating Station, an idea that was called naïve eight years ago.

When NB Power was in front of the Public Utilities Board, the precursor to the Energy and Utilities Board, eight years ago, NB Power's lawyers and executives were asked whether the utility would be entitled to compensation if the massive refurbishment project went behind schedule.

"In the real world no one, no one covers those kinds of costs," said Terrence Morrison, NB Power's lawyer, in transcripts from the board.

"I am suggesting that in order to accept that argument the board pick out some rose-coloured glasses and put them on."

The Point Lepreau reactor is being refurbished by Atomic Energy of Canada Ltd., the federal nuclear agency. The project has run into significant engineering problems and is now three years behind schedule.

The reactor was supposed to be generating power again in September 2009 and now the latest estimates suggest Point Lepreau will not be running again until fall 2012.

NB Power estimates that delay will eventually cost it $1 billion for extra replacement energy, interest and other costs. The project was originally expected to cost $1.4 billion.

The provincial government blames AECL for poor planning and execution of the refurbishment.

Energy Minister Craig Leonard said he expects the provincial government to be fully compensated by Ottawa because of that.

On the same day, Prime Minister Stephen Harper said during a stop in Saint John the federal government would live up to its contractual obligations.

The Public Utilities Board held 14 days of hearings into the proposed refurbishment in early 2002 and then it was NB Power arguing Ottawa could not be held financially responsible for major delays caused by unexpected problems and did not commit to any additional funding.

Rod White, the former vice president of NB Power's nuclear division, said the federal government should not be held responsible for delays when asked during the PUB hearings in 2002.

"[Critics] seem to assume that guarantees and warranties from AECL should fully protect NB Power under all eventualities," White said in the hearings.

"Well, no supplier provides that kind of protection in the power generation business."

Several critics questioned NB Power and AECL claims that rebuilding the plant would take only 18 months since at the time a project of that scale had never been undertaken and they argued New Brunswick should be protected if AECL performed poorly.

This is an exchange between NB Power's Rod White and Rod Gillis, a lawyer, at the 2002 hearing:

White: "AECL specifically excluded [paying for replacement power]."

Gillis: "I know they did. Did you ask to have it put in before they wrote it out?"

White: "I think we probably would have discussed that in negotiations that our desire would be to cover that and they flatly identified that they would not include that."

Gillis: "Now did that not cause you fellows some concern that look, our contractor won't even agree to cover us for the cost of replacement power if they screw up?"

White: "As we said, you won't get those kind of coverages unless you pay a significant premium for them."

Peter Hyslop, a lawyer hired by the provincial government to represent the public during the Point Lepreau hearings, questioned whether it was wise not to have penalty provisions included in the contract.

"It is difficult for me to imagine that some part of Murphy's Law isn't going to occur during the execution of this refurbishment," Hyslop said.

"And quite remarkably, if once the reactor is torn down, things aren't quite what they appear to be then much of the [financial] problem is NB Power's."

NB Power executives dismissed those concerns as unrealistic and in testy exchanges with lawyers representing various groups defended AECL's refusal to pay for replacement power even if the job dragged on.

White said NB Power accepted AECL's refusal to pay for replacement power and made a decision to take on the risk itself because it believed the 18-month schedule was feasible.

When deciding whether to move forward with the refurbishment in 2005, the former Progressive Conservative government entertained a proposal by Bruce Power to take over the project.

The Bruce Power project would have cost an additional $450 million, which was referred to as a "risk premium."

The retubing and refurbishment contracts were not only criticized by the PUB, but also Robin Jeffrey, a nuclear expert hired by the provincial government to review the project, for leaving too much risk with the provincial government.

When former premier Bernard Lord announced the refurbishment project would proceed, he said AECL came up with between $70 million and $100 million worth of improvements to the original contracts.