OPG's viability is at risk: Review

- It took the board of Ontario Hydro a single afternoon in the summer of 1997 to consider and approve a $1.6 billion plan to launch 66 projects that would supposedly fix Ontario's sputtering nuclear plants.

That plan, launched by then-newly hired executive vice-president Carl Andognini, continues to weigh down the financial performance of Ontario Hydro's successor, Ontario Power Generation.

An independent review on OPG's performance by accountants KPMG traces a big portion of the troubled company's financial woes back to the plan approved so quickly by then-chairman William Farlinger and the Ontario Hydro board.

KPMG says lost profits as a result of the flawed plan have put OPG in a financial bind so severe that "its viability under the current business model is in question."

OPG produces three-quarters of the province's electricity.

The plan failed to deliver $1.5 billion in expected pre-tax earnings over five years, the review concludes. And another $1.5 billion in expected profit was lost as OPG poured money into trying to restart the Pickering A nuclear generating station — a project that's three years late, with only one of four reactors running.

The bleak review comes the day after the province received another report on OPG's future from a panel headed by former federal finance minister John Manley.

It also comes as the provincial Liberals confront their promise to shut down by 2007 all of OPG's coal-fired generating stations, which produce close to 25 per cent of the province's power.

OPG said recently it is writing off the value of those plants, at a pre-tax loss of $576 million, giving it a $491 million loss for 2003.

When the plan to fix Ontario's nuclear plants was born in 1997, they were unquestionably in poor shape, with nuclear regulators even threatening to shut down some reactors.

Andognini, a U.S. nuclear expert, brought in a "Dream Team" of other U.S. nuclear consultants who set about diagnosing the problems at the reactors owned by Ontario Hydro — inherited by its successor company Ontario Power Generation when Ontario Hydro was broken up in 1998.

The team's analysis was based on the experience of rehabilitating two under-performing reactors in the U.S. — reactors that used a different technology than OPG's Candu reactors.

But only a cursory survey was done of the actual condition of the Ontario reactors.

It turned out the plants were in much worse shape than the improvement plan had assumed. By mid-1998, the cost estimate had ballooned by $600 million to $2.2 billion.

As well, it was tricky to perform extensive overhauls on the nuclear stations while keeping most of them operating. (The Pickering A and Bruce A stations were closed, but that left 12 reactors running, and they were the ones that were first in line to be overhauled.)

While restoration costs kept rising, predicted operating savings didn't materialize due to the complexity of doing major work at the remaining plants while they continued to run. The new management team had a solution for the escalating costs.

They simply assigned the over-runs to the plants' current operating budgets.

That kept the rehabilitation program on budget, but drove operating costs higher and higher.

At the Darlington and Pickering B nuclear plants, operations, maintenance and administration costs ballooned 46 per cent — roughly $1 billion — from 1999 to 2003.

Meanwhile, output from the nuclear reactors — which was supposed to grow by 45 per cent over five years — dropped 33 per cent.

When OPG began the task of bringing the mothballed Pickering A station back into service, the same problems reared their heads.

The project's costs — originally thought to be under $1 billion, then approved by the board at $1.3 billion — mounted steadily because of poor planning.

The latest estimate is that if OPG decides to complete the Pickering project — now three years behind schedule and with only one of four reactors operating — it could cost $4 billion, or $2.7 billion over the original approved budget.

The Dream Team also failed to tackle many problems they themselves had identified. A report released last year by current OPG chairman Jake Epp said the Andognini team had found in 1997 that managers weren't accountable for their actions, work goals were unclear, teamwork was poor and managers ignored subordinates.

In 2001, when Andognini and many of the team had left, all those problems remained unresolved.

The provincial government added to the problems, by leasing the Bruce nuclear station to a private partnership, and by forcing OPG to rebate a portion of revenue to customers — neither of which had been included in the original business plan.

New Democrat MPP Peter Kormos (Niagara Centre) said the KPMG report further demonstrates "that nuclear power is not the way to go, it's been an incredibly expensive boondoggle."

Tom Adams, of Energy Probe, said the report shows nuclear power is an albatross around OPG's neck.

Sean Conway, a former Liberal MPP now with the law firm Gowlings, was stunned by the analysis.

"We were in a serious situation seven years ago," he said. "Now we're told we've basically lost the better part of seven years, we've spent billions of dollars and we're worse off."