US embassy cable - 05TORONTO2737

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, Nuclear Energy 
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