The whole idea of privatisation is to provide profits for private capital. Ontario is getting the best electricity deal that private political influence can buy.
Of course this is not the official story. The official story is that the private provision is more efficient and thus cheaper. Make sure this is said without the trace of a smile.
Auditor blasts costly Ontario nuclear deal
TORONTO -- Electricity generated by refurbished reactors at a privately operated nuclear station will cost hydro consumers in Ontario 44 per cent more than the going market rate as a result of the government's failure to drive the best deal possible, the province's auditor says.
Auditor-General Jim McCarter said in a report released yesterday he recognizes that the province was not in a strong bargaining position when it cut the 2005 deal with Bruce Power, the privately owned consortium that operates the nuclear station on Lake Huron.
As a result, his report suggests, the government made too many financial concessions at the expense of electricity consumers.
The government will pay Bruce Power 7.1 cents a kilowatt hour for electricity produced from reactors the company plans to refurbish. This is significantly higher than the average market price of 4.9 cents consumers have paid over the past five years and experts' projections of future prices, the report says.
"The province's success with . . . negotiating a reasonable price for the electricity from the refurbished units is not clear cut," the Auditor-General says.
The government announced in October of 2005 that it had negotiated a $4.25-billion deal with Bruce Power to refurbish three reactors, including two that have been idle since the mid-1990s, and replace steam equipment in a fourth. But there have been questions from Day 1 about the extent to which electricity consumers could be on the hook for cost overruns.
The Bruce refurbishment is the government's most ambitious project to address the province's looming electricity shortage. Because of the long lead time required for major projects, it was difficult for the government to negotiate from a position of strength, the report says.
Energy Minister Dwight Duncan defended the deal yesterday, saying the government has successfully transferred much of the financial risk associated with the project to the private sector.
"This was a good deal when we signed it, and it's a good deal today," Mr. Duncan told reporters. "We will get a clean supply of affordable electricity for the next 30 years."
Mr. Duncan also said the deal marks a new approach in getting idled reactors up and running because most of the financial risk will be born by Bruce Power instead of electricity consumers. The trade-off, he said, is that consumers ultimately pay more for the electricity. Cost overruns associated with previous reactor projects have left electricity consumers on the hook for about $20-billion in hydro debts.
"[Consumers] need to understand that there's no easy, cost free way to deal with the challenges we've been faced with," Mr. Duncan said.
The Auditor-General says the government negotiated a series of trade-offs that drove up the cost of electricity to 7.1 cents a kilowatt hour. He also says the province was only partially successful in transferring the risks associated with potential cost overruns on the project. He expresses concern in the report that the government did not obtain sufficient evidence to justify a late $250-million increase in the estimated cost, for which electricity consumers will be largely responsible.
The Auditor-General also questions why consumers would have to pay for any excess costs associated with replacing the steam generators, since Bruce Power's decision to do this predates the refurbishment deal with the government.
In addition to the trade-offs, the Auditor-General identifies other items that potentially could have reduced the price that will be paid to Bruce by 0.36 cents a kilowatt hour. One of these items includes a "mechanical error" in calculating the tax on interest expenses.
"At these rates, this company is making money hand over fist and it's the ordinary Ontarians paying the hydro bill who are paying for it," New Democrat Leader Howard Hampton told reporters.
He accused the government of trying to hide some costs associated with the refurbishment. "This was not an open and transparent process," he said.
Progressive Conservative energy critic John Yakabuski also criticized the deal.
Bruce Power acted in the best interests of its shareholders," he told reporters. "The auditor's reports would certainly raise some doubt as to whether the government acted in the best interests of its shareholders."
Duncan Hawthorne, chief executive officer of Bruce Power, is relieved with the report -- he had been bracing for a much harsher one. "I think it's a vindication of the deal," he said in an interview.