Looking to lower Ontario power rates? Start with Pickering, where $550 million will be wastefully spent

The economic argument to keep Pickering open past 2020 relies on an analysis that requires some far apart stars to align. 

This article first appeared in the Financial Post

Brady Yauch, Special to Financial Post | March 28, 2017

Queen’s Park has been busy looking for ways to lower hydro bills for irate ratepayers, ​but it has missed the elephant in the room — the Pickering nuclear plant.​

Pickering was initially planned to close in 2020, but Ontario Power Generation (OPG) — the provincially owned generation company — is now proposing to spend more than $300 million to keep four of plant’s units running until 2024 and two until 2022. While OPG and the province’s energy planning agency say that keeping the reactors running for four more years will be a net benefit to ratepayers, those “benefits” are built on sand. ​Feeding this white elephant could easily cost ratepayers more than half a billion dollars.

First, there’s the simple fact that, according to OPG’s own study comparing the performance of its nuclear reactors to others in North America, Pickering is a worst-in-class generator. When benchmarked against other nuclear facilities, Pickering’s six reactors consistently come in dead last or near the bottom of the pack in terms of reliability and cost.

Two of Pickering’s six reactors rank dead last on a key performance measure known as the “unit capability factor,” which measures the amount of power a generator produces compared to its nameplate generation. None of Pickering’s other four reactors land in the top half of the table. OPG even admits that, given Pickering’s design, it will never be anything more than a laggard in terms of performance when compared to other nuclear plants.

Pickering also rarely meets its generation targets. In OPG’s recently released 2016 annual report, Pickering’s time spent offline was higher than originally forecast.

 Not only do Pickering’s nuclear reactors perform poorly, but they do so at high cost. According to OPG’s benchmarking study, the average all-in cost for each unit of power from Pickering is more than 70 per cent higher than power produced at the top performing nuclear plants across North America and more than 50 per cent higher than the median cost. Pickering’s power is also 50 per cent more costly than generation at OPG’s other nuclear plant, Darlington.

Yet, OPG maintains Ontario ratepayers would benefit by keeping the poor-performing, high-cost Pickering units open for longer.

The main justification to do so is largely based on a cost-benefit analysis done by the province’s energy planning agency, the Independent Electricity System Operator (IESO). IESO’s analysis is larded with a number of assumptions that, just a year and a half later, look optimistic and tilted in Pickering’s favour.

For example, the analysis compares the cost of power from Pickering to natural gas generators based on a gas price that — using current market expectations on future prices — is far too high. Still, even with those aggressive assumptions on future gas prices (and excluding cap and trade costs), at the time the analysis was completed in 2015 IESO concluded there was a 70 per cent chance that extending the life of Pickering would impose a net cost, rather than an economic benefit, on ratepayers. If IESO were to re-run the model using the market’s current forecast for gas prices, the probability that Pickering would be a drain on ratepayers would be even higher and could wind up imposing a net cost exceeding $550 million.

If a number of other optimistic assumptions in the analysis — regarding operating and capital costs, as well as performance metrics that ignore Pickering’s dismal track record on meeting its own production forecasts — were updated, they would also show that Pickering is more likely to be a drain on ratepayers. Yet, neither OPG or the Ontario Energy Board, the provincial rate regulator, has asked that the planning agency rerun the model in an effort to see if extending the life of Pickering still makes economic sense. Instead, the power system will be spending hundreds of millions of dollars in the next few years on necessary upgrades to keep it running.

Furthermore, IESO admits that generation from Pickering would only be needed during a few hours of “peak” demand each year. Yet, due to the nature of nuclear technology that makes it difficult to turn on and off, the reactors would produce unneeded power throughout the year and contribute to Ontario’s ongoing power surplus.

The economic argument to keep Pickering open past 2020 relies on an analysis that requires all of the stars to align. Unfortunately for ratepayers, since that analysis was completed, the stars have moved further apart. If the province wants to find ways to legitimately reduce costs in the province’s electricity sector, it could start by dumping Pickering.

Brady Yauch is an economist and executive director at the Consumer Policy Institute

OPG Responds: Pickering is a boon to Ontario, says Ontario Power Generation CEO

I read with interest the Consumer Policy Institute op-ed “Pickering picks pocketbooks” by Brady Yauch that appeared March 28 in the Financial Post. Yauch criticizes the province’s proposed continued operations of the Pickering Nuclear Generating Station.

Today, Ontario relies on nuclear power to provide 60 per cent of its electricity generation. The plants at Darlington, Pickering and Bruce have excellent performance and safety records. Nuclear is Ontario’s best option for cost-effective, greenhouse gas emissions-free, reliable baseload generation and has been a critical resource in ensuring clean air for Ontarians. In addition, nuclear power provides a valuable boost to the Ontario economy.

OPG is committed to ensuring public safety and makes every decision with this commitment in the forefront. Our nuclear operations are independently evaluated by the Canadian Nuclear Safety Commission (CNSC). Pickering operations received the highest possible rating of “Fully Satisfactory” from the CNSC in 2016. This demonstrates Pickering’s high level of station operating performance.

The six operating nuclear units at Pickering meet about 14 per cent of Ontario’s annual electricity demand. Pickering generation comes at a cost lower than almost all other sources of energy. Continued operations will save Ontario customers $600 million and reduce greenhouse gas emissions by 17 million tonnes over the period from 2020 to 2024. Its value has been affirmed numerous times by the Ontario government. Continued operations of Pickering will support the refurbishment of the Ontario nuclear fleet.

Yauch argues that Pickering’s historic performance has lagged other nuclear plants in Ontario and the U.S. The evidence on comparable performance is currently being reviewed through the open and transparent Ontario Energy Board hearing process. However, it is important to point out that the case for continued operations at Pickering is based on comparing the nuclear plant to the realistic alternative of natural gas fired generation rather than an arguably higher performing nuclear plant elsewhere.

Yauch cites a report submitted to the OEB hearing by the Independent Electricity System Operator (IESO) which found that Pickering continued operations would have an expected net benefit to Ontario ratepayers. Yauch argues that the analysis relies on too high an assumption for natural gas prices and indicates that there is a 70 per cent probability that Pickering continued operations could result in a net cost to ratepayers. However, as Yauch notes in his article but then ignores, the IESO analysis does not incorporate a price of carbon. Based on recent government initiatives, $20-$50 a tonne would be a conservative range of carbon prices over the period to 2024. Incorporating a realistic carbon price in the analysis would add one to two cents per kWh to the cost of natural-gas-fired generation, further improving expected ratepayer benefits of continued operations at Pickering.

It would be almost impossible to replace the 3,000 megawatts of capacity and 14 per cent of annual generation provided by Pickering before 2024 with new natural gas plants and hydro imports from Quebec. Natural gas produces significant carbon emissions and new plants are difficult to site. Assuming they had enough power to send us, hydro from Quebec would require large, long lead-time investments in transmission, generation and interconnection investments that would make purchases from Quebec more expensive than Pickering’s continued operations.

OPG continues to invest in and improve Pickering Nuclear’s performance to ensure this important source of baseload electricity is available for Ontario during the nuclear refurbishments.

Jeffrey Lyash is president and CEO, Ontario Power Generation.

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