Regulator warns Bruce Power

Regulator warns Bruce Power
Orders financial guarantee from British Energy unit or reactors may be shut down

By PAUL WALDIE
With files from Bloomberg and Reuters
Friday, September 6, 2002 – Print Edition, Page B1

Canada’s nuclear regulator has ordered the operator of Ontario’s Bruce nuclear station to provide a guarantee by next week that it can meet its financial obligations or the reactors could be shut down.

The future of Bruce Power LP, which operates eight reactors at the station, has been thrown into question as financial problems mount for the company’s majority owner, British Energy PLC.

Yesterday, British Energy said it faces insolvency if it does not receive a bailout from the British government. British Energy, which lost more than $1-billion last year, has an interest in 26 nuclear reactors in Britain, Ontario and the United States. The British government has yet to respond to the request but British Energy’s problems are already having an impact in Ontario.

The utility owns 82.4 per cent of Bruce Power and provides it with several financial guarantees. One key commitment is so called “shutdown money” that is required by the Canadian Nuclear Safety Commission, or CNSC.

The CNSC, which licenses nuclear operators, requires Bruce Power to set aside enough cash to operate for six months in the event the station has to be shut down in an emergency. Under the terms of its licence, Bruce Power must show the CNSC every three months that it can meet the shutdown requirement. So far, British Energy has provided the guarantee, which amounts to $222-million.

On Aug. 12, Bruce Power filed its regular report confirming the guarantee was in place. But on Aug. 29, the CNSC wrote back saying it was concerned about British Energy’s ability to meet the commitment.

The commission gave Bruce Power until Sept. 10 to demonstrate either that British Energy can still provide the money, or show where else it would come from.

The British Energy option “seems to have been denied by BE to some extent in their news release [yesterday],” said Michel Cleroux, a spokesman for the CNSC. “So, we want to know the measures that [Bruce Power] would take to supply that guarantee of shutdown money on their own.”

The commission’s “ultimate power is to take any decision necessary to ensure that the safety of the Canadian people is put first and foremost. Licences can be revoked, they can be modified, the person can be ordered to decommission or things of that nature to put it into a safe state.”

Steve Cannon, a spokesman for Bruce Power, declined to comment on what the company will do. “We will respond to [the letter] as appropriate,” he said yesterday.

The financial problems at British Energy could have other far-reaching consequences in Ontario.

The utility leased the operation of the Bruce station last year from the Ontario Power Generation, or OPG, the provincial entity that owns Ontario’s 20 nuclear reactors. Under the terms of the lease, which runs to 2018, British Energy still owes OPG $225-million and up to $102-million in annual fees for this year. (The other partners in Bruce Power are Cameco Corp. of Saskatoon, with 15 per cent, and the Power Workers Union, at 2.6 per cent.)

John Earl, a spokesman for OPG, said yesterday that the company is monitoring British Energy’s troubles but feels “quite secure with our lease.”

Mr. Earl noted that Bruce Power is one of British Energy’s best-performing divisions. In British Energy’s previous fiscal year, ended March 31, 2002, Bruce Power’s revenue was $856-million and its operating profit was $103-million.

However, four of the Bruce reactors are shut down and Bruce Power has said it plans to have two operating of them by next summer. The cost of getting those reactors running will be nearly $400-million and some analysts wonder whether that project will proceed given British Energy’s troubles. Bruce Power faces financial penalties under the lease if the reactors are not put back into service.

Tom Adams, the head of Toronto-based Energy Probe, said he is also concerned about the safety at the Bruce station given British Energy’s problems.

“When you have a financially distressed operator, starving for cash, the instinct of just ignoring one of the alarm bells and keeping a unit in service, if it is generating revenue, has got to be a more powerful incentive,” he said.

Analysts say British Energy’s problems relate in part to the government’s decision to deregulate the British electricity market earlier this year. That forced down prices the utility could charge its customers.

“It sounds like British Energy is in a lot more trouble than the market had thought,” said Philip Hollobone, an analyst at SG Securities in London.

Most analysts expect the government to offer some kind of bailout. But some say British Energy may have to file for court protection from bankruptcy first.

“The last thing the government wants is 25 per cent of the nation’s electricity disappearing overnight,” said UBS Warburg analyst Andrew Wright in London.

British Energy also said yesterday that it is considering selling its U.S. interests.