Decision Point Lepreau

12 May 2004

Point Lepreau nuclear power plant provides about 30% of the Canadian province of New Brunswick’s energy but will be forced to shut down in around 2010. If it is refurbished, at a cost of about C$1.4 billion ($1.0 billion) it could continue to operate until around 2029.

In April, Robin Jeffrey, the former president of Bruce Power and former chairman of British Energy, delivered his report, the Point Lepreau Refurbishment Review to the province’s energy minister, Bruce Fitch. In it, he states: “There is no significant economic advantage to the proposed refurbishment project” when compared to building equivalent generation capacity in the form of a natural gas combined-cycle station. The review’s recommendations propose a re-think of the proposal based on new contracts and more accurate comparison to gas generation costs.

THE PROJECT

Point Lepreau is a single unit plant with a 635MWe Candu 6 that first produced power in September 1982. It is operated by New Brunswick Power (NB Power). The work to be carried out consists of a refurbishment part and a retubing part. The retubing involves the replacement of all reactor calandria tubes, pressure tubes and a section of feeder supply pipe, described as ‘at risk’ (see NEI April 2002, p22). The work is intended to be carried out with the reactor in service and, following these engineering contracts, there is a plant performance contract and a Candu Operations Support Services (COSS) contract.

THE CONCERNS

A high priority for Jeffrey seems to be deflecting in advance any comparison between this project and the problematic Pickering A unit 4 restart project (see NEI April 2004, p51). He notes: “Concern has been expressed on the potential implications of the recent adverse experience in Ontario.” But, crucially, NB Power has developed a detailed project implementation plan and secured an experienced general contractor – AECL, the design authority for Candu stations – and firm agreement on contract prices. Jeffrey is happy that management strategies are in place to avoid all the potential pitfalls highlighted by Pickering.

Although the review concludes that the choice of AECL for the retubing and pipe replacement contracts is appropriate, the terms of the contracts, negotiated in a non-competitive environment, unduly favour AECL and the business case for the COSS contract “seems ill thought out.”

If, for example, poor performance from AECL leads to delays in the completion of the project, AECL’s penalties would be limited to C$250,000 ($180,000) per day and capped to C$10 million ($7.3 million) – equivalent to a 40-day delay. Over such a delay, however, NB Power’s interest and replacement energy costs would come to about C$30 million ($21.9 million).

In addition, AECL would be eligible for a bonus payment if the plant achieved a capacity factor above 80% for the first 15 years after the refurbishment, with the level reduced to 75% for later years. This seems over-generous to AECL as Point Lepreau has achieved at 83% capacity factor over the last 20 years and NB Power’s economic case for the project is based on a capacity factor of 89% over 25 years.

According to Jeffrey’s analysis, the costs of the project have been underestimated by about C$260 million ($190 million). On top of the C$1.14 billion ($830 million) detailed to the New Brunswick Board of Commissioners of Public Utilities hearings in 2002, he includes costs which will be incurred during the plant’s extended life and a further contingency sum, pushing the total to C$1.4 billion.

Considering a range of scenarios based on the new figures, the review concludes that the previously assumed C$118 million ($86 million) advantage of the Point Lepreau project over a new gas-fired plant is reduced greatly, and in the case of a large cost overrun on the Point Lepreau project, gas is the clear leader, leading to the conclusion: “Refurbishment has no clear advantage over the construction of a new fossil plant of equivalent capacity.” However, gas generation prices included in this part of the analysis were based on general business models, not negotiated binding commercial contracts as the refurbishment costs were.

Beyond the refurbishment, the report asserts that NB Power’s board does not have sufficient nuclear experience and that the firm should focus on improving plant performance through implementing INPO/WANO methods, even considering “options for alternative ownership structures” including lease or partnership.

Explaining that it is presently hard to see the way forward, the review’s main recommendations are to gather the necessary information for the government of New Brunswick to make a decision. First, the AECL contracts should be renegotiated to a fixed price basis and the COSS contract simply terminated. They are not considered to be in the public interest.

NB Power should ensure that there are the necessary skills, experience and leadership for the project. A nuclear committee should also be established and chaired by an independent nuclear expert.

NB Power should invite competitive bids for 635MWe of new capacity to provide clear and factual comparison for the benefits of the refurbishment project and at the same time solicit expressions of interest from nuclear utilities in leasing and whole or part ownership of Point Lepreau.

The review also calls for further reviews: of the province’s electricity requirements, the importance of non-economic issues such as the diversity and security of energy supply and the appropriateness of including replacement electricity costs in the project’s budget.

It is hoped that, by the autumn of this year, the government of New Brunswick will be in a position to make a final decision.




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