Axe falls in nuclear 'mess'
Top executives are out and rising power prices are likely
amid huge cost overruns at Pickering plant
Globe and Mail - December 5, 2003
by Richard Mackie, with reports from Eric Reguly and Canadian Press
Ontario's new Liberal government abruptly ousted the three men who
have been running the province's major electricity company yesterday
after a report said they were responsible for massive cost overruns
in the rebuilding of the troubled Pickering nuclear generating station.
The report said mistakes made by the three executives and the former
Progressive Conservative government will lead to both rising prices
and less reliable supplies of electricity.
Energy Minister Dwight Duncan, who must ensure that Ontario has
enough electricity to heat and light homes and businesses, echoed
the report's conclusion that the unhappy performance of the
electricity company, Ontario Power Generation, on the project has
been "alarming."
"It is a horrible mess," Mr. Duncan said.
The committee that did the report found the errors pushed the likely
cost of rebuilding Pickering's four reactors to between $3-billion
and $4-billion from an estimate four years ago of $1.1-billion.
The dismal findings mean the Liberal government must decide whether
to spend another $1.75-billion to $2.75-billion to continue
rebuilding three of the four units at Pickering A, the province's
oldest nuclear-powered electricity-generating installation.
After the report was released, Mr. Duncan announced that the
government had accepted the resignations of OPG chairman William
Farlinger, chief executive officer Ron Osborne and chief operating officer Graham Brown.
The ousting of the top brass took out a team the Conservatives
brought in after they assumed office in 1995.
Mr. Farlinger, a successful businessman, is a friend and political
adviser to former premier Mike Harris. He was hired to turn the
company around and improve efficiency. The Tories recruited Mr.
Osborne, a veteran of Bell Canada, to build OPG into a major
supplier of power in North America.
Richard Dicerni, who joined the Ontario public service 11 years ago
after 20 years in the upper levels of the federal public service,
was named acting chairman. He has been an executive at OPG for the
past five years.
Mr. Duncan said the government also will take direct control of OPG,
limiting the power of the board of directors and ensuring that major
decisions are approved by the government, OPG's only shareholder.
Mr. Osborne criticized the government's insistence on direct
control. "This is not a board issue," he said. "Any board is as good
as the information it gets. If I were a board member of OPG, I
wouldn't have done anything else."
Mr. Osborne said he accepted the report's conclusions.
"I'm not trying to duck that," he said, adding that he offered to
resign a year ago.
OPG is responsible for supplying about 75 per cent of the
electricity used in Ontario. It is a successor company to Ontario
Hydro, and the companies have a history of running projects that
incur major cost overruns, such as the Darlington nuclear station.
That history is continuing, concluded the report of the three-member
committee headed by former federal energy minister and long-time
Progressive Conservative MPP Jake Epp. It blamed the former
Conservative government and its managers at Ontario Power Generation
for the costly mistakes at Pickering.
"The mismanagement ran up the bill," Mr. Epp said.
Starting in August, 1999, the board approved "11 different cost
estimates that took the estimated total project cost to
approximately $2.5-billion," the report noted.
"From the outset, OPG failed to recognize the full scope and complexity
of the project and was too slow to put in place the appropriate project
management and accountability mechanisms," the report said.
Mr. Duncan said the government's plans for ensuring future supplies
of reasonably-priced electricity will be announced in the near
future. If the three units are rebuilt successfully, they would add
about 1,500 megawatts to OPG's potential output. That would provide
about 6 per cent of the province's basic electricity requirement.
One of the four units was restarted on Sept. 24.
"We inherited a mess. We inherited a system where there is no
security of supply, no reliability of supply, prices that were fluctuating
all over the map," Mr. Duncan told the legislature.
Conservative MPP Cam Jackson didn't dispute the report's "sombre findings."
The rebuilding of the Pickering A plant was supposed to remedy
serious deficiencies in reliability and safety that surfaced in 1996 and 1997.
The outdated design of the 30-year-old nuclear generators and years
of inadequate maintenance had resulted in a plant that performed at
about 36 per cent of capacity in 1996.<,/p>
To bring the plant up to date, the government and the board of
directors agreed to a plan to enhance safety systems, including
increasing resistance to earthquakes, to increase emergency shutdown
systems, to add new control rooms and to install equipment to
prevent copper and zinc from escaping into Lake Ontario along with
water released from the reactors.
But the three-member committee determined that, "From the outset,
OPG failed to recognize the full scope and complexity of the project
and was too slow to put in place the appropriate project management
and accountability mechanisms."
"The delay in the return to service of Pickering A has adversely
affected Ontario's electricity sector and pushed up prices for
residential and business consumers," said the committee.
The committee includes former cabinet secretary Peter Barnes and
Robin Jeffrey, who has an extensive background in nuclear energy in
Britain and in Canada.
The Pickering Indictment
From the report on the troubles at the idled Pickering plant,
Pickering "A" Nuclear Power Plant review report, from the review committee:
'Fundamental failures were evident in all of the areas related to
project management, including the failure to sufficiently plan the
restart project, as well as to put in place the necessary processes
to monitor progress effectively.'
'The government and senior management of OPG should have exercised
greater oversight over the project's economics and execution and
responded more quickly to emerging problems'
'The facts are alarming, but they are not the only price paid. The
delay in the return to service of Pickering A has adversely affected
Ontario's electricity sector and pushed up prices for residential
and business consumers.'
"Perhaps most seriously, faith has been compromised in the
affordability and certainty of the supply of electricity vital to
Ontario's citizens and businesses.'
Ousted: OPG Chairman William Farlinger
The 74-year-old chairman of Ontario Power Generation, a close
associate of former premier Mike Harris, was appointed to OPG
predecessor Ontario Hydro in 1995. He had been chairman and CEO of
Ernst & Young.
2002 salary: $250,000, plus undisclosed benefits.
Ousted: OPG Chief Executive Officer Ron Osborne
The 57-year-old chief executive officer took up his position in
1998, just before Hydro was divided up and a few months after
Pickering A was shut down. He has also been CEO at Bell Canada and
Maclean Hunter.
2002 salary: $850,000, plus $100,776 in compensation.
Ousted: OPG Chief Operating Officer Graham Brown
The 46-year-old chief operating officer joined OPG in 2000 from
National Power PLC in the U.K. He also served at British Petroleum,
and was seconded to the British Prime Minister's Office.
2002 salary: $750,000, plus $805,340 in bonuses and $84,660 in other
compensation.
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