NB Power’s troubled nuclear power program is about to have a dramatic impact on the utility’s profitability and provincial power rates.

After pursuing an aggressive accounting policy that hid from ratepayers about a fifth of the province’s wholesale electricity costs over a period of more than 4 years, NB Power is now showing the bill to the people of New Brunswick. The bottom line, presented on Monday of this week to the Energy and Utilities Board — New Brunswickers are on the hook for $989 million in unpaid bills for operating costs swept under the rug over the last 4 and a half years. This is on top of the $1.4 billion paid by the utility for the refurbishment itself. The utility’s proposed solution to this mess is to send as much of the bill as possible out 25 to 30 years into the future.

The $989 million arises from the replacement power and other routine operating costs associated with the refurbishment of the Point Lepreau Candu reactor located south of Saint John. The utility’s troubled Point Lepreau station was taken off-line for an 18-month refurbishment in the Spring of 2008. When a regulatory inquiry on the refurbishment was conducted in 2002, the utility estimated the cost of the job at $836 million. The current estimate is $2.34 billion and the reactor is not yet back in service. More history on the refurbishment and the decisions leading up to it, including my role in warning the province’s utility regulator to recommend against the risky project, can be found here.

The main contractor on the job was then federal Crown-owned Atomic Energy of Canada Ltd. AECL’s reactor business was sold for a price of approximately zero by the federal government last year to the engineering giant SNC Lavalin. In response to persistent demands by New Brunswick for a financial bailout, the federal government has consistently said it will honour all of AECL’s contractual obligations on Lepreau. As agreed to by NB Power and the government prior to the refurbishment, those obligations did not include replacement power costs or guarantees the job would finish on time. Federal taxpayers have already incurred massive losses on the Point Lepreau refurbishment project.

NB Power has a long history of wacky accounting, funny-if-it-weren’t-true dealings with Hugo Chavez over Orimulsion, nuclear problems, and massive losses that it occasionally discloses. No utility I know of uses similar accounting tactics to conceal its replacement power costs as has been used in the Point Lepreau refurbishment case. The principle architect of the accounting plan and refurbishment contract was David Hay, later to become a vice president at CIBC. Mr. Hay claimed to have turned around the utility’s profitability.

After a generation of being told that Point Lepreau is one of the top nuclear power stations in the world, some New Brunswickers might be surprised to learn that the only detailed benchmarking analysis available on the public record prepared by qualified nuclear benchmarking experts ranked the Point Lepreau reactor during a stretch of three years prior to refurbishment as one of the absolute worst reactors in North America, a class of performance populated in total by the oldest Candu reactors. I have commented previously on this benchmarking analysis here.

The operating costs per unit of production for the Point Lepreau Candu station once it returns to service, assuming it runs like a Swiss watch, appear likely to be approximately equal to the value of power at the NB/Maine border. Recovery of the sunk refurbishment costs appears likely to approximately equal the operating costs, assuming that the reactor operates well for a period of about 15 years — an assumption that can only be characterized as aggressive.

Another credible scenario is that Point Lepreau operates at the efficiency and cost of the Pickering A reactors in Ontario. Pickering A and Point Lepreau have many design similarities and a similar refurbishment experience. Should that scenario materialize, ratepayers in New Brunswick would be far better off in the long run by shutting the reactor down and eating all the outstanding liabilities. In making this recommendation, I am painfully mindful that the sums involved would not divide neatly across the 352,000 citizens working in the province.

As I discussed on radio station News 919 Moncton with Tyler McLean this morning, the Public Utilities Board in New Brunswick faces a daunting task in determining the appropriate time period over which to spread the now sunk costs for the failed Point Lepreau refurbishment.