The Great Equalizer: Nuclear Power and Canadian Electricity

MR. DERRY:

Distinguished guests, members, and friends of The Empire Club of Canada: In our current times, so often described as the nuclear age, few descriptive words result in such diverse and emotion-packed feelings as that word nuclear. Whether we use the word in discussing the unparalleled risks related to nuclear weapons, or when talking in the completely different sociological sense of the nuclear family where such widespread adjustments are required, the implications are fundamental and affect us all. This concern and debate also certainly surrounds the question of nuclear power.

At the present time, approximately one-third of Canada's energy needs are provided by electricity, of which more than half is provided from hydroelectric sources, approximately one-third by thermal, or coal-fired, plants, and the remainder - approximately 7 per cent of generating capacity - from nuclear plants. Yet, in the next decade, the major growth in electrical capacity will be in the nuclear area - capacity is expected to almost triple. Thus, overall in Canada, nuclear power is presently small in relation to total energy sources, but it is certainly projected to be the growth area. This is in sharp contrast to current attitudes in the United States, where no nuclear reactors have been built in the last five years, and where more than forty have been shut down during that same period.

The reasons put forward for increased dependency on nuclear power range from its low cost through environmental reasons such as acid rain reductions as our reliance on coal-fired stations is reduced. However, there is increasing concern in the aftermath of the Three Mile Island accident and the current pressure-tube problems at Pickering - I expect Mr. Nastich feels jinxed every time he hears the words "pressure tube" - as to whether in the long term nuclear power is indeed cheaper, whether it is environmentally better in terms of disposal of highly radioactive nuclear waste, and above all, whether it is safe.

To address these matters today, we have a man who is intimately familiar with the relevant issues through his responsibilities as interim Chairman, President, and Chief Executive Officer of Ontario Hydro. His being willing to address the question of nuclear power, which is currently getting so much attention, and which is of such interest to us all, is particularly appreciated.

Milan Nastich has an extensive background in the electrical energy field. He has been with Ontario Hydro since 1949, when he started as an electrical planning engineer in the systems planning division. Since that time, he has held increasingly senior positions in almost every area of the organization, culminating in his appointment as President three years ago. Last April, his responsibilities were increased further with his appointment as interim Chairman.

In the current year, Mr. Nastich is also President of the Canadian Electrical Association. The CEA is the national grouping of the electric utilities across Canada, representing an industry with more than $50 billion invested in plants and employing over eighty thousand people.

I am pleased to welcome Mr. Milan Nastich to address us today.

MR. NASTICH:

Mr. President, ladies and gentlemen: You have probably heard a thousand times over that Canadians are the biggest energy users in the world. I guess that's true, but in our defence, let me say that we've got a punishing climate and a land which, while rich in resources, doesn't always give them up easily - or equally. But Canadians do cope and cope well.

Canada is a large country with enormous geographical variations. From our pioneering days, different parts of Canada have learned to cope by relying on regional resources. The development of our provincial electrical utilities has evolved in that way, too. Because of variations in geography, we generate electricity differently in different parts of Canada.

Take, for example, my own home province of British Columbia. BC Hydro relies almost exclusively on hydroelectric power. Neighbouring Alberta, on the other hand, uses coal to meet most of its electricity needs. Ditto for Saskatchewan. Manitoba, Quebec, and Newfoundland are basically hydroelectric utilities. Ontario has a mix of nuclear, coal, and hydroelectric, while the Atlantic provinces rely on coal, oil, and more recently, nuclear energy.

If someone told me that a group of industries used totally different raw materials in their production process, I'd figure that they'd have quite different kinds of problems. Well, that's not the case. The surprising thing is that Canadian utilities face remarkably similar challenges - namely, surplus generating capacity, financial capability, and transmission.

The first challenge is surplus generating capacity. Over the past year or two, a number of Monday-morning quarterbacks have been criticizing utility planning. That's fair enough, but perhaps they'd get a different perspective if they were in the utility's shoes for a while. No matter how you decide to generate electricity - coal, hydroelectric, or nuclear - it takes a dozen years or so to plan and build a generating station. A lot can happen in twelve years, and usually does. During the time it takes you to build a station, you can go through three or four business cycles of recession and recovery, high growth and low growth. During each cycle, there are up phases and down phases. Demand keeps fluctuating but the size of the generating station you're adding to your system cannot. So it's tough for a utility to know exactly how much new capacity to add ten years down the road. We know that we must always have enough, but sometimes we get caught with too much.

That's what has happened. The demand for electricity in Canada had been increasing rapidly up until a few years ago. Now the growth in demand in all provinces - except perhaps Alberta - has dropped off dramatically. The result is that most of the utilities in Canada now find themselves with surplus generating capacity.

Only in Canada, you ask? By no means. The situation across the border is much the same, especially in the northeastern part of the United States. There's little sense in pointing the finger at British Columbia or Manitoba or Ontario Hydro. Just about everyone finds himself with surplus generation these days. The growth in demand has dropped off the fastest here in Ontario where industrial utilization usually runs at about 80 per cent. Now, it's down around 66 per cent. The good news is that as the industrial sector recovers, industrialized provinces like Ontario can look forward to growth in electricity demand. The second challenge facing Canadian utilities is financial capability. Electrical utilities are capital-intensive industries. Generating stations and other major projects are largely financed by borrowing. Such facilities take a long time to build, and are very expensive. As a project is built, the debt accumulates, but customers don't start paying for it in their power rates until the plants come into service. The result is that utilities have high debt.

High debt does not necessarily mean high rates, by the way. Often the reverse is true. You can minimize debt by not upgrading your facilities, by continuing to rely on old and dirty and costly generating stations. A utility which did that would keep debt low, but its fuel costs would be enormous, and rates would be high.

So where does debt fit into a utility's financial well-being? We must keep in mind that a utility doesn't borrow just to carry on business. It borrows to acquire new facilities which will produce additional power and generate additional income. Or it borrows to build new and efficient facilities to replace old and inefficient ones.

Financial analysts have long recognized that the level of debt is not the only important thing. Equally important is what a utility owns, how well it can sell its products in the market place, and what its prospects for future earnings look like. It's worth noting that Canadian utilities are consistently rated as very credit-worthy by American bond-rating services.

One indication of financial soundness is the debt-equity ratio - the proportion of what a utility owes to what it owns. Maintaining a desirable debt ratio is one factor utility planners have to take into consideration when arranging future additions and borrowings.

The third challenge is transmission. Generating electricity is only half the problem. You've got to get it to the people who use it. Geography has been very kind in giving Canada the resources to generate power. It has been less kind in throwing up barriers to transmitting it. Sources like James Bay or the Nelson River or Churchill Falls are not close to major markets for electricity. And distributing power to a population of twenty-five million people spread out over four million frozen and wind-swept square miles remains an engineering challenge.

Right now, strengthening transmission is a major priority. BC Hydro wants to strengthen its link to Vancouver Island with an underwater connection; Hydro-Quebec hopes to improve the reliability of its major links with the James Bay development; Manitoba Hydro wants better transmission to the south; and here in Ontario, we expect to complete new transmission in southwestern and eastern Ontario so that customers get full and reliable access to the power from the new stations Ontario Hydro is building.

In spite of these potential problem areas, the Canadian electrical industry has consistently produced electrical power at rates that compare very favourably to other countries. Your typical residential electricity bill in a major Canadian city is $40 to $45 a month. In comparable American cities, you could expect to pay $60 to $70, or more. Naturally, I'm biased, but I think Canadian rates are very reasonable. And I think it's a sign that we're doing something right when Canadian electricity bills from province to province don't vary that much - not nearly as much as from state to state in the United States, for example.

The secret of our success - and I think it fully deserves to be called a success - is that each province has gone about developing its own cheapest source of power. British Columbia and Quebec have been blessed with hydroelectric resources, which they're developing. There are large low-sulphur coal deposits on the prairies, and that is what utilities out there are using.

Nuclear power also fits into this Canadian philosopy of relying on indigenous provincial resources. Let me review for a moment how and why Ontario decided to build nuclear power stations.

In the first half of the century, Ontario Hydro developed Niagara Falls and dozens of other hydroelectric sites. Then, in the 1950s, with the most accessible and economic hydraulic sites already tapped, the province began to build coal-fired stations to meet growing demand. The provincial government, the Government of Canada, and Ontario Hydro recognized the potential of using uranium in combination with heavy water to generate electricity. So they collaborated on developing demonstration Candu reactors to see if that potential could be brought into reality. As the Candu system proved itself safe, reliable, and economical, Ontario Hydro decided in the sixties to build nuclear power stations at Pickering and Bruce.

The success of the Pickering and Bruce stations has been remarkable. They now meet one-third of the province's electricity needs at two-thirds the cost of coal generation.

I like to think of nuclear power as a great equalizer and as proof that provincial energy-resource development in Canada has worked well for us. Nuclear power gives provinces with no indigenous coal or hydroelectric resources an economic alternative to gas or oil or imported coal.

For the next few minutes, I'd like to talk about the recent pressure-tube crack at Pickering. As you will recall, back on August 1, one of the pressure tubes in Unit 2 cracked, spilling heavy water on the reactor floor. Like many people, you may be wondering what that means for the future of nuclear power. Is this an ominous sign of trouble ahead for the Candu system? Is the public in danger? What does it mean to your hydro bills - can we still afford nuclear energy?

Unlike several other incidents that have happened over the past few months at our nuclear stations, the pressure-tube crack was a significant and unique problem. We still don't know what caused the tube to split. What we do know is that all radioactivity was contained and that the operators efficiently shut down the reactor without any of the back-up safety systems having to come into play.

Hydro never doubted that a pressure-tube crack, or an incident far more serious, could be handled safely. Far from calling into question the integrity of the design, the pressuretube crack confirmed our confidence in the system.

I'd like to point out that no one - and certainly not Hydro engineers - ever expected the Candu to be problem-free. It was designed by humans, built by humans, and it is run by humans. Mistakes and breakdowns will happen. But the Candu reactor has perhaps the most extensive back-up safety systems of any industrial process.

Pressure tubes are the hardest-working parts of the reactor. In the original Candu design, Hydro thought tubes would have to be replaced in about ten years, or perhaps twice over the working life of the reactors. But experience with the larger Candus gave cause to expect that with some adjustments, the tubes might well last twenty years or longer.

Anyway, the idea of replacing pressure tubes wasn't born this summer. It was built into forecasts of the economics of nuclear power. Hydro knew its reactors would have to be shut down for tube replacement. It has just been a question of when. The crack in one of the 390 tubes in the twelve-year-old Pickering reactor may have given the first hint of an answer. But I must emphasize the jury is still out because all the data is not in.

What will it all mean to hydro bills? Since we don't yet know what caused the crack, we don't know whether we're looking at replacing one or two tubes or accelerating the replacement of all tubes in Pickering Units 1 to 4 and Bruce Units 1 to 3.

The costs would vary accordingly. But if all had to be replaced sooner than expected, the average hydro bill would go up about sixty cents per month for ten years, starting in 1986. But since there wouldn't be retubing in the 1990s, there would be a sixty-cent a month reduction, beginning in 1997.

Early retubing would be a major and costly project. As you can see though, it wouldn't have major effects on most people's power bills. Nor would it alter the fact that nuclear energy is by far the most economic alternative to coal generation. It costs Ontario Hydro a million dollars a day more to get the same power out of the Nanticoke coal-fired station than to run the Bruce nuclear plant. The cost of early tube replacement pales beside the cost of imported coal.

I think it would be most unfortunate to allow the tube crack to erode Canadians' confidence in nuclear energy and Candu technology. No one would scrap an otherwise sound car just because the piston rings needed replacing.

Canadians have shown a strange tendency to deride some of their proudest accomplishments. The Candu system certainly ranks in that list. The Candu reactor has proven itself second to none. The best engineers and scientists designed it and developed it. Nuclear power is a young technology, but not an unproven one. Year after year, in study after study, Candus have shown themselves to be the best in the world for reliability and performance.

Without the cost benefits of nuclear energy, Ontario could put itself out of synch with the electricity rates in the rest of this country. That would jeopardize Ontario's position as the industrial heartland of Canada. Nuclear power is an important part of Canada's diversified energy mix, and it has found, and will continue to find, a well-earned place as an equalizing force on the electric power scene.

The appreciation of the audience was expressed by Harry T. Seymour, Second Vice-President of The Empire Club of Canada.