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Parker gallant on Big Becky: what is THAT going to cost you?


The big hole where your money goes


In February 2010 an article penned for the Financial Post I disclosed that the Ontario Power Generation’s OPG) new Niagara tunnel (“Big Becky”) was not only running late but had incurred substantial cost overruns—in excess of $600 million, in fact.
The effects of that overrun have not affected our electricity prices yet, but the writing is now on the wall based on the OPG application of September 27, 2013.  The increases requested in that rate application by OPG, if approved, will increase electricity rates by at least $6-7.00 per month ($72-84.00 annually) for the average 800-kilowatt (per month) consumer.   According to the submissions to the Ontario Energy Board (OEB), all of OPG’s “regulated” hydro rates will increase from 3.9 cents per kilowatt hour (kWh) to 4.4 cents per kWh due to the costs of the tunnel.  One-half a cent doesn’t sound like much, but when you consider that in 2012, OPG produced 18.5 billion kWh of unregulated hydro, it is time to bring out the calculators.
That overrun effectively means OPG is seeking to recover about $96 million annually for the cost of “Big Becky” for the next 50 years (amortization period), which equates to $4.6 billion for a tunnel originally estimated by OPG in the business case presented to their Board of Directors in 2005, to cost $873 million. It has cost 70% over that amount.
OPG is seeking approval for the foregoing as a rate increase for their “regulated” hydro as Big Becky is classified; that means it is considered “baseload” generation and its cost of production will be close to 10 cents a kWh.  At the same time they are also seeking approval for an even larger increase in their “unregulated” hydro which could generate as much as $300 million and was the cause of the media focus when they discovered the application.  The “anti-nuclear” lobby painted it as a rate increase related to OPG’s nuclear refurbishment plans, which was a false premise.
What the cost overrun on “Big Becky” demonstrates is that oversight at Queens Park is sadly lacking in the energy portfolio.   It is disconcerting to realize that this project was $600 million over budget, yet to the best of the writer’s knowledge no OPG employee or Board member was castigated or lost their job. A private sector firm would investigate and allocate “cause” to one or several individuals in the event a project of this size exceeded budget by a factor of 70%.
Perhaps it is time to privatize the electricity sector as the private, but regulated, natural gas sector has demonstrated they can do a much better job.
©Parker Gallant                                                                                                                                           January 25, 2014
The views expressed here are those of the author.
Reposted from Wind Concerns Ontario windconcernsontario.ca