The Future of Electricity Generation

Remarks by

G. Carl Andognini

Executive Vice President & Chief Nuclear Officer

Ontario Power Generation Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wednesday, October 20, 1999

Department of Chemical Engineering and Applied Chemistry

University of Toronto

 

 

 

 

Thank you for that kind introduction.

This afternoon I’m going to deal with a large question, the future of electricity generation. In my opinion, nuclear power will continue to play an important role in electricity generation in Ontario for many years to come. Nuclear represents a major portion of our generation mix at Ontario Power Generation. As we head into a competitive electricity marketplace, nuclear will be one of the bedrocks upon which we build a successful company. This afternoon I’m here to talk to you about the future of electricity generation in the province of Ontario, the important role that nuclear power will play in that future, and the role that you might have as part of the electricity generation business in this province. In my opinion, nuclear power will play a very important role in Ontario for many years to come. It represents a major portion of our generation mix and will be the bedrock upon which we build a successful, competitive company.

The global nuclear industry is now at an important crossroads. While nuclear power faces significant opposition in some parts of the world, in others we are starting to see renewed interest – including in North America. Even though it is not always reflected in the headlines, there is a growing appreciation of nuclear’s many benefits and future possibilities. For example, three out of four people surveyed by the Nuclear Energy Institute in the US in 1998 wanted to keep the option of building nuclear plants open. As the 1999 Energy Industry Outlook of the Washington International Energy Group states: "Optimism about nuclear energy has increased for the first time in a long, long time."

What’s behind the new optimism? Perhaps part of the answer lies in a recent Washington Timesop/ed article by Fred Singer, professor emeritus of Environmental Sciences at the University of Virginia:

"In their zeal to abolish the atom, nuclear critics have ignored the fact that nuclear plants don’t obstruct the run of salmon, don’t pollute the atmosphere and cannot be blamed for smog, acid rain or global warming."

Nuclear power’s role as a major component in global efforts to reduce greenhouse gas emissions has especially been recognized. In the words of Loyola de Palacio, the new vice-president for energy policy of the European Commission: "If we gave up on nuclear power … we [in Europe] would never meet our climate change objectives."

But nuclear power has other benefits – it is also safe and competitively priced. These benefits flow from improvements our industry has made to its safety and operating performance.

It is heartening to see signs of resurgence in the nuclear industry. Yet our industry still faces many challenges. Continued safety and operating performance are certainly among the challenges as illustrated by recent media reports from Japan and South Korea.

But what’s the situation here in Ontario? If there is one message I’d like to leave you with today, it’s that the performance of our nuclear stations will be a major factor in how successful Ontario Power Generation is in the new competitive electricity market. Our ability to attract industry to this province will continue to be influenced by our ability to provide cheap and reliable electricity.

In discussing this viewthis presentation, I want to describe how the move into the new market will affect Ontario Power Generation’s nuclear business. I’ll talk about the progress we have made in improving nuclear performance, the hurdles we are working to overcome, and why I believe nuclear will be a big contributor to our future competitiveness. I’ll also talk about employment opportunities available with OPG.

Let me tell you something about our company and the new competitive electricity market we are about to enter.

Ontario Power Generation, or OPG as we are known, is a major nuclear operator. I use the phrase our company deliberately because the government of Ontario owns OPG on behalf of all taxpayers.

On April 1, Ontario Hydro ceased operations and was replaced by a number of new companies. The largest is OPG, which has taken over the electricity generation business.

OPG is one of the largest electric generating companies in all of North America, with eighty-one generating stations situated throughout the province. We have the capability of generating almost 31,000 megawatts – making us one of the top five generators in North America. OPG ranks among the industry leaders in low cost and the mix of generator sources make us one of the cleanest generationors companies compared to U.S. companies. Last year, even with laid up capacity, nuclear power made up produced 48% of OPG’s total generation. With all our laid up units back in service, nuclear could satisfy more than 60% of the province’s electricity demand, as it has in the past.

The other large successor to Ontario Hydro is the Ontario Hydro Services Company. It took over the high voltage transmission network, the rural distribution system, and the retail customer business of Ontario Hydro. The Province owns both the Services Company and OPG, but they are separate corporations with very different mandates and functions and will remain at arm’s length.

Beginning in the year 2000, every customer will be able to choose an electric supplier in much the same way that customers can now choose long distance telephone service providers or natural gas suppliers. Our province’s electricity market opens to competition sometime in the year 2000, at a date to be determined by the provincial government.

OPG currently produces 85 per cent of the province’s electricity supply. In order to facilitate competition, our company must reduce its control over generation. By Within 10 years after the market’s opening, we must control no more than 35 per cent of the electricity supply available to the province.

This will necessitate a variety of business arrangements, from leasing generation to others and swapping generation, to the sale of units. OPG will maintain a strong presence in Ontario, but will also compete in other electricity markets around us including Manitoba, Quebec, and and the Northeastern and Central United States.

To fulfil our obligation to decontrol generation, which is detailed in our operating license from the Ontario Energy Board, we have re-energized a process we started in 1998 of seeking partners and investors in our nuclear program. Approximately two weeks ago, we announced our initial focus will be on our Bruce assets, although we are not precluding other options at this time. The long-term future of the nuclear industry depends heavily on its ability to attract private equity. This is a first step in that direction.

For the present, until the new marketplace opens next year, OPG has inherited all the wholesale customers formerly served by Ontario Hydro. Then, when the market opens, we’ll have to compete to retain them. How will we do thisIn other words, what makes OPG competitive compared to our neighbours?

The main reason is the unique mix of generation sources that we have in Ontario. In the U.S., electric generation companies rely on coal and sometimes oil. Ontario has a very flexible mix of hydroelectric, fossil-fuel and nuclear generation. Our fossil plants are cleaner than US fossil plants, ands we have spentand our predecessor company, Ontario Hydro, more than a billion dollars over the past 15 years to reduce our air emissions. Now, for every kilowatt of fossil-fired electricity we generate, we produce 60% fewer air emissions than we did in the mid-1980s. It is this combination that gives us low costs, operational flexibility, very high reliability and low air emission rates.

Even more important to the company are the 15,000 highly experienced and skilled employees. Approximately two-thirds of our workforce, or 10,000 employees, work in nuclear facilities. The union representatives are solidly behind the company’s strategy of winning new markets and growing into one of the largest and best continental generators, and everyone is in agreement that good nuclear performance is one of the keys to our future success.

How are we improving performance in nuclear to help Ontario Power Generation succeed in the new competitive electricity market?

Our number one priority is the completion of our nuclear recovery program. We believe the nuclear recovery program will return our nuclear units to the top performance that they once enjoyed and will also make them more competitive.

We are now in the midst of what has been described as the largest nuclear recovery effort in the history of our industry. Two years ago we began an integrated improvement recovery program to address deficiencies in our nuclear operations. I am pleased to report that throughout this major undertaking, all of our stations have continued to operate.

 

Our nuclear recovery program is working to build and establish a managerial and technical infrastructure to overcome long-standing management, cultural, process and equipment maintenance problems that had been well known but not aggressively resolved.

Our CANDU technology is robust. I have acquired a great deal of respect for the CANDU reactor as a safe option and a good option. A CANDU reactor is in my opinion like a Rolls Royce. It is a robust machine that has numerous advantages over the U.S. light water reactors.

Additional advantages of the CANDU reactor include the uses natural uranium and on-line refueling. Earlier this month, an accident occurred at a uranium enrichment plant in Japan. Can this happen here? The answer is no. The CANDU reactors used by OPG use natural uranium as fuel, not the enriched fuel that was being produced at the Japanese facility. Also, OPG does not make the fuel we use. The fuel is purchased from manufacturers who follow the stringent regulations of the Atomic Energy Control Board. Natural uranium is a stable material. As indicated by an AECB official at the time, with natural uranium such an accident was "physically impossible".

Unfortunately, we let our reactors deteriorate by not shifting from an engineering and construction to an operations and maintenance company. But we must remember that we still have a Rolls Royce.

It just needs work to make it run like a Rolls Royce again. The nuclear reactors are in better shape than they were two years ago, but we still have a lot of work to do.

We are charting our progress in monthly public report cards and are starting to see improvements in OPG’s overall performance. Our Nuclear Performance Index has improved for five consecutive quarters. Our index is a weighed composite of nine performance indicators used by the World Association of Nuclear Operators or WANO. By the end of June this year, our index reached a score of 71.7, up from a starting point of 58.0 at the end of 1997. By year end, we expect the performance index to improve further and reach a score of 77. The index shows we are going in the right direction. In fact, the performance of our better reactors is coming within reach of the U.S. nuclear industry average, which sits at about 84 on the index.

For the benefit of this audience, one of the nine performance indicators measured is chemistry performance. The purpose of the chemistry performance indicator is to monitor operational chemistry control effectiveness. We control impurities in the boilers and feedwater to maintain the condition of our equipment. By keeping impurities as low as possible, we’re able to ensure that components meet the design life.

Another indicator of progress is increased production from our operating nuclear units. Total production last year was over 59 terawatt hours – a 2 terawatt hour or 6% improvement on our business plan released in February 1998. For the third quarter of 1999, production is running 9.4% ahead of plan.

Another improvement measure is outage performance. This is one of our largest priorities, since outages directly affect our bottom line. Previously outages could last a month or longer than planned. Over the past year, however, we have improved our outage performance even though we are in the middle of an aggressive program to catch up on necessary maintenance. We have met most of our return to service commitments to the electricity system, and kept the average outage days per unit below target and much better than historical past performance.

Our regulatory performance is also better than in the past. We are now in full compliance with every commitment made to our regulator, the AECB. We are determined to maintain that status.

Recently, the AECB has renewed licences for both the Bruce and the Pickering stations for two years, the maximum period granted in the past. We interpret this as a vote of confidence in the way we are addressing the improvements at the station, particularly since previous Pickering licenses were for six, nine and then 12 month periods.

On a related matter, our plan remains to return our Pickering A station to service by 2003. Recently, our Board of Directors reconfirmed its commitment to this project. Returning the four units of Pickering A to service remains a sound investment that will enhance our competitiveness. Of course, the project is subject to all regulatory approvals, including the approval of an environmental assessment.

The most important One of our most important performance areas is safety. Our plants have always been safe, but we have realized for some time that our performance in this area needed to improve if we are to become an industry leader. At OPG, safety is the number one priority of our operations.

Every morning our day begins with a conference call with each of our sites to review the status of our operations. Also, our weekly senior management Operations Committee meeting closely examines safety performance. It is the first agenda item at each of these meetings.

In Nuclear, we are continuing to improve the environmental performance of our ooperations.

Our Our nuclear industry already has a good story to tell about the major environmental benefits of nuclear power. Nuclear power is a major contributor to OPG’s favourable air emissions performance.

Each 750 megawatts of nuclear generation avoids the equivalent ofthe carbon dioxide emissions of about 2 million cars on an annual basis. If we replaced our 9,000 megawatts of nuclear capacity with coal, we would increase Canada’s 500 million tonnes of carbon dioxide emissions by about 55 million tonnes.

Even if we replaced Ontario’s 60 terawatt hours of nuclear production with the cleanest large-scale technology available – combined cycle gas plants, and that’s assuming you we could get the gas – we would still add about 30 million tonnes of carbon dioxide to the air each year.

If Canada did not have nuclear generation, greenhouse gases from electricity production would double. There is no way our country would achieve the carbon dioxide reduction target it set for itself at the Kyoto summit. And as indicated in the recent "Throne Speech", the government will be setting and enforcing tough pollution standards. There will be an emphasis on air quality.

So it is clear that nuclear power has a vital role to play in protecting the global environment from climate change.

Locally, however, our company still has much to do to effectively manage our environmental impacts.

Meeting Meeting regulatory compliance is a minimum requirement at OPG – but we are also looking for opportunities to move beyond compliance. Our goal is to reach the first quartile for environmental performance within our industry.

We are adopting the ISO 14001 standard for environmental management systems at each of our nuclear stations. In fact, we are using ISO 14001 to help improve our environmental management in the same way that we use the WANO indicators to help improve our safety and operating performance.

Our Darlington station’s environmental management system was registered as ISO 14001 compliant more than a year ago – the first nuclear generating station in the world to achieve this milestone. Our Pickering and Bruce stations will attain ISO 14001 registration by the end of the year.

We have a number of projects underway at each of our stations to improve our environmental performance. For example,

In addition to these programs, we have also created an Environmental Advisory Group. Its members are a cross-section of the general public chosen by an independent third party. This group provides feedback to me on communicating our environmental programs and provides me with a valuable outside perspective. I listen to their advice and try to act on it.

Improving our nuclear performance is a continuous journey – it has no end point

Let me talk about employment opportunities with Ontario Power Generation. We are making our debut on campus around the province this year. Our predecessor company had not been on campus recruiting for the past six years. The organization was in a period of downsizing and rightsizing and it was not a priority to go on campus during that time. Our demographics now indicate that our average age is 46 years, and we know that our age distribution is very skewed with very few employees under the age of 30. I must say, we have very dedicated employees, many of whom are at the height of their career. The good news for you is that we know we need to bring in "new blood" to complement the experienced employees we currently have.

In January 1999, we recruited approximately 30 graduating students. Of those about 1/3 were chemical engineers and chemists. The majority of the remaining positions were filled by mechanical and electrical graduates. A small number of positions were filled by civil, computer and engineering physics graduates. In January 2000, we plan to recruit approximately 70 graduates from all disciplines. Ten of these vacancies are slotted for chemistry graduates.

Chemical engineers or chemists would be involved in overseeing the monitoring and control of various processes, making recommendations for specifications and resolving process problems or component failures. They would also apply new techniques to optimize performance. They could be employed at Head Office or at a site.

We are building our strategy to be attractive to all students. We are not well represented by women in engineering at this time, and correcting that is certainly a focus for us. We know what we are missing, by not having a good representation of women in engineering at OPG!

As I mentioned earlier, with our demographics being as they are, it is a wonderful opportunity for graduating students who want to join an organization where they can get a head start on their career. As we know that retirements will leave holes in our organization, it means that we are looking for the brightest and the best employees to promote quickly to fill gaps. If you join Ontario Power Generation, and we can see results from your great initiative and dedication, you will be rewarded with opportunities for advancement.

I’ll conclude by saying that we have a very good story to tell about nuclear power. Our industry is very safe. It is hugely important to clean air and slowing climate change. Nuclear power helps keep electricity prices affordable for homeowners and for our businesses and industries.

We must continually improve our safety and operating performance and improve our environmental performance at our stations.

I have discussed how the move into the new market will affect Ontario Power Generation’s nuclear business and why I believe nuclear will be a big contributor to our future competitiveness. I’ve talked about the progress we have made in improving nuclear performance and the hurdles we are working to overcome. I am hopeful that, over time, and with continued diligence and perseverance, we will overcome these hurdles.

Let me finish with a thought that is deserving of a larger commentary than I have time for.

There is one over-arching objective that remains critical for the nuclear industry in Canada. That goal is to renew the spirit of partnership and collaboration between the federal government, provincial government and the nuclear industry. I say renew because the nuclear industry in this country grew out of a proactive, overt partnership between the industry and governments.

As Ontario moves into a competitive market, I think it will be a unique opportunity for all interested parties to work cooperatively so that our country continues to benefit from the advantages of nuclear power. It is only through this cooperation that we can create the context in which we can attract private equity and reduce dependence on government sponsorship.

Thank you.