VZCZCXRO7653
RR RUEHGA RUEHMT RUEHQU RUEHVC
DE RUEHHA #0010/01 0411927
ZNR UUUUU ZZH
R 101927Z FEB 09
FM AMCONSUL HALIFAX
TO RUEHC/SECSTATE WASHDC 1370
RUEHOT/AMEMBASSY OTTAWA 0596
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHHA/AMCONSUL HALIFAX 1461

UNCLAS SECTION 01 OF 02 HALIFAX 000010 
 
SIPDIS 
 
STATE FOR WHA/CAN, EB/ESC/ISC 
USDOE FOR IA (DEUTSCH) 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EFIN PGOV CA
SUBJECT: NEW BRUNSWICK STILL BULLISH ON NUCLEAR POWER DESPITE DELAYS 
WITH POINT LEPREAU REFURBISHMENT 
 
REF: 08 HALIFAX 0084 AND PREVIOUS 
 
HALIFAX 00000010  001.2 OF 002 
 
 
¶1.  SUMMARY:  The New Brunswick government is hopeful that the 
$1.4 billion project to refit the province's aging nuclear 
reactor gets back on track soon.  Meanwhile the delay in 
finishing the refurbishment has had no impact on the 
government's study into whether to build a second or a third 
reactor at Lepreau, an idea that comes with both high financial 
and political risks.  END SUMMARY. 
 
¶2.  Officials with New Brunswick Power (NBP), the provincially 
owned utility, are cautiously optimistic that their $1.4 billion 
project to refurbish the Point Lepreau nuclear power plant 
outside Saint John will meet a new deadline of December 2009. 
NBP executives revealed on January 20 that the project was three 
to four months behind schedule and would not be finished by 
September as originally planned.  The refurbishment is a complex 
undertaking consisting of a replacement of all fuel channels, 
tubes and pipes, plus other station maintenance work.  According 
to NBP, project engineers are experiencing problems using 
specially designed remote control equipment that allows them to 
work outside the radioactive zone.  Apparently the equipment is 
not performing the way the designers had predicted and work has 
fallen at least three months behind schedule.  (Details of the 
refit project can be found at: 
http://poweringthefuture.nbpower.com/en) 
 
¶3.  NBP started the refurbishment project in April 2008, in 
partnership with Atomic Energy of Canada Limited (AECL), the 
federal crown corporation that designs, markets and builds 
Canada's CANDU reactors.  AECL designed and built the Lepreau 
reactor, a CANDU 6, and brought it into service in 1983.  In 
recent years, and as Lepreau was nearing the end of its 
lifespan, NBP and the provincial government were forced to 
decide whether to mothball the aging plant or refurbish it, both 
options an expensive undertaking.  Although NBP operates at 
arm's length from the provincial government, what happens with 
the utility is ultimately the responsibility of the government 
of the day and consequently the decision on what option to take 
would rest with provincial politicians.  In 2005, the former New 
Brunswick Tory Government decided on the refurbishment option, 
but not without much handwringing over the cost and the 
potential impact on the utility if the project ran into 
significant cost overruns.  However, the Tories were defeated in 
a September 2006 general election and the new Liberal government 
under Premier Shawn Graham inherited the project.  Graham and 
his government have embraced the project, seeing it and a 
potential second reactor, as cornerstones of their strategy to 
develop the Saint John area into a new energy hub for North 
America. 
 
¶4.  The overall budget for the Lepreau refit was originally set 
at $1.4 billion, including $400 million to pay for replacement 
power.  Lepreau produces one-third of the province's power 
needs, so NBP has being buying replacement power from 
neighboring Hydro-Quebec since taking the reactor offline last 
spring.  Now with the delay in getting Lepreau back in service, 
NBP estimates that it will have to pay as much as $90 million in 
extra costs.  NBP is already burdened with a $6.9 billion net 
debt, so there is no room for the utility to absorb the extra 
expense.  Going to the customers to get an increase in power 
rates is not an option since the Graham government was elected 
on a promise not to raise electricity rates any more than 3% 
annually before 2010.  The utility will have no option other 
than to realign its financing and spread the extra cost over the 
new 25-year lifespan of the plant. 
 
¶5.  Despite the delay in getting Lepreau back in service, the 
Graham government maintains that this setback will have no 
impact on its ongoing study into whether to build a second 
reactor at Lepreau.  The Premier said on February 2 that he was 
still optimistic that Saint John would house a second, or even a 
third, reactor.  To that end, the province is courting two 
unnamed private sector companies to invest in a 1,100 megawatt 
reactor, which would export most of its output to the 
northeastern United States.  The new players would join an 
existing group already studying the proposal called Team CANDU, 
led by AECL in partnership with private sector technology and 
engineering firms.  While funding is a major factor in deciding 
to go ahead with the second reactor, another concern for New 
Brunswick electricity customers is AECL which ratepayers and 
media editorial writers have criticized for its management of 
the Lepreau I refit, especially for not assuming more of the 
risks. Those criticisms prompted the Premier to publicly confirm 
his support for AECL, saying that he still had confidence in the 
corporation both in completing the Lepreau I refit and its 
ability to handle the construction of a new reactor. 
 
 
HALIFAX 00000010  002.2 OF 002 
 
 
¶6.  COMMENT:  Premier Graham acknowledges that the massive 
Lepreau refit is the one issue that keeps him awake at night 
because of the financial consequences for his small and 
fiscally-challenged province.  It comes as no surprise therefore 
that the provincial energy department is working closely with 
NBP and AECL in trying to get the project back on track by 
bringing in new staff and realigning work priorities.  In the 
meantime, senior energy officials have told us that there has 
been no let up in their research into whether Lepreau II will 
become a reality.  There are already investors lined up willing 
to pay for the estimated $50 million cost of a three-year 
licensing application and environmental review, but details on 
construction, operating and financing costs, and rates of return 
to investors all need to be fleshed out as well as market 
conditions in New England.  For now, Lepreau II is still a 
viable project on the drawing board, but no one is 
underestimating the financial and political risks particularly 
for a government which has staked its future on using nuclear 
power as a significant component in its energy hub plan.  END 
COMMENT. 
FOSTER