TransCanada to invest heavily in Bruce Power nuclear life extension project

TransCanada Corp. (TSX: TRP) (NYSE: TRP) announced Dec. 3 that Bruce Power has entered into an agreement with the Ontario Independent Electricity System Operator (IESO) to extend the operating life of the Bruce Power nuclear facility to 2064.

This new agreement represents an extension and material amendment to the earlier agreement that led to the refurbishment of Units 1 and 2 at the site. Consistent with Ontario’s Long Term Energy Plan (LTEP), the multi-year agreement will provide the province of Ontario with 6,300 MW of safe, reliable, competitively priced and emission-less energy for decades to come.

In connection with this opportunity, TransCanada said it has exercised its option to acquire an additional interest in Bruce Power for C$236 million from the Ontario Municipal Employees Retirement System (OMERS). TransCanada and OMERS will each hold a 48.5% interest in Bruce Power, with the remainder held by the Power Workers’ Union, the Society of Energy Professionals and a Bruce Power Employee Trust.

“Anchored by our investment in Bruce Power, TransCanada is the largest independent power producer in Ontario, and we will continue to be an important part of the energy sector there for decades to come. This agreement allows Bruce Power to significantly extend the remaining life of the facility and builds on its many successes in meeting Ontario’s power needs,” said Russ Girling, TransCanada’s president and chief executive officer. “This transaction will provide billions of dollars of investment in Bruce Power over the next 40 years that is underpinned by a long-term contract and has strong community and policy support from the Province of Ontario.”

Girling added: “More than 30 per cent of our 11,000 MW power portfolio, which includes hydro, wind, solar and nuclear facilities, generates no direct greenhouse gas emissions. Our ongoing commitment to Bruce Power will allow us to strengthen this base of emission-less generation sources for Ontario. In fact, the additional energy generated from the Bruce Power site since 2001 accounted for 70 per cent of the replacement energy needed to phase out the use of coal-fired generation in the province.”

The long-term investment in Bruce Power is consistent with TransCanada’s objective of building a balanced portfolio of contracted and low-cost power generation assets and provides the company with another significant and attractive growth opportunity that is expected to be accretive to earnings and cash flow over the short and long term.

The amended agreement, which will take economic effect Jan. 1, 2016, will allow Bruce Power to immediately invest in life extension activities for Units 3 through 8 to support the long-term refurbishment program. This early investment in the Asset Management (AM) program will result in near-term life extension, allowing later investment in the Major Component Replacement (MCR) work that will begin in 2020.

Highlights of this agreement with the IESO include:

  • Bruce Power will begin receiving a uniform price for all units beginning in 2016 of C$65.73 per MWhr. Over time, the price will be subject to adjustments for the return of and on capital invested under the AM and MCR capital programs, along with various other pricing adjustments that allow for a better matching of revenues and costs over the long term. 
  • The above uniform price includes return of and on sustaining capital of approximately C$110 million (TransCanada share, 2014$) per year, over the life of the facility.
  • TransCanada’s estimated share of investment related to the AM program to be completed over the life of the agreement is approximately C$2.5 billion (2014 dollars). 
  • TransCanada’s estimated share of investment in the MCR work for Units 3 through 8 over the 2020 to 2033 timeframe is approximately a further C$4 billion (2014 dollars). 
  • With cost changes and incremental capital (and return) included in price adjustments over the term, the agreement provides a growing base of earnings as the long-term program of investment progresses. 
  • Under certain conditions, Bruce Power and the IESO can elect to not proceed with the remaining MCR investments should the cost exceed certain thresholds or prove to not provide sufficient economic benefits. The agreement has been structured to account for changing cost inputs over time, including ongoing O&M costs and larger capital investments, with the IESO having ongoing oversight of these cost inputs.

The amended agreement builds on the significant insights gained by the work undertaken at the site over the past decade. The scope of work, broken down between the ongoing AM program elements and the unit specific MCR programs, is well understood in light of the current operating status of all eight reactors at the site, TransCanada noted. This, combined with the significant time to plan and determine the final cost estimate for the first MCR in 2020, sets Bruce Power up to have success with the program to be undertaken under the amended agreement. TransCanada will continue to work closely with Bruce Power management to help support this important facility life extension and refurbishment program.

The Bruce Power facility will continue to be managed and operated by the management and staff of Bruce Power. Under the terms of the lease, spent fuel, waste and decommissioning liabilities remain the responsibility of Ontario Power Generation, but will continue to be funded by Bruce Power through this agreement. The ongoing operation of the Bruce Power site and related work continues to be subject to regulatory oversight of the Canadian Nuclear Safety Commission.

With more than 65 years’ experience, TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure including natural gas and liquids pipelines, power generation and gas storage facilities. TransCanada operates a network of natural gas pipelines that extends more than 68,000 kilometers (42,100 miles), tapping into virtually all major gas supply basins in North America. TransCanada is one of the continent’s largest providers of gas storage and related services with 368 billion cubic feet of storage capacity. A growing independent power producer, TransCanada owns or has interests in over 10,900 MW of power generation in Canada and the United States. 

“We have been an investor in Bruce Power for the past twelve years and are very pleased with this significant opportunity to deploy additional capital incrementally through the refurbishment projects. We continue to seek high-quality infrastructure assets that generate steady cash flow to help pay pensions, and our investment in Bruce Power fits this strategy very well,” said Michael Rolland, Chief Investment Officer, OMERS Private Markets, in a separate Dec. 3 statement.

OMERS invested in the refurbishment of two other Bruce Power reactors which were successfully returned to service in 2012. Those units have had very strong performance since then.

Bruce Power is the world’s largest operating nuclear facility, and generates approximately 30% of Ontario’s electricity supply. Bruce Power is a key contributor to maintaining a reliable and affordable supply of low-cost electricity for Ontario families and businesses and is essential to meeting the province’s goal of phasing out coal-fired electricity.

Since 2001, Bruce Power has safely operated the facility in accordance with federal regulations as established by the Canadian Nuclear Safety Commission (CNSC).

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.