British Energy debacle provides lesson for privatization advocates By ERIC REGULY - Globe and Mail Tuesday, September 17, 2002 – Print Edition, Page B17 British Energy's financial collapse was swift, dramatic and came with overtones of fear. Would the world's only stock market-listed owner of nuclear power stations have enough money to deal with an emergency? In May, the company was promising dividend growth. Four months later, it was a bailout victim in danger of becoming insolvent. What lessons can we -- governments, taxpayers, investors -- learn from the British Energy debacle? The first, and most obvious, one is that privatizations only work some of the time. It's one thing for a government to unload a steel company or an airline, as British Steel and British Airways were. Individual airlines and steel companies are not essential services and, should they disappear, competitors would immediately fill the void. Nuclear energy is another matter. Electricity is an essential service, especially if the company that makes it accounts for one-quarter of domestic supply, as British Energy does. For safety concerns alone, no government would allow the financial meltdown of a privatized nuclear energy company. In good times, British Energy's shareholders would make money; in bad times, taxpayers would join investors in paying the price. If a government is not prepared to allow a privatized business to go bankrupt, what is the sense of privatizing it in the first place? Privatizations everywhere are designed to shift the liability from the taxpayer to the investor. In British Energy's case, though, privatization didn't protect taxpayers at all. Last week, the government pumped £410-million ($1-billion) of emergency funding into the company. More funds may be needed and there is talk that the government may have to reverse history and bestow Crown corporation status on British Energy again. Meanwhile, the Canadian Nuclear Safety Commission is unsure whether Ontario's Bruce Power nuclear plant, controlled by British Energy, still has access to $222-million in "emergency shutdown" money from its parent. The Ontario government must be watching the British Energy debacle with an odd mixture of horror and relief. The government, through Crown-owned Ontario Power Generation,delivered Bruce Power to British Energy on the assumption that the new operator could meet Bruce's financial commitments. That assumption is now in doubt. On the other hand, British Energy's troubles play well to a government that climbed off the privatization bandwagon. Earlier this year, Ernie Eves' Tories backed down on their commitment to deliver Hydro One, the province's electricity transmission network, to the stock exchange. While the about-face was never fully explained, you could assume that the political will to sell a public service evaporated. British Energy's inability to stand alone as a private sector player probably confirmed Mr. Eves' belief that the political risks of selling Hydro One outweighed the benefits. All of which brings us to British Energy's second lesson: Nuclear energy looks good on paper but has a nasty habit of turning into a financial nightmare, usually at the expense of ratepayers and taxpayers. At a time when global warming is emerging as the planet's greatest environmental threat, zero-emission nuclear energy looks attractive (we'll forget, for a moment, about the potential environmental disaster posed by leaky waste fuel sites). This partly explains why many nukes are being refurbished, in Canada and elsewhere, to boost their useful life expectancies. As a bonus, electricity can be produced at competitive rates when the plants are running glitch free and near capacity. The problem is that keeping these aging beasts from dropping dead, let alone running efficiently, is turning into an increasingly expensive proposition. British Energy's crisis intensified, for example, when the company revealed that metal fatigue in fans used to cool several reactors would force it to reduce output while repairs were undertaken. The announcement clobbered the shares. Canada's nuclear generating plants have a gruesome history of costly repairs, too. Ontario taxpayers are saddled with more than $20-billion of stranded debt, largely the result of the stupendous cost overrun at the Darlington nuclear plant plus the estimated expense of dealing with nuclear waste. The bill is being financed by a special charge on all electricity bills. Since the debt is rising, watch this "temporary" surcharge turn into a permanent feature. Down the road, on the shore of Lake Ontario, the refurbishment of the Pickering nuclear plant is also turning into a fiasco. The overhaul is already more than a year late and $1-billion over budget. In New Brunswick, the estimated cost of tuning up the Point Lepreau nuclear plant is $845-million. History proves, though, that estimates like these are meaningless; the final tab is bound to be much higher. The most important lesson from British Energy and the Canadian nuclear experiments is that the taxpayer always loses. In the end, it's not a question of privatizing or not privatizing. Most of these nuclear plants shouldn't have been built in the first place. Shutting them down before the repair bills escalate and clobber the taxpayer is the best solution. ereguly@globeandmail.ca Copyright © 2002 Bell Globemedia Interactive Inc. All Rights Reserved. |