The government-owned utility had asked the Ontario Energy Board to approve a 14 per cent hike to help close a projected $1 billion gap between the sale of power from its nuclear and hydroelectric facilities and the expected higher cost of operating those facilities until the end of 2009.
A big part of the increase, the energy board argued, is related to rising labour and other costs required to operate its nuclear assets.
But the regulator challenged OPG's numbers, arguing that much of the excess cost burden is a reflection of poor operational performance and electricity customers shouldn't have to swallow it.
"They're not getting everything they asked for," said energy board spokesperson Paul Crawford.
The board pointed out the cost in 2006 of running Pickering A generating station, Ontario's oldest nuclear station, was three times the U.S. average and double the cost of operating reactors at the Bruce plant in Kincardine. In 2007 it performed even worse as the energy board struggled with several unplanned reactor outages.
"In fact, the operating cost performance of Pickering A may be the worst of any nuclear station in North America," the energy board contended. Pickering B was slightly better over those two years but was still "more than twice the U.S. median and significantly above Bruce."
The regulator rejected OPG's requested rate hike and, taking other cost factors into account, ruled that an 8.5 per cent increase was more reasonable.
Norm Rubin, director of nuclear research at Energy Probe, said the ruling calls into question whether Pickering A's two operating reactors should continue to operate. Reactors 2 and 3 were mothballed in 2005, but units 1 and 4 were refurbished in 2005 and 2003, respectively, at a cost of $2 billion.
"Why the heck did we refurbish these things?" asked Rubin, suggesting that if Pickering A was shut down today electricity rates would actually go down. "These are the reactors we've thrown the most money at and it continues to cost us the most to run them. What's wrong with this picture?"
It calls into question the wisdom of future refurbishment projects, he added.
The board denied OPG a request that 25 per cent of its revenues be fixed regardless of how much power it produces, while the remaining 75 per cent be tied to the number of megawatt-hours it generates.
Critics argued that OPG, by requesting the fixed payment, was indirectly admitting that its nuclear assets are unlikely to perform as expected and it wanted to reduce that risk. The energy board said customers shouldn't have to pay for power that isn't produced.
But Rubin warned that the risk is merely shifted from electricity consumers to taxpayers. The Ontario government will ultimately end up covering the bill.