Point Lepreau Generating Station Refurbishment – Phase 1

Audited Entity

• NB Power

Audit Scope and Objectives

Objectives for Phase I were as follows:

1. to describe key aspects of NB Power’s planning and execution of the Point Lepreau refurbishment; and
2. to report summary-level financial information of amounts making up the $1.4 billion capital asset account and the $1.0 billion deferral account related to the refurbishment.

Audit Criteria

• Not publicly available

Main Audit Findings

The initial decision to conditionally contract with Atomic Energy of Canada Limited (AECL) was made in 2001 and the audit team saw no evidence that it was challenged until a consultant hired by the Province reported in 2004.

Some other risks were not adequately addressed through the decision-making process including:

• The risk to the Province of financing such a large undertaking on its own. The search for a partner did not begin until after the report from the provincial consultant was delivered in 2004, and was ultimately unsuccessful.
• The risk associated with the length of time needed to recover all costs of the refurbishment, estimated to be 27 years by NB Power.
• The risk that significant refurbishment planning costs ($90.2 million or 6.4% of the original project cost of $1.4 billion) incurred before final approval would be of no benefit if another alternative was chosen.
• The audit team found evidence of a rigorous oversight reporting structure operating throughout the life of the refurbishment project. This involved NB Power and Nuclearco board members, along with senior and operational management staff of NB Power and AECL.
• Costs associated with the refurbishment, as of November 2012, totaled $2.4 billion. This amount included $1.4 billion in direct capital costs of the refurbishment and an additional $1.0 billion of deferred costs also considered part of the overall cost of the refurbishment under regulatory rules. These amounts exceeded planned costs of $1.0 billion in capital and $0.4 billion in deferred costs by a total of $1.0 billion.

Audit Recommendations

Based upon audit observations relating to the decision-making process for the Point Lepreau Generating Station refurbishment, it is recommended that for future major capital projects undertaken by NB Power:

• the decision-making process be clearly documented, including identifying the roles and responsibilities of key players before significant amounts are expended;
• a planned decision-making timeline be developed and agreed upon by key players;
• all feasible options be identified and fully investigated as early in the process as possible;
• pre-decision spending be limited to that needed to adequately evaluate and mitigate risks associated with options under consideration prior to selecting a preferred option;
• an independent, third-party expert be contracted to guide the process of selecting the best option, identifying and developing mitigation strategies for all significant risks, identifying a preferred proponent, and ensuring that the corporation gets the best possible outcome for provincial ratepayers; and
• the process be transparent and the public made aware of the criteria to be used for decision making, progress towards making a decision and key reasons for the selection of a preferred alternative.

• PreviousHealth and Wellness: Long Term Care – New and Replacement Facilities
• NextCapital Projects – Yukon Hospital Corporation