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Canada's nuclear fallout; The shutdown of the Chalk River isotope- producing reactor sparked a messy battle that saw the head of its regulator get fired. Now insiders wonder: Is Canada losing its status as world nuclear heavyweight?

The Globe And Mail: jleeder@globeandmail.com & Shawn McCarthy - February 23, 2008

DEEP RIVER, ONT. -- He was a newcomer to the Canadian Nuclear Safety Commission, a refugee from the Crown-owned nuclear facility at Chalk River who brought with him a sparkling bit of inside knowledge.

His colleagues were reviewing a set of safety upgrades, designed by Atomic Energy of Canada Ltd. to modernize the NRU, the 50-year-old research reactor that supplies more than half of the world's medical isotopes.

"Staff in Ottawa were totally convinced that the [upgrades] were in," said one CNSC insider who spoke on condition of anonymity.

The new man knew better: Not all the upgrades were done.

That bit of information - confirmed days later in November by AECL - launched a frenetic 10-week tussle between the company and Canada's independent regulator that led to the shutdown of the isotope-producing nuclear reactor, so vital in the diagnosis and treatment of cancer and heart disease. Fearing an international crisis, the government intervened, overruled the regulator and ultimately fired its president, Linda Keen - a move that stunned the global nuclear community.

Insiders suggest the firing was intended to distract attention from the ugly spill of evidence leaching from the dispute: At the dawn of the nuclear renaissance, with the appealingly green industry planning a series of multibillion-dollar projects, Canada's nuclear flagship is wobbling. If it falters, potential sales of the trademark Candu reactors to industrialized

countries could be jeopardized, and the prospect of the Conservative government allowing AECL to be swallowed by an international competitor could climb - putting Canada's reputation as a world nuclear heavyweight at risk.

Over the past month, The Globe and Mail has interviewed dozens of people with intimate knowledge of the company and the global nuclear landscape, including AECL employees, retirees, former board members, federal bureaucrats, former government ministers, current and former members of the CNSC and business people with close ties to AECL.

The interviews revealed:

AECL has been fraught for years with internal management problems that were repeatedly acknowledged by government officials and flagged by business partners and the federal auditor-general, yet never fixed;

the company's lobbying campaign to have the government decrease tensions with the CNSC, backed by private-sector partners, has been mounting steadily for more than a year;

Minister of Natural Resources Gary Lunn was allegedly e-mailed information about problems at AECL at least two days before he admitted to learning about the reactor shutdown (he denies seeing the e-mail);

emergency legislation passed last December restarted the reactor only days earlier than it could have been if the safety commission had not been overruled.

While AECL's long-festering tensions with Ms. Keen - seen as the company's main obstacle to new reactor sales - were defused by her firing last month, the red flags raised by the isotope debacle and all that seeped out in its wake may have created new hurdles for the Crown corporation.

"It's not good for AECL. They look incompetent. They look sloppy. They look unbusinesslike," said Anne McLellan, who oversaw the company for five years during the mid-1990s as natural resources minister. "Canada doesn't have that many signature technologies. This is your last, best shot to see AECL survive. I think in an area like this, you have to fish or cut bait."

A slippery slope

AECL was created as a Crown corporation in the postwar heyday of 1952. The company's first three decades are historic: The work done by scientists at Ontario's Chalk River and Manitoba's Whiteshell Laboratories cemented Canada's reputation as a producer of some of the world's top nuclear research.

But in the late 1980s, the company slowly began its downward slide. Brian Mulroney's Conservative government considered privatizing parts of the company. By 1991, MDS Inc., an international drug and medical research company, won a bid to buy Nordion International Inc., the profitable isotope-producing arm of AECL. The price tag: $165-million.

"They got a heck of a deal," said Robert Ferchat, the former Bell Mobility chief executive who was chairman of AECL in 1991. "They got a company who had a lock on the world markets for the isotopes, and no competition."

The deal included a long-term agreement under which AECL was compelled to provide MDS with a continuous stream of isotopes or face penalty.

Mention of the deal still raises ire in Deep River, where most Chalk River employees live. The tiny community northwest of Ottawa was created in 1944 for the Manhattan Project where the first atomic bomb was made. The deal marked the beginning of an era in which the company's commercial obligations started taking priority over research pursuits.

Through the early 1990s, the deal began to cause problems when NRU, built in 1957, and its older backup, NRX, started showing their age. AECL struggled - and failed - to get funding for a replacement.

"That reactor was old and tired in 1994. They were using equipment that was primitive - old Black and Decker drills, everything about it looked and felt decrepit," said Mr. Ferchat, who tried to raise alarms about company spending. "Executives kept telling me I'm only supposed to look after the board. They didn't want you in their business."

With prospects of a new reactor looking grim, AECL began designing a $32- million package of upgrades for NRU that would, among other things, add a backup emergency power supply that was fire-, flood- and earthquake-resistant, to convince the regulator to extend NRU's lifespan past 2000. The undertaking was "very demanding," said Phil Gumley, an engineer involved in the plans. "When we first learned about the requirement, I kind of felt a bit depressed knowing exactly what we had to do. We knew we were in for a long haul in 1992."

Progress on the upgrades slowed in the mid-1990s when the Liberal government began a nationwide program of cuts. AECL became "a skeleton of an organization that could barely function," said one former middle manager.

Ms. McLellan, the natural resources minister at the time, defended the approach. "Back in the early 1990s, it wasn't clear what the future of nuclear was," she said. "There had been no new facilities built in many years. [The nuclear accidents at] Chernobyl and Three Mile Island were still fresh in people's minds. It was a time of great uncertainty."

But AECL could have done more with its resources, Ms. McLellan said. "I don't think they ever stepped up to the plate in the way their main competitors did. However, AECL did have one hand tied behind its back in the sense that government could never provide them with the dollars they felt they needed to compete effectively. I also thought that they were an undisciplined operation."

Part of Ms. McLellan's antidote was to appoint Reid Morden, the former director of the Canadian Security Intelligence Service, as AECL's CEO in 1994.

"When I was first appointed, it was to bring about managerial change," Mr. Morden said, adding that guarding the isotope supply was a clear priority. Early in his term, that issue was highlighted by the threat of a strike involving one of the unions at Chalk River.

"I think it's one of the few times I actually had a call from the minister saying, 'Whatever is going on up there, fix it,' " Mr. Morden recalled.

That same year, MDS Nordion agreed to foot the $140-million bill for a pair of new reactors, called Maples. "MDS felt it was a big price, but there was a good feeling," said a former MDS Nordion executive, adding: "They quickly ran into problems and the problems just kept coming."

The major stumbling block occurred during commissioning tests that showed the reactors have a positive power coefficient instead of the negative power coefficient that design plans predicted. Reactors can work in either mode. However, until AECL is able to explain mathematically why their predictions were wrong, the regulator will not sign off on the Maples' operation.

"Being able to predict things is absolutely key in the nuclear business," said John Waddington, a former director-general of the CNSC.

As the Maples situation heightened tensions between the regulator and AECL, politicians became increasingly unwilling to step in, the former MDS Nordion executive said.

"[MDS Nordion's] petition was always ... remember if something bad happens to NRU... Canada is going to be hurt, and we're going to look really bad. Having this high-tech business where Canada is the best in the world in health care, you really don't want to mess that up.

"This project was considered a tar baby. If you touch it, it sticks to you."

Butting heads

When Conservative cabinet minister Gary Lunn inherited the Natural Resources portfolio in February, 2006, it appeared problems at AECL were beginning to subside. Fed up with trying to explain the Maples' ballooning costs and six- year delay to shareholders, MDS Nordion had agreed to a mediated settlement with the Crown corporation that effectively transferred the Maple problems back into AECL's custody. MDS Nordion was paid $25-million, and a new 40-year isotope supply agreement was struck.

Within a month of becoming minister, Mr. Lunn met with Ms. Keen, the Liberal- appointed, two-time head of the nuclear regulator. He shared with her the new government's view that regulatory oversight could be streamlined. The pair had "great discussions," Mr. Lunn recalled this week. However, sources in Ottawa told The Globe the meeting had an icy tone, punctuated by Ms. Keen's reminder toMr. Lunn of the CNSC's quasi-judicial, arms-length status.

Soon after, Ms. Keen took the podium at the Canadian Nuclear Association's annual convention and gave notice that the commission was imposing more rigoroussafety standards and, being underfinanced and understaffed, could not meet the booming industry's timelines for new approvals.

For AECL, the announcement was a blow. The company was counting on the commission to conduct prelicensing consultations on the ACR1000, the next- generation Candu seen as the company's hope for future commercial success. Such consultations are common in countries that are home to major reactor companies and critical to ensuring that companies don't proceed along expensive, flawed design paths.

Ms. Keen's suggestion that her overstretched commission would no longer prioritize prelicensing was seen as obstructionist.

AECL's private-sector partners, including SNC-Lavalin, GE Canada and Hitachi Canada, hired some of the best-connected lobbyists in Ottawa to carry that message forward; other industry members complained directly to the Prime Minister's Office, sources said.

"We've tried to communicate however we could to whomever we could, to make this point," said Patrick Lamarre, president of SNC-Lavalin's nuclear division.

Michael Burns, the B.C.-based wind power executive who Mr. Lunn appointed as chairman of AECL, began to lobby the minister, whom he said he spoke with once a week during his chairmanship, about addressing the problems with Ms. Keen and her commission.

"I told [Mr. Lunn] then the dysfunctional relationship was going to cause serious trouble for commercial operations at the company. I told him we were going to have a train wreck. And I gave him a plan to fix it," Mr. Burns said.

The goal, he said, was to induce the government to legislate an overhaul at the CNSC, including Ms. Keen's position.

Mr. Lunn refused to discuss whether he attempted to push that reform in Ottawa, saying he is "not at liberty to talk about ... discussions with cabinet colleagues."

Mr. Burns said his impression is that Mr. Lunn tried, but "couldn't get any traction."

A reactor shuts down

The train wreck that Mr. Burns forecast began in slow motion during the first week of November, 2007.

A dearth of leadership was beginning to show at AECL. The company's Mississauga-based president, Robert Van Adel, had spent little time in the office since announcing his retirement that June, and, because the company was embarking on a restructuring plan, there were no immediate plans to hire a new CEO. On top of that, Mr. Burns, the company's frustrated chairman, decided to resign.

While the leadership at AECL's headquarters in Mississauga was hollowing out, a problem at Chalk River was heating up. There, a CNSC staffer and former AECL employee (who declined to be interviewed for this story) divulged to his new boss his hunch that a final element of the NRU safety upgrades - the connection of two seismically qualified pumps to the new emergency power supply - had not yet been completed.

Staff were working on the assumption that the pumps had been connected, based on a letter that AECL sent to the regulator in December, 2005, confirming completion of the work. "All seven NRU Upgrades are now fully operational ..." the document read.

Confused, the CNSC inquired about the pumps, and, after an internal scramble, AECL confirmed the problem. For the next week, staffers on both sides quietly tried to figure out what led to the miscommunication. In the midst of this, AECL shut down NRU for monthly maintenance. As tensions with the CNSC rose, it became clear the reactor would not be restarted.

"AECL considered the implications of starting up again. We were pushing back. They were taken by surprise," the CNSC insider said. "It was like a game of chess."

Two weeks later, AECL attempted to get the regulator's consent to restart the reactor with one of the new pumps connected. But their technical argument, called a safety case, was rejected.

"It was not good. It needed more work. It was about 12 pages of cold calculations," one insider said.

With AECL and the CNSC still trying to hammer out a compromise, concerns about the isotope supply began to catch politicians' attention. Mr. Lunn and Health Minister Tony Clement began to publicly criticize Ms. Keen, characterizing her as a partisan zealot blind to the health impacts of her decisions on Canadians in need of isotopes, and guilty of safety overkill.

As they lobbied against the CNSC, it seemed of little importance to the ministers, as well as to Prime Minister Stephen Harper, that the Chalk River facility sits on earthquake fault lines. The area has never experienced a major earthquake, but two minor quakes struck in December, registering 3.0 and 3.6 in magnitude.

"There will be no nuclear accident," Mr. Harper announced in the House of Commons on the day Parliament was to vote on a bill to overrule the regulator.

That same day, after being served with a government directive informing the CNSC to take into account the health of Canadians, Ms. Keen told Parliament that she could allow the reactor to return to service with one new pump connected in about a week if AECL provided the commission with a proper safety case.

But AECL said they could not complete the safety case until Dec. 13, meaning that, without government intervention, the reactor would remain shut down until around Dec. 18.

Dissatisfied with the timeline, Parliament voted to enact Bill C38, allowing AECL to restart the reactor once one pump was connected without applying for consent to the regulator.

The reactor was officially restarted on Dec. 16 - just days earlier than Ms. Keen may have allowed without parliamentary interference.

Still, the following month, Ms. Keen was removed from her presidential post, a move that raised questions about whether the ugly, two-month power play was really about isotopes.

"This should never have come to a midnight session in Parliament," said Duane Bratt, a nuclear policy expert at Calgary's Mount Royal College. "The real issue is these new reactors that are about to be approved. The Canadian nuclear industry is facing competition in their backyard. There is fear."

AECL'S BIG COMPETITORS

Areva SA

Headquarters Paris.

Technology Pressurized light-water reactor.

2006 revenues $3.3-billion.

Employees 14,000.

Controlling shareholder French government.

Strategic alliance Mitsubishi Heavy Industries.

Canadian office Pickering, Ont.

Of note: Areva is the world's largest nuclear company by revenue, but the French government is thinking of dismantling it on the grounds it can no longer cope with increasing global need for nuclear energy and should be split into several companies to better serve clients from the U.S. to China, Britain and South Africa. Areva owns mining operations to extract uranium, notably in Niger and Canada.

WESTINGHOUSE ELECTRIC CO.

Headquarters Monroeville, Penn.

Technology Pressurized light-water reactor.

2006 revenues $2.1-billion (U.S.).

Employees 9,000.

Controlling shareholder Toshiba (77 per cent).

Canadian office None.

Of note Westinghouse says its technology is the basis for about half of the world's nuclear reactors.

GE HITACHI NUCLEAR ENERGY

Headquarters Wilmington, N.C.

Technology Boiling-water reactor.

2006 revenues $3-billion (U.S.) from all nuclear businesses.

Employees n/a

Controlling shareholder Partnership is controlled by GE in the U.S. and by Hitachi in Japan.

Canadian office Mississauga

Of note 81 reactors based on GE technology. Markets include U.S. and Canada (Candu components).

OTHER PLAYERS:

AtomStroyExport, a former branch of the Soviet atomic energy ministry, is building seven nuclear reactors in Iran, China, Bulgaria and India - a higher number, it claims, than any competitor.

GE Energy has provided advanced technology for nuclear energy for more than five decades. General Electric Co. chairman Jeffrey Immelt says his company is eager to gain an ownership stake in Atomic Energy of Canada Ltd., and warns there is little future for stand-alone vendors of nuclear reactors.

The downward slide...

In 1952, Atomic Energy of Canada Ltd. was setting sail as a world-renowned nuclear flagship, home to some of the most cutting-edge research. but by the 1980s, as the government contemplated hiving off its most profitable arm, the Crown Corporation had already begun to run off course.

1. 1952

Atomic Energy of Canada (AECL) set up as a crown corporation

2. 1957

Nuclear Reactor Unit (NRU) built at Chalk River

3. 1988

Mulroney government starts privatization process

4. 1991

MDS. Inc. wins bid for Nordion, the isotope-producing arm of AECL, for $165

million

5. 1991

NRU has extended shutdown for repairs

6. 1992

Plans begin to extend the life of NRU past 2000.

7. The 90s

Liberal government cutbacks thin AECL resources.

8. 1996

AECL agrees to build two Maple reactors, slated to produce isotopes by 2000

9. 2000

Problems with Maples emerge. First nuclear chain reaction in February indicates positive power coefficient when they expected Negative. Work stops until design flaw can be found.

Maples reactors have yet to be certified to continue.

Dec. 23, 2005

AECL letter to CNSC says that all the safety upgrades are in place

10. 2006

Gary Lunn given the Natural Resources portfolio when the Conservative government took power

11.

Within weeks,

Linda Keen, president of the CNSC sours relations by rejecting Lunn's interest in streamlining regulatory oversight. She also delivered a speech to the Canadian Nuclear Association stating that the CNSC was under-financed and could not engage in pre-licensing

The Canadian Nuclear Safety Commission is an independent, quasi-judicial agency that regulates the use of nuclear energy in Canada. The CNSC reports to Parliament through the Minister of Natural Resources and ends in a "train wreck"!

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