AECL sale to SNC-Lavalin near

Ottawa is close to a sale of Atomic Energy of Canada Ltd. to SNC-Lavalin Group of Montreal, ending a federal withdrawal from the nuclear energy business that has been in the works since 2009.

The anticipated sale would include the Candu reactor business but not the Chalk River, Ont., nuclear reactor unit that makes medical isotopes and does research.

An announcement could come as early as this week, although final details are still being worked out.

Peter White, the head of the Society of Professional Engineers and Associates union that represents AECL workers, said he has not received word of any deal, but did say that management have asked for a meeting with union leaders on Wednesday.

"Somebody from AECL wants to talk tomorrow so that tells me something's going on," White said.

Requests for comment by AECL from CBC News were not immediately returned.

Engineering giant SNC-Lavalin is the sole remaining bidder in a process that saw Bruce Power walk away in January. SNC had been partnering with the OMERS pension plan, until the latter, too, stepped away from any deal in May.

AECL has had a troubled decade. The supply chain that supports it has been laying off workers, as sales and profits dwindled.

The Crown corporation ran up $800 million in red ink last year, and has not sold a new reactor since the 1990s. That's in part because there's reportedly a cap on new contracts while Ottawa mulls the sale, because the government doesn't want the company to be burdened with new liabilities.

New sales

But that's not to say the company is without value. Versant Partners analyst Neil Linsdell covers SNC-Lavalin, and he can see why the engineering giant would be interested.

More than 70 per cent of SNC's core business comes from overseas, and they'd likely be looking to leverage that expertise into more contracts for the company's CANDU reactors.

AECL is struggling to modernize its technology to keep up with rivals Areva, Westinghouse, Hitachi and others. But there's a market for the existing reliable CANDU technology in the developing world, Linsdell said.

"SNC is really a great partner for [Ottawa] because of their international expertise in working with emerging economies," he said.

Even excluding any new sales, the servicing side of AECL's reactor business is profitable, Linsdell said. "The service business is going to be a good one," he said. "SNC is going to get a good deal out of this thing."

For its part, the union hopes that any move for privatization won't result in the company being chopped up and sold off piecemeal.

"The real concern is that the new buyer might not want to take over all the [components]," White said. "It's hard to maintain a nuclear industry with just one piece."

"The government has starved us so we're not as attractive, and that makes the price go down," White said.

But even if they get a good deal on paper, SNC is likely to invest far more in the company than the initial price tag, some say. The purpose of the privatization may not be to acquire funds, Mount Royal University public policy professor Duane Bratt said Tuesday. Rather, the appeal for Ottawa would be to stop the bleeding of more parliamentary appropriations after a slow sale process, he said.

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'Magical' as Lennox collects OBE

Musician Annie Lennox has described being awarded with the OBE by the Queen as "magical".

The former Eurythmics singer was honoured for her work fighting Aids and poverty in Africa in an investiture ceremony at Buckingham Palace.

Lennox, 56, said: "It's quite magical. It's really meaningful to me that it's for charity work.

"Campaigning has been taking up a great deal of my commitment for quite a few years, and what it means is that there's a significance to what I'm doing - I'm not just working in a void. To get this acknowledgement means people are listening."

She met the Queen earlier this year at a Westminster Abbey service for Commonwealth Day, and said the monarch remembered the "HIV Positive" T-shirt she wore on that occasion.

Asked if she had been tempted to wear a similar T-shirt to receive her OBE, Lennox smiled and replied: "I don't think I would have got away with wearing that."

Instead, Lennox - accompanied by her daughters Tali and Lola - wore a purple taffeta dress with a pleated skirt, topped off with a matching vintage felt hat.

The Aberdeen-born artist's pearl accessories were not as expensive as they looked. Lennox admitted with a smile: "My bracelet and necklace are from a Christmas cracker."

She has sold more than 80 million albums worldwide with the Eurythmics and as a solo star, winning a string of awards including Grammys, Brits, Ivor Novellos and an Oscar.

Lennox joked that she would be happy to receive another OBE for her musical work, but said of her campaigning: "Whatever you do, you do out of a passion. You don't think about rewards, you think about what you're doing for its own value. If people then give you recognition for it, that's wonderful."

Copyright (c) Press Association Ltd. 2011, All Rights Reserved.

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PacifiCorp's reliance on coal plants brings utility to expensive juncture

View full sizeTim Kupsick / Casper Star-TribunePacifiCorp's largest-capacity coal plant, the Jim Bridger Plant near Rock Springs, Wyo.

When it comes to power plant pollution, the spotlight in Oregon has been fixed on Portland General Electric and its plan to shut the Boardman coal plant by 2020 rather than invest $500 million to keep it running under stricter air-quality mandates.

But when it comes to coal, PacifiCorp is king. That dependence is driving Oregon's second largest utility to a very different strategy when it comes to impending regulations: to stay the course with coal, despite the expense.

PacifiCorp relies on a fleet of 26 coal-fired boilers at 11 locations in Montana, Wyoming, Utah, Arizona and Colorado. Those plants provide almost two-thirds of the electricity consumed by customers in its six-state territory, and their low-cost output partly explains why Pacific Power's rates in Oregon remain lower than PGE's.

So it's no wonder that company executives were in Washington, D.C., this month to lobby against the quick imposition of new clean air rules proposed by the U.S. Environmental Protection Agency. Cathy Woollums, chief environmental counsel for PacifiCorp's parent company, told lawmakers that compliance within the short time frame proposed by the agency would cause the cost of plant retrofits and new generation to skyrocket as parts and labor shortages outstripped supply.

Woollums estimated that PacifiCorp would face $1.3 billion in additional environmental compliance costs, almost 40 percent of the value of its coal fleet. She didn't translate those costs to rate increases, but said the impact would be concentrated in a narrow window between 2013 and 2015, potentially forcing early plant closures and exacerbating rate hikes from other investments in new gas plants, transmission projects and renewable power.

But while it lobbies against the new rules in Washington, PacifiCorp is telling ratepayers and state regulators that plant retrofits to keep the coal fires burning are the least-cost, least-risk strategy to meet demand.

"For baseload generation, it's either gas, coal or nuclear," said Micheal Dunn, president of PacifiCorp Energy. "There aren't a lot of other options out there, and we believe that retrofitting the coal units is the most economical option for our customers."

That question will be pivotal as state regulators and ratepayer advocates scrutinize the company resource plans over the next few years. Pacific Power has raised residential rates in Oregon by 49 percent since 2005, when it announced its takeover by MidAmerican Energy Holdings, a subsidiary of Warren Buffett's Berkshire Hathaway conglomerate. Part of that rise was driven by the $1.2 billion in environmental upgrades that PacifiCorp has made during that period. Indeed, MidAmerican's chief rationale for buying PacifiCorp was as an investment vehicle for Berkshire Hathaway capital.

PacifiCorp spent $345 million on emissions controls in 2009 and an additional $398 million in 2010. Much of that spending went into units at one plant, and helped drive the 4.4 percent and 8.4 percent rate increases PacifiCorp's Oregon customers saw in 2010 and early 2011, respectively.

Emerging regulations on ash disposal and treatment of cooling and wastewater are likely to require further investments. The company also has a pending request with Oregon regulators to increase rates by 5.2 percent to cover higher power costs, driven in part by rising costs for coal. Many experts say the trend will continue because of increased domestic and foreign competition for Wyoming's Powder River Basin coal.

Importantly, none of the planned coal plant retrofits addresses their enormous output of carbon dioxide, the chief culprit in global warming. Should Congress or individual states adopt a carbon tax or cap-and-trade system, the added cost to PacifiCorp ratepayers would be significant.

"They've obviously got a problem," said Maury Galbraith, an economist with the Oregon Public Utility Commission. "Some of (the coal plants) are fairly new and up to date. They'll probably have to make heroic investments to update some. And some they may eventually want to retire."

Long-term commitment

View full sizeTim Kupsick / Casper Star-TribuneWorkers at the Jim Bridger Plant work on replacement nozzles designed to make a boiler more efficient.

The real risk of PacifiCorp's strategy is that incremental investments to address ongoing regulatory changes will commit ratepayers to running the coal plants long term, said Bob Jenks, executive director of the Citizens' Utility Board, an advocacy group for residential ratepayers. Each of those investments may make sense in isolation, he said, "but nobody's asking the question whether all these together are cost effective versus going with a different technology."

The holdup on that analysis is regulatory uncertainty, reflecting the fact that regulations, not demand growth, are now driving the bulk of utility investments and cost increases.

The question is hardly isolated to PacifiCorp. Utilities across the country have already canceled plans to build more than 150 new coal plants in the past four years, according to the shareholder activist group As You Sow. A 2010 study by The Brattle Group, a Boston-based consulting outfit, found that 20 percent of the coal generation capacity in the nation could be retired if currently contemplated mandates are passed. The study estimated that compliance costs for plants that stay open could total $180 billion.

In the semiannual resource plan that PacifiCorp finalized this year, it analyzed myriad power-generation mixes under different operating scenarios. The preferred portfolio that emerged included up to three new natural gas plants, wind farms to comply with state renewable power mandates and lots of energy efficiency.

In contrast to PGE, which says it's better for ratepayers to shut Boardman by 2020 to avoid the most expensive retrofits, PacifiCorp doesn't envision closing any of its coal plants before 2025, when one or two units could close.

Regulatory uncertainty

The key variables in that calculation are the price of natural gas as a replacement fuel and the price of any eventual tax on carbon dioxide emissions. If there's no carbon tax, the company says, the utilization of its coal fleet is likely to remain steady at 80 to 90 percent. Alternatively, if PacifiCorp faces a combination of low gas prices and high CO2  tax, it could reduce the coal plant utilization rate to 35 percent by 2030. Most scenarios included a reduction in utilization, meaning ratepayers would foot the overhead for running plants less efficiently.

PacifiCorp said regulatory uncertainty is the key caveat, but it concluded that under currently expected scenarios, its coal fleet remains economically viable.

The analysis included some, but not all, the costs of expected environmental upgrades. PacifiCorp's Dunn downplayed the risks from water treatment and ash disposal, for example, as he said those costs would be modest. The key factor in keeping coal plants going is fueling costs, he said, noting that it's still 2 1/2 to three times more expensive to run plants with natural gas than coal. PacifiCorp buys two-thirds of its coal supply on the market and gets one-third from company-owned mines. It says that blend results in a stable, low-cost coal supply.

But those costs are rising, too. The company recently told regulators in Utah that coal prices had increased nearly 25 percent because of increased operating costs at its own mines, and the expiration of long-term supply contracts that are being replaced by new agreements at prevailing prices. The company has requested a power cost adjustment in Oregon that would kick in next January.

PacifiCorp says it's too soon to estimate rate increases its customers can expect because regulations are in flux. Regardless, it acknowledges that the costs will be significant.

Michael Early, executive director of an advocacy group for large electricity consumers, Industrial Customers of Northwest Utilities, wonders how PacifiCorp plans to mitigate rate shock from the environmental mandates. He points to the utility's plans to remove several dams on the Klamath River. That's ostensibly a better deal than upgrading them to aid salmon migration, and he wants to see the same analysis of the coal fleet.

"We still have a lot of energy intensive businesses here," Early said. "If we get hammered with higher energy prices, it will forestall their recovery or cut it off altogether."

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* Business * Economic growth (GDP) Poor GDP figures add to pressure on Osborne

Construction industry income fell 3.4% during the first three months of 2011. Photograph: Roger Bamber/Alamy

The Office for National Statistics has maintained that a dramatic fall in construction activity restricted UK economic growth to 0.5% in the first quarter of the year.

Construction industry income fell 3.4% during the first three months, a slight upward revision on initial estimates, offsetting a 0.9% rise in services, the ONS said.

It confirms that the economy has remained flat for almost nine months after a drop in GDP of 0.5% in the final quarter of 2010 and zero growth in the last month of the third quarter.

The figures will come as a disappointment to the Treasury which is under pressure from backbench coalition MPs to show that cuts in public services and an emphasis on safeguarding the public finances have boosted confidence and injected some life into the economy.

George Osborne has been urged by Labour to prepare a "Plan B" of tax cuts and investment initiatives to kick start growth.

Rightwing pundits have urged the chancellor to embark on tax cuts mixed with steeper reductions in public spending to prevent the economy falling back into recession.

The OECD, the Paris-based thinktank, recently warned the UK government that if the economy continued to flatline it should consider tax cuts for the low paid to boost consumption.

The figures come amid mounting gloom in the UK retail sector, where more than 10,000 jobs are now at risk. Thorntons announced the closure of up to 180 stores on Tuesday, threatening around 1,000 jobs and Carpetright also added to the gloom, axing this year's dividend and warning that it sees "no respite" from the challenges that have forced several high street names into administration in recent weeks, including Liverpool-based TJ Hughes.

The ONS figures showed consumers had reduced their savings to accommodate a surge in inflation, which jumped to 4.5% last month.

The household saving ratio was 4.6% compared with 5.1% in the previous quarter. Real household disposable income also fell by 0.8% following a fall of 0.9% in the fourth quarter of 2010.

Many economists believed the three months up to the end of June will also show little or no growth, further adding to concern inside and outside the Treasury that the current policy needs to be revised.

Alan Clarke, chief UK economist at Scotia Capital, said he feared the UK would struggle to grow in the spring and summer months.

Howard Archer, chief UK economist at IHS Global Insight was marginally more upbeat about the immediate growth prospects, though he warned that the chancellor risked undershooting his fiscal targets.

He said: "We expect GDP growth to be limited to 0.3-0.4% quarter-on-quarter over the rest of 2011, thereby limiting growth to 1.3% in 2011. Growth is seen improving modestly to 2% in 2012.

"These GDP growth forecasts are significantly below the Office for Budget Responsibility's projections of 1.7% in 2011 and 2.5% in 2012, suggesting that the chancellor is highly likely to undershoot on his target of reducing the Public Sector Net Borrowing Requirement (excluding financial interventions) to £122bn in fiscal 2011/12 from an upwardly revised 2010/11 outturn of £143.2bn."

He added: "Given the softness of the economy, serious concerns over the consumer and the fact that the fiscal tightening is now increasingly kicking in, we expect the Bank of England to hold off from raising interest rates until the second quarter of 2012."

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False profits no more, as corporate revenue set to surge

Sales for large caps will double this year, analysts say; 'things are getting better'

Revenue will climb 10 percent in 2011, twice last year's rate, as personal income and corporate spending recover, according to data from analysts compiled by Bloomberg. Net margin estimates were unchanged the past two months after rising more than 50 percent since 2009. The measure of income divided by revenue increased to 13.4 percent in the first quarter from 8.2 percent in October 2009, Bloomberg data show.

Companies that boosted profits by firing workers and closing factories in the first two years of the expansion are running out of opportunities to reduce costs, requiring sales gains to keep growing. While bears say U.S. businesses will fail to increase revenue fast enough to justify higher stock prices, chief executive officers at Caterpillar Inc. and Coventry Health Care Inc. have raised forecasts.

“In the early part of the recovery, the CEO focuses on efficiency, productivity and margin enhancing, until their sales kick in,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital, which oversees $340 billion. “Once that happens, that emphasis on margins starts to fade. What looks on the surface as something you'd check off as bad is actually an indication that things are getting better.”

Caterpillar, Coventry

Caterpillar, the world's largest maker of construction equipment, and Coventry Health, an insurer based in Bethesda, Maryland, posted higher profits when sales retreated, according to data compiled by Bloomberg. Each has rallied after boosting revenue, the data show.

The S&P 500 fell 0.2 percent between June 17 and June 24, dropping for the seventh time in eight weeks. The gauge has surged 87 percent to 1,268.45 since reaching a 12-year low in March 2009 during the 18-month recession, the longest since the 43-month slump of the Great Depression, according to the National Bureau of Economic Research. S&P 500 futures expiring in September rose 0.1 percent at 8:53 a.m. in London today.

Analysts have boosted estimates for S&P 500 sales growth in 2011 to 10 percent, compared with 5.2 percent last year and a decline of 9.1 percent in 2009.

Income Rising

Personal income for Americans is rising at an average rate of 0.6 percent a month in 2011, versus 0.3 percent in 2010, Commerce Department data show. Capital spending by companies in the index may jump 21 percent this year, according to the median estimate of analysts compiled by Bloomberg. Retail sales excluding cars increased 0.3 percent last month, topping economist predictions for a 0.2 percent gain, the data show.

Revenue gains may push S&P 500 profits to $99.08 a share this year, up 17 percent from 2010, after rising 37 percent a year earlier, the biggest two-year expansion since 1995, analyst estimates compiled by Bloomberg show. The gauge has traded at an average 15.7 times reported earnings since the start of 2010, or 15 percent below the average for the rest of the past 10 years.

“Due to the stubbornly high unemployment, lack of economic clarity and questionable self-sustainability, the multiple needs to come down,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus, which oversees $110 billion. “Margins have reached the crescendo, so any improvement with earnings will be pushed through with sales growth. But the economy suggests only a modest improvement in sales, and so earnings improvement should be modest at best.”

Employment Report

The S&P 500 tumbled as much as 7.2 percent after reaching an almost three-year high of 1,363.61 on April 29, driven by government reports showing U.S. employers added 67 percent fewer jobs than economists forecast in May and producer prices rose at twice the expected rate. At 39 days, the decrease is the second longest since the bull market began, Bloomberg data show.

Shares broke a four-day winning streak on June 22 after the Federal Reserve cut its forecast for growth and employment in 2011 and 2012. Risk signals for financial stability in the euro area are flashing “red,” European Central Bank President Jean- Claude Trichet said that day.

The U.S. economy grew 1.9 percent last quarter, a slowdown from 3.1 percent at the end of last year. Unemployment unexpectedly climbed to 9.1 percent in May, homebuilder confidence plunged to the lowest level in nine months and economists cut their estimates for 2011 gross domestic product growth to 2.5 percent from 3.2 percent in February.

‘Derisking and Deleveraging'

“We're seeing a tightening in financial conditions, derisking and deleveraging,” said Doug Noland, the money manager for Pittsburgh-based Federated Investors Inc.'s Prudent Bear Fund, which oversees $1.3 billion. “The markets are starting to recognize this. They're recognizing we need to bring down these multiples because the environment is so uncertain.”

Peak profit margins haven't always signaled the end of equity gains in the past, data compiled by Bloomberg show. The last time corporate profitability reached a high was in January 2007, before the S&P 500 advanced 10 percent through October, the data show. In the same period, U.S. government bonds returned 5 percent, while bonds for American companies added 3 percent, according to Bank of America Merrill Lynch data.

Margins rose to a record 15.6 percent in 1999, when the benchmark gauge for U.S. equities rallied 14 percent through March 2000. That time, Treasuries rose 1.5 percent, and corporate bonds lost 0.24 percent. The S&P GSCI Total Return Index of 24 raw materials outperformed equities in both periods, advancing 23 percent in 2007 and 38 percent in 1999.

Four Stages

Stocks will probably climb about 5.9 percent through March 2012 if history is any guide, according to Birinyi Associates Inc., which examined data on bull markets since 1962. The Westport, Connecticut-based money-management and research firm found advances typically have four stages with the biggest gains coming in the first, when economic data rebounds, and the last, when investors who missed earlier gains buy shares.

The third phase of an advance is usually the weakest as economic growth slows, Birinyi said. While that may be happening now, the firm predicts equities will rise 51 percent by the end of the rally in 2013, based on average historical returns.

“We had two years where every data point was stronger than the next one, and earnings were just marching back to all-time peaks,” said Jeffrey Kleintop, the chief market strategist at LPL Financial Corp. in Boston, which manages about $300 billion. “It's great, but that pace of growth is unsustainable, and ultimately you get to the point where businesses do need to reinvest to generate growth.”

Profit Margins

Profit margins have reached the highest level since the end of 2007, data compiled by Bloomberg show. The expansion since 2009 has helped S&P 500 companies raise earnings for nine straight quarters.

“As sales start to emerge, attention turns to investment, to staffing, and to meeting the sales demand,” Paulsen said. “We're not going to have profit growth going forward like we have had, but there's nothing uncommon about that, because of the economic cycle we're in. Even if margin slips a little bit, your overall earnings can still do fairly well.”

Caterpillar in Peoria, Illinois, posted a 28 percent increase in adjusted earnings per share for the first quarter of last year, even as sales shrank 11 percent. It countered a slump in machinery and engine sales by lowering operating expenses 23 percent that quarter after cutting about 37,000 workers and contractors from late 2008 to the end of 2009.

Higher Sales

The company said on April 29 that revenue will climb to at least $52 billion this year, compared with an October forecast of less than $50 billion, as sales surge in developing countries. The stock is up 50 percent since Caterpillar started to report higher sales.

Coventry Health Care's adjusted earnings rose 73 percent last year even as sales slipped 17 percent. The profit margin, which in 2009 was the lowest since 1997, more than doubled. Shares of the health insurer advanced 1.6 percent since the company boosted its revenue estimate for the year on April 29.

“We are downshifting to a more normal mid-cyclical environment,” said Kleintop. “That's a good thing, it sustains the recovery. Even as profit margins might be stable or even falling, stocks will do reasonably well because people believe the growth is going to continue, even if at a slower pace.”

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Rare display for Auckland Art Gallery re-opening

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RESTORED: The newly refurbished areas of the historic Auckland Art Gallery were returned to the care of its staff today after three years with Hawkins Construction.

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When the Auckland Art Gallery Toi o Tāmaki re-opens in 68 days, the new-look building will exhibit a rare collection of modern art gifted to the people of Auckland.

The newly refurbished areas of the historic gallery were returned to the care of its staff today after three years with Hawkins Construction. 

And when the gallery opens on September 3, the complete Robertson Promised Gift will be on display for eight weeks.

Announced in 2009, the gift from New York art collectors Julian and Josie Robertson is the largest ever made to an Australasian art gallery.

Its 15 works represent some of the major European artists of the modern era including paintings by Matisse, Picasso and Dali.

Auckland Art Gallery director Chris Saines said this will be a rare chance for Kiwi art lovers to see the historic works.

"This will be the first and only occasion the Robertson gift will be seen in Auckland, in its entirety, until such time as the 15 works are finally settled on the Gallery under the terms of the deed of promised gift."

Today, the historic 1887 Wellesley and Kitchener St building and the 1916 East gallery were the first spaces returned in a phased handover ahead of the official opening in September.

The three year construction period has included one million man hours to increase the exhibition space by 50 per cent and, when completed, the cost of the refurbishment will come in close to $121 million.

Chairman of Regional Facilities Auckland Sir Don McKinnon says the refurbishment is a key moment in the building's history.

"This really is a major milestone in the Gallery's development project.

"I believe Auckland will be very, very proud of what we have here."

Saines said keeping the historic aspects of the building was crucial.

"We've gone for broke with this building to try and put heritage back into it in its authentic manner."

The Auckland Art Gallery opens on September 3.  The Robertson collection will be displayed in the renamed "Julian and Josie Robertson Galleries", formally known as the Kitchener galleries, from September 3 until October 30.

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