Nuclear bailout

Taxpayers will assume 100 percent of the risk of the expansion of Plant Vogtle

Georgia Power's Plant Vogtle on the Savannah River

This is the first part in a series investigating the financial and environmental impacts of the expansion of nuclear facilities at Plant Vogtle.

While utility companies in Georgia, Florida, South Carolina and Alabama all explore investment in nuclear energy, and the energy industry spends millions lobbying state and federal officials, what seems confusing is this:

If nuclear is such a clear solution to our energy needs, why isn’t it more viable without the support of tens of billions of tax dollars?

“Nuclear power cannot be financially viable without taxpayer support, which includes not only federal loan guarantees but also risk insurance and production tax credits that manipulate the cost of nuclear generated energy,” said Tyson Slocum, director of Public Citizen’s Energy Program, in a statement released the same day President Obama announced more than $8 billion in federal loan guarantees for Georgia Power’s Plant Vogtle expansion.

Obama praised the expansion of the nuclear site upriver from Savannah as an investment in clean energy that would create thousands of construction jobs to build the plant, and then sustain hundreds of jobs once the two new reactors came online.

When Georgia Power got the news, the announcement was shouted from rooftops and echoed across press releases from government agencies and private companies like it was a new development.

But taxpayers have actually been helping foot the bill for the industry for decades.

Developing new nuclear reactors has become one of the rare examples of an issue with bipartisan support in this time of stark political polarization.

Among Republicans who have railed against the federal stimulus and Obama’s healthcare reform for their supposedly unwise federal spending, there hasn’t been a peep of dissent to Obama’s huge loan guarantees for nuclear power.

The loan guarantees, though first given to the nuclear industry by Obama, were actually created by the Bush Administration under the Energy Policy Act of 2005.

But while utility companies across the Southeast, including Georgia Power, have been scrambling to get in line for the handout while praising the clean, inexpensive virtues of nuclear energy, there’s seems to be some confusion about the costs of nuclear power generation, which was once predicted to be “too cheap to meter,” during the 1950s.

“Energy leaders and experts recognize that as long as producing carbon pollution carries no cost, traditional plants that use fossil fuels will be more cost–effective than plants that use nuclear fuel,” said President Obama in a statement in mid–February during the loan guarantee announcement, seemingly indicating that nuclear needed help to be competitive.

Meanwhile, Jeff Wilson, a spokesperson for Georgia Power, extols the virtues of nuclear by explaining that although the initial investment is higher than other forms, the cost of generation is a fraction of other fossil fuels.

“The Public Service Commission determined that this was the lowest cost and least risky option when compared to other forms of generation,” he explains. “They looked at scenarios with coal and natural gas but with the price volatility there, they determined that the nuclear units were the best alternative for customers.”

Critics of nuclear expansion wonder whether, with finite resources available to invest in new energy technology, the utility companies are pushing for what they see as the most lucrative option, rather than the most responsible.

“If the reactors ever come online, Georgia Power and South Carolina Electric & Gas will have a glut of energy to sell,” says Tom Clements, Southeastern Nuclear Campaign Coordinator with the environmental group Friends of the Earth.  “They will not be at all in the mind to support conservation or alternatives; they will want to sell all the nuclear electricity they can.”

One of the less publicized methods of public support has been going on for over half a century, the Price–Anderson Act, a bit of legislation originated in the late 1950s, and re–invigorated through the Bush-era Energy Policy Act.

Price–Anderson limits the amount of liability insurance needed by companies owning nuclear facilities to $300 million. Having to pay less for insurance saves them millions of dollars a year, but places the financial responsibility for the costs of a potential large scale nuclear accident solely on the backs of taxpayers.

“In the event of a nuclear incident involving damages in excess of the limits established in the Act, Congress could take further actions, including the appropriation of funds,” according to a report by the American Nuclear Society. “The Act has removed the deterrent to private sector participation in nuclear activities presented by the threat of potential liability claims following a large accident.”

Another handout granted to the nuclear industry in 2005’s Energy Policy Act was an $18 per megawatt tax credit for qualifying power plants during the first eight years of operation (the average wholesale cost of electricity per megawatt has been around $50 for the past few years).

“Georgia Power is about selling electricity. They’re not about reducing demand and presenting a sounder energy policy for the state,” says Clements. “They want to build more production of electricity and sell that power. That’s what their profit is hooked to. Their first obligation is to their shareholders.”

Environmentalists and consumer advocates aren’t the only ones worried about the viability of the nuclear industry. Credit rating agencies and market analysts are also not big fans of nuclear ambition, partly because of the unpredictable, fast–rising costs (the estimated cost of building a new reactor has quadrupled since 2005) and because of the tremendous uncertainty of a project being completed (the AP1000 reactor design that Georgia Power plans on using is still not approved by the Nuclear Regulatory Commission).

In September of 2009, Moody’s Investor Services, a global source for credit rating and risk analysis information, downgraded Oglethorpe Power (one of Georgia Power’s partners for Plant Vogtle) from ‘stable’ to ‘negative.’ Among the reasons listed was “increased risk profile related to new nuclear construction.”

Even the Congressional Budget Office (CBO) has doubts about the success of new nuclear energy development without some help.

“If construction costs for new nuclear power plants proved to be as high as the average cost of nuclear plants built in the 1970s and 1980s or if natural gas prices fell back to the levels seen in the 1990s, then new nuclear capacity would not be competitive, regardless of the incentives provided by Energy Policy Act,” said a CBO report published in 2008.

One of the most curious aspects of Plant Vogtle’s financial viability is that, having secured billions in federal loans and clearance to charge customers for the rest of the construction costs (more on that next week), the company’s own shareholders are unwilling to assume any financial responsibility for the project itself.

“The Commission staff asked Georgia Power whether the Company was willing to assume any responsibility if the actual project costs are substantially higher than the estimated costs,” says energy industry economist Daniel Schlissel in testimony during PSC hearings about Construction Work In Progress (CWIP) tariff. “The Company’s response was ‘No, the Company’s shareholders will not invest capital in the project without a reasonable assurance of cost recovery.’ In other words, the Company will seek to have ratepayers bear the risks of higher project costs.”

The shareholders won’t have to worry though, because the state legislature has ensured that all of Georgia Power’s customers will pay any “prudent” construction costs for the construction of Plant Vogtle. The surcharges will appear on most customers’ monthly bills starting in January 2011. 

The next article will discuss how Georgia Power customers will pay to build a nuclear facility, and then pay for electricity generated by the plant they paid to build


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