Nuclear projects face financial obstacles
Nuclear projects face financial obstacles
By Steven Mufson
Washington Post Staff Writer
Tuesday, March 2, 2010; A01
Hopes for a nuclear revival, fanned by fears of global warming and a
changing political climate in Washington, are running into new
obstacles over a key element — money.
A new approach for easing the cost of new multibillion-dollar
reactors, which can take years to complete, has provoked a backlash
from big-business customers unwilling to go along.
Financing has always been one of the biggest obstacles to a
renaissance of nuclear power. The plants are expensive, and
construction tends to run late and over budget. The projected cost for
a pair of proposed Georgia plants would be $14 billion; the Obama
administration last month pledged to provide them with $8.3 billion in
federal loan guarantees.
So utilities have turned to state legislators and regulators to help
contain capital costs. In states such as Georgia, Florida and South
Carolina, utilities have won permission to charge customers for some
of the cost of new reactors while construction is still in progress –
a financing technique that would save utilities a couple of billion
dollars for each reactor. Previously, utilities had to wait until
power plants were in operation before raising rates, as they still do
in most states.
“We tell people it’s like paying off the interest on your credit card
as you go along, rather than letting it compound,” said Suzanne Grant,
a spokeswoman for Progress Energy.
But businesses and other electricity users in those states aren’t
buying that argument. Instead, they are saying utilities are pawning
off much of the projects’ liabilities on customers because bank
lenders and investors will not take the risks.
“It’s a terrible idea,” said Jim Clarkson, a consultant with Resource
Supply Management, a Georgia firm that advises companies on how to
reduce electricity use. “We’ve had decades of subsidies for nuclear
plants and all sorts of preferential treatment. They still require
loan guarantees because the smart money won’t touch them.”
“Nuclear power is very important,” says John W. McWhirter, who
represents the Florida Industrial Power Users Group. “We just wish
consumers could be protected.”
The reaction of big businesses, as well as other consumers, has turned
states that were bastions of support for nuclear power into hazardous
territory. And it could thwart the Obama administration’s efforts to
jump-start nuclear reactor construction by handing out chunks of the
$18.5 billion in federal loan guarantees Congress authorized in 2005.
Turning to the states
Thirty to 40 years ago, expensive nuclear plants drove some utilities
into bankruptcy. That has made banks gun-shy about lending and
investors wary about buying bonds. Moreover, the new plants are so
expensive that a single unit could equal a quarter to 100 percent of
the market capitalization of an entire utility company, potentially
damaging the utility’s credit rating.
That’s why utilities turned to the states, lobbying in recent years
for the ability to charge customers while construction is in progress.
“Without this legislation, we would not be considering building new
nuclear generation in Florida,” Grant said.
The savings for the utilities are huge because they have to borrow
less money. Southern Co. said the law passed in 2000 will help its
Georgia Power subsidiary shave nearly $2 billion off the cost of the
two new nuclear reactors at its Vogtle site — and Georgia Power owns
only 45 percent of the project.
Last month, Southern received “conditional” approval for $8.3 billion
in federal loan guarantees from the Obama administration on that
project. (While still under negotiation, the terms of the federal loan
guarantees would probably save Southern an additional $15 million to
$20 million a year, a company spokesman said.)
In Florida, Progress Energy and FPL have won approval from state
regulators to pass along about $360 million in costs associated with
new nuclear power units northeast of St. Petersburg. Progress Energy
says it has already collected $196.6 million from customers, a third
of its total expenditures so far.
But the Florida utilities have not yet obtained permits they need from
the Nuclear Regulatory Commission, so while some site preparation has
taken place, construction hasn’t even started.
The utilities’ gains are the consumers’ losses — and businesses such
as the Georgia Industrial Group and the Georgia Textile Manufacturing
Association have joined consumer and environmental groups in combating
the state laws and higher rates.
In Florida, PCS Phosphate, which has a fertilizer plant that uses
about 1 percent of Progress Energy’s output, told the Public Service
Commission that new rate increases “will substantially affect” the
company “by directly increasing the cost of power.”
“Certainly coming on top of the recession, it is badly timed,” said
James W. “Jay” Brew, attorney for PCS Phosphate, a unit of Potash
Corp. “It’s asking a lot of current customers to fund that large a
capital expense up front.”
Worth the wait?
Progress Energy says that over time, companies such as PCS Phosphate
will be better off. “It lowers the overall costs of a nuclear power
plant to customers by several billion dollars,” the company said in a
statement. “Paying these costs in advance significantly lowers the
long-term financing costs. The overall cost of the plant decreases,
minimizing the price customers pay over its operating lifetime.”
But the ratepayers disagree. They say that if the plants are delayed,
ratepayers will absorb the expense. When the Florida utilities said
the increasingly hostile atmosphere might prompt them to abandon the
nuclear plants, the consumers said that only proved their point:
Consumers could pay millions for a project that might never reach
fruition.
“If a project cannot attract private investment, it’s a turkey and we
shouldn’t be wasting taxpayer money or forcing the users of
electricity to pay for something the stakeholders and lenders won’t
risk their money on,” Clarkson said.
In addition, the consumers argue, many residential customers might
move to another state, or even die, in the six to 10 years it will
take for new plants to come on line, and they might never see the
benefits. Others will have to stick around another 15 years before the
savings compensate for higher rates now, Brew said.
FPL Vice Chairman Moray P. Dewhurst said intergenerational fairness is
always an issue for power plants. “Look at the wonderful deal that
retirees are getting now from nuclear plants built years ago and which
are paid for,” he said.
Financing questions have also challenged nuclear plans in other
states. In Missouri, a backlash from ratepayers helped defeat a
similar proposal to allow higher electricity rates during nuclear
plant construction.
In South Carolina, the state Supreme Court on Thursday will consider
an appeal by Friends of the Earth of a decision by the state Public
Service Commission allowing South Carolina Electric & Gas (SCE&G) to
begin collecting higher rates to cover costs associated with a
two-reactor project.
In Texas, rising cost projections for a pair of new reactors
threatened the credit rating of San Antonio’s city-owned utility,
which owned 40 percent of the project, and raised the specter of tax
increases. San Antonio fired the head of its municipal utility and
filed a $32 billion lawsuit against its partners, NRG Energy and
Toshiba, alleging they concealed cost information. On Feb. 23, the
partners agreed to shrink the San Antonio utility’s stake in the
project to just under 8 percent.
There is one state that has presented new obstacles to nuclear power
for reasons having nothing to do with economics. Last month, the
Vermont state Senate voted against extending the operating license for
Vermont Yankee, the state’s sole nuclear power plant, after the
discovery of radioactive tritium in test wells raised fears about
plant safety. (Tritium raises cancer risks.) Vermont, unlike most
states, must approve any extension of the plant’s license, which will
expire in 2012. Most plants must get approval only from the Nuclear
Regulatory Commission.
