08/01/2007 - 07:00

Follow the money

In the months since this exchange began, one episode after another has established that the
nuclear power surge emerging from Washington is not the benign version that its more idealistic
proponents envision. These episodes include: President George W. Bush hauling the Nuclear
Regulatory Commission (NRC) chairman (an ostensibly impartial regulator) to the reopening of the
Brown's Ferry I plant to order him to speed up the licensing process; Bush's enthusiasm at Brown's
Ferry for reprocessing, a technology he and Russian President Vladimir Putin then hailed in
Kennebunkport--despite dangers vastly outweighing its questionable benefits; and a few days ago,
the administration's undermining of the little nonproliferation resolve remaining in the U.S.-India
nuclear agreement.

Another unedifying episode is the astonishing rush to the trough that has accompanied the Energy
Department's effort to promulgate the rules governing the loan-guarantee program set forth in the
2005 Energy Policy Act.

Remember that the act's incentives were intended to apply to a few "first mover" nuclear units,
to demonstrate the viability of new reactor designs and the revised NRC licensing process. (Never
mind that the oft-vilified "old" NRC licensing process licensed more plants than the next four
countries combined without turning down a single applicant.)

Nonetheless, Congress authorized $4 billion in loan guarantees for "new" low-carbon
technologies, including nuclear power. However, the debate now raging over the administration's
implementation of the loan-guarantee program reveals that the amount sought by nuclear power alone
will approach $50 billion. The 2005 plea for limited support for "first-mover" units has become yet
another multibillion dollar nuclear cost underestimate.

Representatives of major lenders and investors have said that unless the industry gets its way,
the "nuclear renaissance" will be stillborn because "there is not going to be any financing." (See
Power, Banks Link Up in Bid to Get Better Financing."
) They also say that they want to "avoid
another Shoreham," a praiseworthy sentiment of mystifying relevance, since bondholders didn't lose
a penny over Shoreham, and loan guarantees wouldn't have made a difference to any aspect of that

What is one to make of this, as nuclear proponents claim that the new designs are cheaper and
more foolproof? That the licensing problems have been fixed? That the industry's excellent safety
and operating record in recent years has made Three Mile Island irrelevant to judging future

Apparently, Wall Street doesn't accept these conclusions. Instead, it threatens not to advance
money unless the risks are borne by taxpayers, or perhaps customers. Since risk drives the cost of
capital, such a shift will make capital-intensive nuclear plants look cheaper than their
competitors, an especially crucial feature in the competitive power markets that now encompass more
than half of the electricity sold in the United States.

But the plants will not actually be cheaper. The risks will simply have been off-loaded, a
zero-sum game unlike real savings in construction or operating costs. If the price of uranium or
concrete falls, nuclear power becomes cheaper in a real sense, but if risk is shifted from one
party to another, it does not.

To appreciate that risk equals real money, consider the possible implications of loan guarantees
in four (among many) illustrative real-world situations--Three Mile Island, the municipal bond
catastrophe that accompanied the Washington Public Power Supply System nuclear construction fiasco
in the 1980s, the bankruptcy of Public Service Company of New Hampshire as it struggled to complete
the Seabrook plant, and the recent indefinite shutdown of a seven-plant Japanese nuclear site due
to an earthquake. In the likely event that any of these events resulted in inadequate bond
repayment in competitive markets or otherwise, the money would come from taxpayers, as it would
have if the stranded investment threat of the mid-1990s had materialized.

Investors studying such situations know that risk isn't abstract, that it will take the form of
multibillion-dollar impacts unmitigated by a faster NRC licensing process or by improved reactor
designs. Such exposure is much greater for nuclear power than for energy efficiency or other
low-carbon energy sources, which is why the nuclear industry is objecting vociferously to having a
fraction of the debt of these plants not be guaranteed, perhaps to assure that private investors
will still perform their expected risk assessment and management functions in deciding where to put
their money.

This spectacle shows again that nuclear power seeks a remarkably privileged status among the
energy resources that we have discussed and that the industry fears head-to-head competition with
the other ways of reducing greenhouse gas emissions.

It's been a dismaying year for principled nuclear power proponents. We haven't seen a similar
year since the early 1970s, and we know where that exuberance led.