24 September 2015

What the EPA’s Clean Power Plan means for nuclear energy

Peter A. Bradford

Peter A. Bradford

Peter A. Bradford is an adjunct professor at Vermont Law School, where he has taught “Nuclear Power and Public Policy.” From 1977 to 1982, he served on the US Nuclear Regulatory Commission, and he...

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For nuclear power, the good news and the bad news in EPA’s final Clean Power Plan are the same: The technology got pretty much what it deserved. The competitive position of all new low-carbon electricity sources will improve relative to fossil fuels. New reactors (including the five under construction) and expansions of existing plants will count toward state compliance with the plan’s requirements as new sources of low-carbon energy. Existing reactors, however, must sink or swim on their own prospective economic performance—the final plan includes no special carbon-reduction credits to help them. During the Clean Power Plan’s 15-year scope, a few will sink; most, especially those in states where existing generators need not compete, will swim.

Industry spokesmen such as Nuclear Energy Institute president Marv Fertel are stressing the good news, leaving the gnashing of teeth over the absence of nuclear-specific favoritism to fellow travelers at places like the Breakthrough Institute and Third Way. This split response stems from the inconvenient truth that made the good and the bad news in the Clean Power Plan identical. Getting a just result is not enough for the US nuclear industry to compete, let alone to grow.

Priced out of the market. Economic analysis shows that the cost of new reactors is far above that of other low-carbon alternatives. The most recent of many proofs is Dominion Resources’ midsummer acknowledgement that the cost estimate for its proposed North Anna 3 unit in Virginia now exceeds $19 billion, or about 19 cents per kilowatt-hour—at least three times current US power market prices, which would make the project even more expensive than Britain’s proposed Hinkley Point reactor, whose costliness has resulted in calls for its cancellation from three of the environmentalists whose decisions to support nuclear have been so highly publicized in recent years. Concluding “Yes, we are still pro-nuclear. But not at any price,” the trio have not grasped that, for now, one is either pro-nuclear at any price or one is not pro-nuclear at all.

The four reactors being built in Georgia and South Carolina were supposed to demonstrate that new construction techniques and a new licensing process had finally brought nuclear plant cost overruns and construction delays under control, but they have shown the reverse. Construction of the fifth new US reactor, Watts Bar Unit 2 in Tennessee, began in 1973. Its design would not be licensed today. It is far behind its schedule even of four years ago and far over its budget. Industry efforts to tout its 2016 opening as proof of a reactor construction rebirth signify desperation, not accomplishment.

Only buckets of money from taxpayers and customers can lead to new reactor construction. The Clean Power Plan contains no such buckets.

Furthermore, even the cost of operating today’s reactors has risen above power market prices in the substantial parts of the United States that rely on wholesale power competition. EPA’s draft rule had given limited special status to existing nuclear plants, a poorly constructed effort to avoid the closing of the 6 percent of operating reactors that EPA calculated were in some danger because they could no longer operate profitably. Industry comments, in keeping with the overall quest for special protections, were to the effect that the 6 percent solution was far too little. These comments contended that extending the lives of all operating reactors was a costly activity that should be counted as new carbon reduction between now and EPA’s 2030 target date, even though almost all of those reactors either are already licensed to operate past 2030 or soon will be.

The EPA’s refusal to assign nuclear power a privileged place in its climate change arsenal comes as a damaging rebuff to the multifaceted industry effort to convince policy makers and the public that carbon-reduction goals can only be attained if almost all operating reactors are preserved. How much might this preservation cost? How many other low-carbon alternatives must be kept from competing for this market? No one ever says. In the last two years, the industry and its front group Nuclear Matters have sought billions in support for existing reactors from state governments without ever saying how much money would be enough. Nuclear power plant owners Exelon, First Energy, and Entergy have also demanded guaranteed above-market pricing from regulators in several states, while importuning grid operators and the Federal Energy Regulatory Commission to revise marketing rules in ways that would increase nuclear plant revenues by yet more billions.

The same companies have lobbied against subsidies for renewable energy and energy efficiency in Congress and in state capitals, blaming these subsidies—rather than the much more substantial operating cost increases of their aging reactors—for their economic problems. Exelon’s proposed merger with Pepco Holdings Inc. (PHI) contained none of the support for state renewable energy goals typical of merger proposals. The merger would create additional monopoly utility subsidiaries to the Exelon holding company, which also owns several unprofitable nuclear units. This would be a significant development, because such chained monopolies tend to be less aggressive than utilities without ties to generators in shopping for the best deals for their customers—rather than for their holding-company owners. The proposed merger, having been approved by all affected states and the Federal Energy Regulatory Commission, was rejected by the DC Public Service Commission, so its prospects are uncertain.

Imagine Nuclear Power in America as a person—a character like Trout Fishing in America, the person in Richard Brautigan’s 1967 novel by the same title—being interviewed by Stephen Colbert, the host of the former “Colbert Report.” As Nuclear Power in America lists its usual woes—a timid public, antinuclear activism, lack of a national energy policy, overregulation, lack of a waste repository, Jimmy Carter’s presidency—Colbert grows visibly agitated. Finally he bursts out, “How can we give you what you really need if you never tell us what it is—hundreds of billions in subsidies and suppression of competition. These other things are just distractions. Take them all away and you still wouldn’t have completed a single additional reactor in the United States in this century.

“All you do is simper about ‘level playing fields,’ ‘poorly designed power markets,’ ‘gas volatility,’ ‘clean, safe, reliable baseload,’ ‘jobs and taxes,’ ‘converted environmentalists,’ ‘Harry Reid,’ ‘French industrial wisdom,’ ‘German fecklessness.’ How is the US public supposed to understand that if it wants 100 new reactors, it can’t just burn Helen Caldicott at the stake? It has to put up $500 billion in new nuclear subsidies along with guaranteeing that no other technology—not even another nuclear technology—can come along and steal its electric customers in the 10 years that it may take to build each plant?

“Nuclear power requires obedience. Demand what you really need. Just look at Donald Trump. What can possibly go wrong?”

Ma Bell revisited. As nuclear utilities deploy their governmental influence against their low-carbon competitors, they are following a playbook drawn up by the American Telephone and Telegraph Company (AT&T, or the Bell System) monopoly decades ago. When ordinary businesses face tough competition, they cut prices, improve service, develop and deploy new technology. On the other hand, monopolies and nuclear plant owners threaten declining service, higher prices, community impoverishment, and environmental damage. Technological advance is as much a threat as a benefit.

As with today’s nuclear and electric utility industries, AT&T’s efforts to beat back competition took many forms other than providing better services at lower costs. Had Ma Bell succeeded, the smart phones that we take for granted might not yet have been developed.

In the 1950s, Ma Bell persuaded federal regulators to prevent an independent company from marketing a rubber cup-like device to be attached to a telephone receiver to assure privacy of conversations in crowded offices. As late as 1972, no non-Bell equipment, not even a basic answering machine, could be directly connected to a Bell System telephone wire. As the Federal Communications Commission and a few states began to require some interconnection of non-Bell equipment, AT&T demanded that all such equipment interconnect through a Bell-provided device, ostensibly to protect network integrity, even though non-Bell phone companies such as Rochester Telephone imposed no similar requirement.

AT&T also waged war against independent companies carrying calls or data. Through anticompetitive pricing plans, refusals to interconnect, and opposition in many legislative and regulatory forums, AT&T erected and reinforced barriers to entry. In a 1973 speech to the nation’s “stomping and cheering” utility regulators, CEO John deButts called for “a moratorium on further experiments in economics.” According to Steve Coll’s 1986 book The Deal of the Century: The Breakup of AT&T, DeButts later proclaimed, “A faulty telephone in one house could conceivably disrupt service to an entire city.”

In 1976, Congress considered legislation that would have put an end to the nascent competition in the telephone industry. The bill’s formal title was the Consumer Communications Reform Act, but it was generally called “the Bell bill.” It would have rolled back federal decisions allowing customers to attach non-Bell equipment to the network and would have prohibited non-Bell companies from carrying long-distance telephone calls. AT&T flew supportive employees to Washington from all over the country, but the legislation failed. Eventually Ma Bell’s anticompetitive conduct resulted in a 1982 decree that broke up the company to settle an antitrust suit.

The breakup eventually enabled competition to spur combinations of telecommunications, computer capability, and data transmission that have relegated the Bell System to museum piece status. The intelligence of the system migrated from massive central switches to the home and then to the pockets and handbags of customers. Today’s iPhone user’s hand holds more intelligence and control than a Bell System central office held in 1972. Thousands of services unimagined then are now commonplace, with more added daily. Customer choice has almost completely displaced regulation in determining prices and service quality.

The crumbling of the electric-sector monopoly has been slower and has occurred at different paces in different places—with power plants still part of the monopoly in the Southeast and much of the central United States but owned by nonutility and competing companies in the Northeast, the West Coast, Illinois, and Texas. There is no electric counterpart to the way microwave technology allowed phone companies to bypass Ma Bell’s wires. Instead customer control has come about through reforms encouraging onsite generation (primarily solar and cogeneration), energy efficiency, and technologies allowing customers, utilities, and even middlemen to maximize electricity use during the cheapest hours. If electricity storage technology becomes cost effective, customer dependence on electric wires and large power plants will be further reduced.

Anticompetitive behavior by Nuclear Power in America and its utility allies doesn’t seem any more likely than the Bell saga to preserve a profitable status quo for the incumbents, though their ability to hold their customers and some communities to ransom will ease their stockholders’ pain, as it has done before.

No special treatment. Of course, the EPA’s Clean Power Plan is most important in that it establishes a national policy under which Earth’s atmosphere will no longer be a free carbon sink. That is nuclear power’s biggest and most legitimate gain under the plan. No less important and no less commendable is the EPA’s refusal to let the Clean Power Plan be used as a vehicle for the special treatment that the nuclear industry sought and seeks still in many other forums.

And so Nuclear Power in America’s quest for special status staggers on. Unlike the Bell System’s breathtaking 1976 Bell Bill, the industry cannot summon the nerve to ask for what it really wants. Instead it races from one forum to the next, hoping to pick up a few billion in a power market rule change here, hamstring its competitors in a legislature there. Its multibillion-dollar successes in state and federal subsidy legislation a decade ago have sufficed only for the five pending reactors. The EPA didn’t bite. Neither, apparently, has the District of Columbia.

In Illinois, where pending legislation would impose a nuclear plant preservation surcharge on all customers, perhaps Nuclear Matters could take another page from the fanciful history of government suppression of competition, specifically Frederic Bastiat’s 1845 petition to the French Chamber of Deputies on behalf of candlemakers seeking to kill off a solar competitor:

We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains … in short, all openings, holes, chinks and fissures through which the light of the sun is wont to enter houses to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.

Alas for Nuclear Power in America, as the number of forums shrinks, the remedies needed from each one grow. As demands increase, so does the likelihood of a devastating competitor/customer/taxpayer backlash.

Just ask John deButts.