http://www.washingtonpost.com/wp-dyn/content/article/2010/03/01/AR2010030103975.html?hpid=topnews
Nuclear projects face financial obstacles
By Steven Mufson
Tuesday, March 2, 2010; A01
Hopes for a nuclear revival, fanned by fears of global warming and a changing political climate in
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
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
"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
The savings for the utilities are huge because they have to borrow less money.
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
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
"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
"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
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
There is one state that has presented new obstacles to nuclear power for reasons having nothing to do with economics. Last month, the
© 2010 The Washington Post Company
Donations can be sent to the
"The master class has always declared the wars; the subject class has always fought the battles. The master class has had all to gain and nothing to lose, while the subject class has had nothing to gain and everything to lose--especially their lives." Eugene Victor Debs
