40-year-old nuclear plants can produce electricity that is "too cheap to meter" – that capability angers the competition
Antinuclear activists often think they have a tossed a trump card into an energy related discussion when they misquote a phrase included in a 1954 speech by Lewis L. Strauss, the politically appointed head of the Atomic Energy Commission. According to people who are fundamentally opposed to the safe and economical use of atomic fission, Strauss made an unfulfilled promise for the industry by claiming that nuclear energy would be “too cheap to meter.”
Here is a more complete context of what Strauss said in that speech, made three years before the first commercial nuclear plant in the United States started operating.
“It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter, will know of great periodic regional famines in the world only as matters of history, will travel effortlessly over the seas and under them and through the air with a minimum of danger and at great speeds, and will experience a lifespan far longer than ours as disease yields and man comes to understand what causes him to age.”
Lewis L. Strauss
Speech to the National Association of Science Writers, New York City September 16th, 1954.
Aside: As a matter of fact, that speech was made only a few months after the very first power reactor of any significant size started operating in the Idaho desert and several months BEFORE the USS Nautilus made its maiden voyage “underway on nuclear power.” End Aside.
The funny thing about that excerpt from a speech meant to inspire science writers is that it was actually rather prescient. Once you have paid off the mortgage from buying a nuclear fission power plant, keeping it running can be cheap enough that it does not make any sense to carefully measure each kilowatt-hour produced.
The cost of owning the plant is virtually the same as the cost of operating the plant, so it makes sense to crank it up to full power as often as possible and simply charge a fixed monthly fee to take care of the unavoidable cost of taxes and occasional maintenance. Even the fuel bill does not change based on actual use; nuclear plants refuel on a calendar schedule that is only loosely linked to the actual running time in between outages.
If you look through the data compiled by the Nuclear Energy Institute, you will find that the industry calculates an average cost per kilowatt-hour so it can compare its operating costs to its competition. If you dig deeply into the components of that calculation you will find that none of the numbers would change if the plant owners tried to economize by only running the plant when it was absolutely necessary. That mode of operation would simply impose additional maintenance costs; it would not save any operating costs.
That situation is completely opposite to the one that exists in plants that burn natural gas. In those plants, 90% or more of the total cost of operating comes from purchasing fuel. Whenever the power is not needed, the plants reduce their output in order to reduce their fuel bill. If market demand is low enough, they completely shut down to get rid of the fuel bill all together. They also send as many of the minimal staff off somewhere else so they can reduce the carrying cost to as low a level as possible. Since gas plants often have have a rapidly depreciating assessed value, their tax bills are pretty low, and they do not have to pay a regulator $4-5 million per year to keep inspectors on site.
Coal fired plants are not quite as tied to fuel costs as gas fired plants, but an average of 77% of their operations and maintenance bill comes from purchasing fuel. They will reduce power or shut down if there is no market for their power.
In many ways, owning and operating a well-maintained, mature nuclear plant is a bit like living in a house passed down through inheritance that is heated with wood from the trees on the property and cooled by a system using the stream running through the backyard. You still have to pay your taxes; you still need to fix the roof before it leaks; and it is a good idea to have the air conditioning system checked for leaks every year before operating it for the summer. On the plus side, there is no mortgage, and virtually no fuel bill to worry about.
There is no fixed time when an asset like that reaches the end of its useful life. There is no reason to retire it as long as the neighborhood does not deteriorate and as long as you regularly invest in the upkeep. Even if you are “too poor to paint and too proud to whitewash”, it is probably a better idea to sell the asset than to tear it down.
There is an interesting historical reason why nuclear power plants in the United States were initially licensed to operate for 40 years. When the federal government was debating the Atomic Energy Act, there was little disagreement about the fact that none of the states had the expertise necessary to inspect and ensure safety, so there was no disagreement about the need for a federal agency to license the plants.
When it came to a question about the length of the license, there was little information available on which to base the decision. There was a general agreement that the license should not last forever; the authors understood that would give businessmen too much incentive to run the plants into the ground and extract as much cash as possible. The Atomic Energy Act authors asked engineers how long the plants would last, and most likely received the correct, but occasionally frustrating technical answer of “it depends” on a variety of unknown factors like the care with which the asset is maintained during its operating life. No self-respecting engineer would make a longevity commitment for nuclear power plants in 1954 because they had no operating history on which to base such a prediction.
Next the authors turned to their regulatory colleagues and found out that hydroelectric dams were also given federal licenses to operate. Those licenses lasted for 40 years. They asked the power companies that had expressed at least some interest in nuclear energy if they thought that was reasonable. Technical experts most likely told them that they were confident that they could make the materials and equipment in a nuclear plant last at least as long as the equipment associated with a hydroelectric dam. The deal was done and the bill was passed with a 40-year license period – with the provision for 20 year extensions after an evaluation by the technical experts in the federal government, who would examine operating history and maintenance records.
Aside: I read that story in a history of the Atomic Energy Commission, but I cannot lay my hands on the exact source right now. I have misplaced the second volume of the story; the one on my shelf right now only covers the period from 1947-1952. Here is what the NRC tells the public on their history page “The 40-year licensing period for nuclear plants was a rather arbitrary compromise written into the 1954 Atomic Energy Act that was not based on technical grounds or operating experience.” End Aside.
There are plenty of people who would prefer not to compete against a large electrical power production facility that can operate at full power just as cheaply as it can sit around waiting for customers to want to purchase power. People who sell fuel would love for gas burning plants to operate more each year; fuel vendors capture 90% of the revenue associated with operating those plants.
People who sell wind turbines or solar panels would love to force emission-free nuclear plants off of the grid, especially now that politicians are recognizing the reality that nuclear energy is just as clean. People who design and build new nuclear plants also have some economic motives for shutting down old plants. (Disclosure: I happen to be employed as part of a team that is designing new nuclear plants, so I guess Ayn Rand would criticize me by saying I am not working in my own self-interest.)
There are even people who have built up businesses based on selling the notion that nuclear power plants can only last so long. Unlike decrepit factories or power plants that are long-time blights after they shut down, nuclear plant owners all have a legally imposed decommissioning fund that amounts to hundreds of millions of dollars. That money can only be spent on tearing the plant down; decommissioning can be a big business opportunity if you can force a steady stream of plants to shutdown and tear down as quickly as possible.
There is a famous antinuclear activist in Vermont named Arnie Gundersen who was once a senior vice president for Nuclear Energy Services, a firm with a significant business associated with nuclear plant decommissioning – at the time of his employment. In fact, that company was once hired by the DOE to write a handbook on decommissioning.
Though he tells the story differently, one of the reasons that particular antinuclear activist took a 75% pay cut and worked as a private school teacher for a decade was that the nuclear plant decommissioning business dried up in the early 1990s. That was when people like Don Hintz of Entergy recognized that restoration was potentially more profitable than destruction. Unfortunately, the former nuclear plant destruction expert found a more lucrative, $185-$300 per hour line of work as an expert witness and state-employed technical consultant trading on his NE degrees from RPI.
Historical Note: After writing my March 2005 article titled Too Cheap to Meter – It’s Now True, I received an email from a great-grandson of Lewis Strauss. Here is what he told me:
As the great-grandson of the speaker in question, I’d like to thank you for your fair treatment of the quote – oft misused. However, that particular talking point was in reference to fusion energy, not fission – he was talking about the potential development of a power source that didn’t (and still doesn’t) exist, although hopefully LLNL’s NIF and “eater” will change that soon enough.
The great-grandson is probably correct about the family history; Strauss would probably be surprised by the impressive economic performance of the atomic fission power plants built within just a few years of his famous quote. Interestingly enough, if you break down his literal words, we are still in the era to which Strauss referred in his visionary prediction. My father was 29 years old in 1954, plenty old enough to have been one of the science writers in the audience that Strauss was addressing. I am one of the children that Strauss was talking about when he said
It is not too much to expect that our children will enjoy in their homes electrical energy too cheap to meter…
(Emphasis added.)
Though I am a grandfather, I feel reasonably young most days. I expect to be enjoying the power that CAN BE cheap enough to sell with the same “all you can eat” pricing model often used by cable television or internet service providers. Of course, my enjoyment of that low-cost, abundant, clean power is threatened by the actions of selfish people who cannot sell as much of their more costly product as they would like unless they succeed in forcing established nuclear plants off of the grid.
Additional Reading
IBM apparently agrees that mature nukes produce cheap, reliable power. That product is so important to their business that the company has informed the state of Vermont that forcing Vermont Yankee to close may we be their signal to find a new home. IBM just happens to be the largest single employer in the entire state.
VermontTiger.com (January 27, 2011) Do You Hear Footsteps?
So, the inevitable has happened. IBM has finally spelled it out in plain American that if Vermont Yankee is shut down or even marginalized, they-are-out-of-here. Worse, for Vermont, is that they defined it simply in terms of energy costs which means that any policy that squeezes their bottom line due to ideological energy management dabble, or otherwise, will ease their decision to leave the state.
Hat tip to Meredith Angwin for pointing to this important story. Meredith is the pronuclear activist who produces the exceptional Yes Vermont Yankee blog. Meredith recently founded the Ethan Allen Energy Education Project to help teach her neighbors about the important role that energy supplies play in modern society. That project deserves your support if you are looking for a way to contribute to improving the human condition.
While I too have corrected those that have tried to throw that quote in my face, I have always believed that it will come true in every aspect one day. Now I don’t think that day has come yet, you are right that it is closer now than it ever has been.
For wind power advocates, the fact that nuclear power has low fuel costs is a disadvantage: it makes nuclear “inflexible” to backup intermittent wind. Natural gas has high fuel costs and benefits from being turned off intermittently, that makes it “flexible”. Tortured logic.
@Jerry – the logic makes a lot more sense when you realize that many wind turbine advocates work for natural gas companies.
It it possible T. Boone gave up on wind because his assumptions were wrong (that he actually realized he’s in competition with himself)? DOE study (quoted in NREL) suggests 20% wind by 2030 will reduce natural gas consumption by 50% compared to “no new wind” case, and reduce coal consumption by 18%. How is this mojo so, you ask:
In New York, for example, a study prepared for the independent system operator (ISO) found that if wind energy provided 10% of the state
To some, the “too cheap to meter” statement may sound rather strange. However, when those words were spoken in 1954, unmetered electricity was still a living memory.
I have next to me on my desk a copy of The Story of The Washington Water Power Company, 1889-1930. The company changed its name some years ago to Avista Utilities, but still serves areas in eastern Washington and northern Idaho. Even before the beginning of the Great Depression, WWPCo. was buying up small electric power companies in the area, a number of which that did NOT meter electricity to residential customers. Instead, those customers were billed monthly on watts of connected load. Here are some examples: Inland Power and Light in Cottonwood, Idaho, purchased in 1930, 1
EL – You’re assuming that Picken’s plan was to make a lot of money from electricity generation.
@ El – you quoted, “In New York, for example, a study prepared for the independent system operator (ISO) found that if wind energy provided 10% of the state
“… in order to provide a”firm” capacity of 1-watt with the reliability of one coal plant.”
I remember reading that paper. When the authors state that they could generate a certain amount of electricity with the “reliability of one coal plant” they actually meant that they found the collection of wind farms produces 15% of its rated capacity (or more) about 87.5% of the time, which is the capacity factor that they assumed for an average coal plant.
Thus, the authors conclude, this 15% of the capacity of the 19-site collection of wind farms should be considered “reliable, baseload electric power.” This is, of course, absurd.
There’s nothing at all reliable about this generation. The owner of the coal plant determines which 87.5% of the year it generates electricity. Meanwhile, the weather determines the 87.5% probability that the collection of wind farms might be generating at least this much power. The owner of the turbines can do nothing to change this. Therefore, it’s silly to compare the two and claim that one is as reliable as the other.
The funniest part about this study is that it was not published in any of the energy-related journals, but rather in the Journal of Applied Meteorology and Climatology, which explains, I suppose, how this conclusion got past the reviewers.
There’s also the issue of “Distribution Charges” – I live in Ohio, a state where you can purchase your generation from different suppliers – but you still have to deal with the local monopoly for distribution. Distribution charges, currently, are about 30% of my cost of energy. Even if generation charges dropped down to 1 cent/kWh, I’d still have distribution charges of 2.2 cents/kWh (and I’m guessing my distribution charges are probably quite cheap compared to some parts of the country).
Meaning that, I don’t think it would be possible for electricity to ever get “too cheap to meter”, unless Ohio forced the local incumbents to offer a monthly ‘subscription’ price for distribution – which would probably just end up being more expensive – in my experience, “all you can use” pricing (like cell phones) is often just a way to disguise a bad deal.
The thing is, companies will always find a way to try to extract as much revenue as they can from customers, and the *actual cost of service* (e.g. how much it costs *them* to provide the service) often have no relationship at all with the price the customer pays.
I rather like ‘metered’ pricing – as long as the per-unit pricing is reasonable (the only reason, in my opinion, that a lot of American’s over the past few years have gone to ‘unlimited’ phone plans for their cellphones, was because the cell phone companies had crooked pricing schemes where your monthly minutes which were included in your plans might come out to a per-minute cost of, say, 10 cents/minute. But then, if you went over your monthly allotment, you were suddenly charged 50 cents or more per minute. Talk an extra hour (which is really easy to do) and you might have an extra 30 dollars on your monthly phone bill.
There’s no way that your talking an extra hour cost the phone company an extra $20-30 – it was just good old fashioned price-gouging. So, people signed up for ‘unlimited’ plans at like $100/mo just because it still ended up being cheaper than overage charges (if they talked a lot), and they didn’t constantly have to monitor their usage.
Luckily, gas and electric have a linear pricing model, where the per-unit charges are consistent no matter how much you use – I *really*, *really* like that model. It’s fair to everyone.
That said, I agree wtih Rod about nuclear power pricing. Right now, I’ve seen statistics that we get 20% of our power from nuclear. I’m pretty sure that nuclear is currently keeping our power prices, nationally, lower than they otherwise would be if we didn’t have those nuclear plants (that’s a difficult proposition to prove, but based on basic laws of supply and demand, it seems very reasonable to presume that), and I would bet that if we as a nation had been able to keep building power plants for the last 30 years, at the prices they were paying to build them in the 60’s (before the price to build went up something ridiculous like 10 times), such that say, 60 – 80 percent of our power were being produced by nuclear, we’d probably be paying quite a bit less per-unit for power by now.
Any source which only supplies 20% of market demand cannot dominate the pricing for that good or service – it can have an effect, but it can’t be the primary driver of price.
Last year I put my electricity on the “Level Pay Plan.” I heat my house with electricity (heat pump) and, unlike NY, NJ, or CA it is cheap enough that I don’t worry about the air conditioner costs, but I do set it close to the “recommended” temperatures. The biggest shock was that now my Cable TV bill is bigger than my electric bill! And I have no premium channels, just the HD option.
Life with cheap energy is so much easier than having to conserve energy, isolate the home, freeze in winter, sweat in summer, use abnormal lightbulbs…. . But try to tell that to the green people… http://www.indymedia.ie/attachments/feb2007/climatechange.jpg
You know that rings a bell. I recall once overhearing a conversation about electricity co-ops in Canada prior to the Second World War that charged a flat rate largely because metering was too expensive. Apparently though, one could subscribe only as an electric light customer, or if you wanted to use appliances, as a electric power customer at a different monthly charge, or both.
When proposing something as critical as a major power generation system, the onus should be on those making the proposal to prove beyond any shadow of doubt that, say, yes, the meteorological data does support the contention that distributing wind turbines over region X will certainly allow Y% reliable delivery of Z GW to the grid. It should not be up to critics to challenge unsupported claims to that effect, but somehow wind proponents have managed to get away with this absurd inversion of responsibility.
Great post. Thank you, Rod.
A bit poignant, as the largest employer in Vermont. IBM, has just threatened to leave if electricity rates go up. IBM was testifying in favor of Vermont Yankee. Excellent blog on this (not mine alas).
http://www.vermonttiger.com/content/2011/01/do-you-hear-the-footsteps.html
Rod, there is more to the NES story than just decommissioning. Lawsuits were involved between NES and the person you’re referring to. He also was involved in providing spent fuel racks to VY which didn’t fit. So besides making more money now than when he worked at NES he also has an axe to grind against the plant that revealed his incompetency. Unfortunately, this is what you come to expect in Vermont. An expert is anyone who has risen to their full level of incompetency.
I had to chuckle when I read the Stanford article and got to the term “firm” capacity. Through the rest of the article, all I could think of was “Viva Viagra!”
Proponents can get away with making ridiculous claims about “wind power” because there is very little data to counter their claims. In the US, only BPA publshes real-time power output. I cannot find wind power outputs, either real-time, or summary data, for any other wind farm in the US. So proponents hide behind rated capacities and capacity factors that only the wind farm owners and their utilitiy customers know. For example, I cannot look up any data at all for any wind farm in my home state of New Mexico, including new and supposedly state-of-the-art wind farms like High Lonesome Mesa, running forty 2.5MW Clipper turbines.
Speaking of power that isn’t too cheap to meter, IBM has been making noises about electricity costs causing them to leave Vermont if Vermont Yankee is shut down. Apparently, they believe their bill will be going up to the tune of $7 million per year.
http://www.wcax.com/Global/story.asp?S=13914370
Jim – you are right, I was trying to be brief. However, there is more to his antinuclear activism than just fighting against Vermont Yankee. He has recently testified in Florida against new Turkey Point reactors and he has been making a lot of noises about the containment design for the AP1000. A man with a grudge and a 40 year old pair of degrees from RPI is a very dangerous opponent whose incompetence and mixed motives need to be exposed – repeatedly.
@Paul Lindsey. You can find these numbers for Alberta, which has the largest installed wind capacity (at 497 MW) of any Province in Canada. Weekly operational and market reports are published on the “wind power studies” page of the Alberta Electric System Operator (“AESO”).
http://www.aeso.ca/gridoperations/286.html
Alberta is a little odd for wind because they have great wind resources, no tie lines with US, and very little hydro in Province. It’s one of the least interconnected grids in the country. Power consumption has doubled since 1987, and the only significant new transmission is to Fort McMurray (for oil sands development). Alberta’s electricity reserve margin dropped from 23% in 2003 to 7% in 2008. “The transmission system is now wasting enough electricity to power half the city of Red Deer” says Martin Merritt (Alberta’s Market Surveillance Administrator for AESO).
And yet, Alberta is looking at distributed generation from renewables as one way to alleviate transmission congestion and bring more stability to the grid. Taxes are low in Alberta, and it seems nobody wants to spend money on new transmission (despite boom times at Ft. McMurray). As the market report for AESO shows, when the wind is blowing they are running their wind farms in the 60-85% range of nameplate capacity. When imports are needed, they most likely come from BC in the form of hydro.
You can watch Alberta balance it’s grid in real time (by the minute) here:
http://ets.aeso.ca/ets_web/ip/Market/Reports/CSDReportServlet
As I write, It’s currently far off peak levels at 3:43 in the morning, and wind is running about 34% of capacity.
That is interesting – it is now 0630 and wind appears to running at less than 20% of capacity. The point we are generally trying to make here is that humans do not control what the wind does. The system load is probably quite a bit less at 3:43 than it is at 6:30 but the wind is doing less, not doing more.
For the record, total net generation (which is equal to demand) is 7399, wind is just 150/777 = 19% at this moment in time. I will check back at a different time several times during the day.
TNG 7465
Wind 134/777 = 17% of installed wind and just 1.8% of system total net generation.
04:55 Alberta time.
When I was consulting in Kuwait I experienced electricity too cheap to meter. Power and desalinated water were coproduced from oil energy. Some stalls in the souk were simply rocks on the ground with a board across, serving as a counter. Behind the merchant, in the open air desert, was a huge portable air conditioner, blowing cool air onto the open air merchant. Kuwait had to introduce metering.
The cost of nuclear power produced in Vermont is less than the cost of the taxes added, and we all know that taxes will never be too cheap to meter.
One of your best articles, and that’s saying a great deal! Thank you, Rod. I learned a lot.
EL – I was intentionally very specific in saying “in the US.” Eirgrid (Ireland) posts realtime data and has downloadable data in 15 min increments. I have also pulled data in MWh/hr chunks from Denmark’s westside wind. I haven’t checked Alberta’s data stream yet, but a few months ago I pulled a years’ worth of data from Denmark. From 4/21/09 through 4/20/10, Denmark’s entire westside wind production had a cf of 20.0%. The rated capacity was 3180 MW, but the average hourly production was 636.1 MWh, with a 1 Std Dev of 505.4 MWh. When I charted it, it looked like a seisomograph output.
Yes. Great article. Thank you!
One of the signatures of the anti-nuclear “nuclear experts” is that they are expert on everything. New designs. Corrosion. Groundwater remediation. Decommissioning. Health effects of organically bound tritium. Meanwhile, us poor pro-nuke activists, with our more recent real-life experience–we are always deferring to each other’s expertise. Howard knows plant operations. I know corrosion. We both ask Dr. Ed Maher of the Energy Education Project board of advisors (and current president of the Health Physics Society) about health issues. But if the anti-nukes have an expert, that person is truly an all-around, all-purpose expert.
That’s kinda remeniscent of the episode of The Simpsons where Homer is appointed Safety Officer for the nuclear plant. Mr. Burns chides Smithers over his scepticism of Homer’s competence, stating that accidents are way down since he started as Safety Officer. Smithers points out that the decline is an exact match for the number of accidents Homer was known to have directly caused before starting his new position.
@Kelly – Thank you. It is nice to be appreciated.
@EL
It is now 00:17 Alberta time.
Total Net Generation – 7748
Total Net Generation from Wind 92 MW out of an installed capacity for wind of 777 MW (not 497 as you reported)
% of installed wind capacity actually being produced 92/777 = 12%
% of Alberta’s power being produced by wind 1.2% even though wind capacity is nearly 6% of the system capacity.
@Jeff – the issue that I have with a linear “per-unit” pricing model is that it is divorced from any relationship between the production and delivery COST and the production and delivery PRICE.
There really is such a thing as “economy of scale”. Once a manufacturer and deliverer has invested all of the capital required each additional unit of production costs far less than the initial units. If you have two customers next to each other and they both have the same size line going into their home or place of business, both of the cost the company essentially the same amount. The company has to have the ability to provide up to their full peak needs; that means having the installed equipment and having the people who keep that equipment running, produce the bills, answer the service calls, and put the wires back up if they get knocked down in a storm.
If one of the customers is carefree with their use of electricity, they might pay a monthly bill of $400. If the other one is frugal, they might pay a monthly bill of $200. Which one do you think is more profitable for the power company, especially if the power company’s fuel bill is essentially constant, no matter how much power they produce?
It is a thought that bothers many, but volume discounts and encouraging carefree purchases of your product are good business practices. Just ask Sam Walton – except he is dead now.
Mike – thank you for the kind words.
@Robert – when were you in Kuwait? I imagine that the government there has changed things up a bit now that they have figured out that every barrel they burn at home is another barrel that they cannot sell into the international market at $80-90 per barrel. When the international market could not take any more oil without forcing a price collapse, many oil producers were just as wasteful at home.
Those days are ending rather violently as the days of cheap gasoline are ending in even Iran and Venezuela.
http://www.bloomberg.com/news/2011-01-19/dominican-drivers-oil-deal-with-venezuela-costly.html
It is now 11:27 Alberta time. Apparently there is a high pressure area there.
Total Net Generation – 8487 and increasing
Total Net Generation from 777 MW of wind capacity – 18 MWe. That is 2.3% of the installed capacity from a widely distributed set of 14 wind farms. It is also just 0.2% of the demanded electricity from a power source that represents 6% of the installed generation capacity for the system.
Quite a bargain.
I did my own completely amateur cost estimate lately, with this result: 0.1 percent for fuel and operation, 9.9 for building the plant, and 90 for dealing with all sorts of hurdles erected by opponents of nuclear power.
That third factor doesn’t seem to enter your picture, but I think it has grown massively compared to 50 years ago.
That in turn means that economies of scale don’t make so much sense any more, since smaller units are harder to oppose.
The Japanese Minister for national policy Gemba was quoted in the WSJ lately as advocating for smaller nuclear units.