Electricity Supply – Demand and Nuclear Power Industry History

Wisconsin is one of the states in the US that has a law on its books that is a virtual moratorium on new nuclear power plants. Its law is similar to the one in California that states that the public service commission cannot approve a new nuclear plant until the federal government has built and licensed a facility for permanent disposal of used nuclear fuel. A facility outside of the United States that is accepting used fuel can also meet the requirement. In either case, there must be sufficient capacity to allow the facility to accept all of the used fuel in Wisconsin. There is also an economic test associated with the law.

The editorial writers at the Wisconsin State Journal believe that it is now time to overturn that law and allow electricity producers to again consider building new nuclear power plants. The specific event that inspired their recent editorial titled “Let State Pursue Nuclear Power” was a unanimous decision by the state Public Service Commission to disapprove a new coal fired power plant on the basis of long term environmental damage from the plants expected emissions.

As the editorial board sees it, Wisconsin needs new sources of base load power and must be allowed to pursue clean, reliable power plants. Here is the (logical, IMHO) conclusion from their editorial:

The moratorium is preventing Wisconsin from taking part in a resurgence in interest in nuclear power as a clean, safe energy source.

Conservation and alternative energy sources, such as wind power, have important roles to play in Wisconsin’s energy future. But the state also needs reliable base line (sic) power sources like cleaner coal and nuclear power.

President-elect Barack Obama, whose home state of Illinois gets 48 percent of its electricity from nuclear plants, supports nuclear power as “one component of our energy mix.”

Wisconsin should do the same by removing its nuclear plant moratorium.

One of the commenters in the forum associated with the article – someone with the handle of madtowngeo – posted a thought provoking response that provided me with the opportunity to discuss something that I have long had on my list of “to do” posts.

Here is what madtowngeo said:

The Commissioners made a very sound decision on Alliant’s poorly conceived, expensive, and inefficient coal plant. Most importantly, the commissioners considered Alliant’s grossly over-projection of demand growth. This is significant, and if the editorial boards of the WI State Journal and Milwaukee Journal Sentinel had read the entire oral decision they may have come to a different conclusion regarding nukes. Nukes may or may not need to be a part of our state’s future energy mix, but in this case the alternatives, including Alliant simply purchasing power from the new and much more efficient coal plants built or under construction in the state, do not include the need for extremely expensive new facilities.

Wisconsin would do well to heed the memory of Washington Public Power who over-estimated demand growth in the late 1960’s and early 1970’s, proposed and began building nukes to meet that growth, and ultimately defaulted on over $2 BILLION in municipal bonds. The State Journal’s reference to Illinois’ nuke plants is also curious, because for much of the 1980’s Wisconsin benefited from the over-build of nukes in that state and was purchasing power from these plants below cost. Wisconsin should be careful in building any major new power plants, nuke or advanced coal, in light of the declining demand for power in the state. We should strongly consider a new paradigm of more distributed renewable generation that is produced right here in Wisconsin and adjacent states and doesn’t tie us into enormous individual projects like nuke and advanced coal.

That interpretation of nuclear industry history is fairly widespread, especially in the vital financial industry that would back new nuclear plants and in the boardrooms of many of the utility companies that might consider building a new nuclear power plant. The serious decision makers in the industry, the ones that have to allocate billions of dollars for very long term investments, are very careful about studying history and working to avoid past mistakes. However, I have a different interpretation to offer. Here is what I posted in response to madtowngeo:

I agree with the editorial writer – Wisconsin should allow nuclear power as a generation option.

madtowngeo makes some very interesting points and displays a good knowledge of some nuclear industry history. My interpretation of that history is somewhat different, however.

As madtowngeo points out, there were some spectacular financial defaults in the first Atomic Age as utility companies realized that they were building more capacity than customers really needed at the time that the plants would start operating. That situation would naturally cause the price of electricity to be put under pressure. In a competitive environment, where there is a choice of suppliers, the price for a commodity that is in oversupply drops. In a rate regulated environment like monopoly supplied electricity, the opposite happened – regulators allowed utilities to increase their prices to enable them to pay off the costs of the new construction based on formulas that allow utilities to earn a guaranteed profit. In utility regulation lingo, the monopolies are allowed to make a certain “rate of return” on their capital investments.

The price increases caused a reaction from consumers that made them join the already active effort – funded in part by fossil fuel interests – working to halt nuclear projects. In some cases, the effort successfully halted the plant construction. In other cases, the effort slowed down the construction and simply added to the eventual costs since interest rates were high, workers were not allowed to be as productive as they should have been, and the plant operation/revenue generation was delayed.

In some of the cases where the anti-nuclear effort succeeded in stopping the plant, the customers paid most of the costs anyway but never received the low cost, clean power that the plant could have produced. Remember, monopoly utilities have a Public Utility Commission that allows them to set prices to obtain a rate of return on their capital investments.

What I believe should have happened would have been a more natural industrial event of electricity suppliers deciding to shut down older, less efficient plants that had higher OPERATING costs. Even in the 1970s, it was pretty obvious that the marginal operating cost of nuclear power was less than the cost of operating coal, gas and oil plants. That is because the heat from nuclear fuel costs about 1/3 as much as the heat from even the cheapest coal. When utilities run fossil fuel plants, 60-90% of the operating and maintenance cost is fuel; with a nuclear plant, fuel costs are about 25-30% of the cost and PEOPLE costs (good paying jobs, by the way) represent the majority of the O&M costs. Since the people portion of the O&M cost at a nuclear plant does not go down much if the plant temporarily shuts down, the marginal cost of OPERATING a nuclear plant is tiny. (For example, the fuel portion of today’s average nuclear plant O&M cost is less than 0.5 cents per kilowatt hour.)

In today’s competitive electricity environment, let the electric power generators build nuclear plants. If they do not do a good job of controlling costs during construction, the power generator will have financial challenges. They do not have a protective PUC to ensure that they earn a “rate of return”. However, if the plants are completed and licensed, history shows that they will operate safely, cleanly and cheaply for as many as 60 years.

When new, moder
n nuclear plants first start up, they will increase the available generating capacity. Capacity may exceed the local demand. The new suppliers may have to sell their power at a rate that is not sufficient to pay off all of the debts. However, they will RUN the plant to obtain at least some income because the marginal cost of operating will be well below the revenue that can be generated. That “overcapacity” situation should LOWER electricity prices for all customers. Other suppliers may have to shut down fossil fuel plants because they cannot compete with the low operating cost of nuclear power.

I may be completely off base, but I have a sneaking suspicion that madtowngeo has a reason for not liking that outcome – perhaps he likes coal. Here is the phrase in his response that gave me that hint:

Nukes may or may not need to be a part of our state’s future energy mix, but in this case the alternatives, including Alliant simply purchasing power from the new and much more efficient coal plants built or under construction in the state, do not include the need for extremely expensive new facilities.

IMHO – Shutting down older, less efficient coal or gas plants is a very good thing for the rest of us since less expensive, cleaner power can enable a lot of very good jobs and interesting new opportunities.