MidAmerican Nuclear Energy finishes due diligence in Idaho

I have published a couple of comments about MidAmerican Nuclear Energy, a company owned by Berkshire Hathaway, Warren Buffett’s investment vehicle. The unit was investigating the possibility of building a nuclear power plant in western Idaho that would probably sell most of its power output in the Pacific Northwest markets.

Last week, MidAmerican Energy Holdings announced that it had completed its due diligence – investment research and number cruching – and determined that the project would not go forward. There are any number of reasons why a company will decide not to invest in a particular project, especially one that involves as large an investment as a typical new nuclear power plant. Right now, all of the systems that the industry is offering come in only XL (1100 MWe), XXL (1500 MWe) and Super XL (> 1600 MWe). Entering the nuclear power plant building market with those systems looks like it requires a minimum of about $3 BILLION and that price seems to be moving up every few weeks.

The prices of nearly all large construction projects in the world are increasing rapidly – steel, concrete, copper, and many other basic components have increased rather dramatically in price during the past 5 years. Please do not tell the Federal Reserve – it might cause cognitive dissonance. That organization is confident that historically low interest rates are having no inflationary effect, a fact that they can prove to anyone using statistics that leave out commodity prices.

Warren Buffett did not get where he is today by following the crowd into overheated markets – his buy low, sell high strategy requires a lot of research effort, but it yields generous returns for his investors. MidAmerican Energy’s decision should not be read as a hit against nuclear power in general, but it should serve as a warning to nuclear plant suppliers – customers will drop out if it appears that the industry cannot predict and control its costs.

Dan Yurman at Idaho Samizdat covered the story a week ago in his post titled Two planned nuclear plants call it quits – I have been a bit behind in my reading. Just a reminder – Atomic Insights is not a great site for late breaking news. I am more interested in information and analysis.