FT Calhoun Station. 1:05 PM local October 24, 2016
Final shutdown complete

The Ft. Calhoun Station (FCS) is scheduled to shut down for good on Monday, October 24. The number of operating nuclear power reactors in the US will have been in the three digits again for a just one week.

That event will be a tragic shame for the surrounding community, for a gradually growing portion of the 700 people that were employed at the plant when the closure decision was made, for all of the people in the area where the air will be a little dirtier and for all of the people who are concerned about the long term effects of climate change driven by CO2 emissions.

The first employees to be laid off will include nuclear engineers, chemists and clerks. At the beginning of September, they received their 60 day notice that their jobs disappear on October 31, just one week after the plant shuts down for the last time.

Closing the plant eliminates a steady supply of 473 MW of ultra low emission electricity that has a low, predictable marginal cost if all goes well.

Cost increasing headwinds

All has not gone well in recent years for the Omaha Public Power District (OPPD), the owner of the Ft. Calhoun facility. Too many unpredicted things happened that added unplanned costs at the same time that temptingly cheap alternatives became available.

There was a fire in a nuclear plant in Alabama that added a long term operational cost for fire protection.

There was an attack against several office buildings near the US East Coast that added increased costs for security guards, increased capital costs for new equipment and ongoing operational costs to maintain that equipment.

There was an earthquake and tsunami in Japan that knocked out electrical power long enough to permanently melt parts of the reactor core of three nuclear units. Reaction to that event added tens of millions of dollars of capital costs plus ongoing maintenance and operational costs.

The Missouri River, on whose banks Ft. Calhoun was built, flooded and threatened the plant. An inspection after that event revealed minor operational and management issues that ended up keeping the plant off-line and unproductive for three years. When the plant was finally allowed to operate, it was in the NRC “penalty box” of enhanced supervision to improve operational performance.

Isn’t OPPD a regulated utility?

Even though OPPD is a regulated monopoly utility that can distribute prudently expended costs among a captive base of customers, the company is a public utility owned by those customers. It has continuing pressure from its owners to keep rates low. Its board of director has stated a goal of supplying reliable power at a rate that is 20% lower than the rates in nearby service territories.

In light of that pressure the board is always looking for ways to keep costs under control. Cost control and predictability is supposed to be a key advantage for owning a nuclear power plant, but those haven’t been attributes that Ft Calhoun has consistently delivered.

As Ft. Calhoun’s operating costs increased and as it experienced a lengthy period in which it was not functional, wholesale electricity prices in areas surrounding OPPD’s service territory plummeted due to the combination of a glut-induced low price for natural gas and a growing supply of wind power with its nearly zero marginal cost.

Why is FCS closing now?

In the spring of 2016, after the final version of the EPA’s Clean Power Plan showed that it would provide zero credit to existing nuclear plants for producing power without CO2 emissions, the OPPD board of directors tasked its management staff to provide cost-informed options for its future portfolio. The managers hired an (ostensibly) independent consulting company to develop a set of scenarios with various generating alternatives and power purchasing options.

That company, Pace Global, whose letterhead proudly proclaims that it is a Siemens Business, produced a report titled Overview of Omaha Public Power District’s Generation Portfolio Analysis dated May 20, 2016 that concluded that there was no analyzed scenario in which keeping FCS open was an economically advantageous option compared to an increased reliance on purchased power, demand side management, power storage in chemical batteries and increased use of weather-dependent sources of power, mainly wind and solar.

Aside: I should explain why I used the word “ostensibly” to modify “independent” with regard to Pace Global. As a Siemens business, it has a corporate parent that is a major equipment supplier for natural gas and wind generation.

While Siemens was once a major nuclear plant supplier, it has made openly announced moves to reduce its involvement with nuclear energy, seeing limited opportunities in the sector. It’s quite logical to believe that the connection to Siemens influenced Pace’s assumptions for future price of important variables as shown in a series of graphs on page 4 of its report to OPPD. End Aside.

Less than a month after the board received the report from Pace Global, it voted to close FCS and provided the following summary of the factors that influenced their decision.

Market conditions are a major factor in today’s decision by the board. Historically low natural gas prices are a contributing factor; they reduce OPPD’s cost to generate electricity using natural gas. In addition, consumers are using less energy.

The final version of the proposed Clean Power Plan is another factor. It does not give carbon-free generation credit for existing nuclear plants such as FCS.

The board also looked at economies of scale. FCS is the smallest rated commercial unit in North America, based on accredited capability. Larger and multi-unit nuclear plants can spread costs over high levels of production.

Slow load growth and increasing regulatory and operational costs have led to the recent early retirement of several other U.S. nuclear generating stations.

OPPD President and CEO Tim Burke added, “As tough as this decision is, we cannot afford to ignore the changes happening around us. We must look to the future.”

Very soon after the board’s decision, OPPD passed the deadline by which it would have normally ordered a new batch of fuel. Without new fuel, the plant had a limited run time remaining. It began coasting down a couple of weeks ago; it was producing 81% of its full power capacity yesterday and will reach 75% before it is shut down on Monday.

I’ve tried to make contact with OPPD leaders through a contact form on the company web site, but I haven’t received any responses.

I wanted to ask if the board made any effort to find a buyer for the plant and the surrounding 660 acre riverfront site. I wonder if they had considered the option of retaining the plant in a shut down condition — like TVA did with Browns Ferry for a couple of decades. Finally, I was curious to find out if they were still confident that the natural gas prices used in the May 2016 analysis were still reasonable given recent market trends.

It’s worth noting that OPPD once began a project to add a second unit to the current site. It would have been a 1000 MWe Westinghouse 4-loop PWR. There’s plenty of land and water available for expansion; there’s even high ground only a few hundred yards from the river.

Though there is, in fact, a tiny sliver of a chance that the shut down decision can be reversed, I have been unable to find any evidence or even any hints that anyone is taking the necessary steps. Those steps include, but are not limited to, halting or delaying the action I consider to be the absolute point of nor return. Under the current trajectory, which seems unlikely to be disturbed, OPPD will submit the final document that will seal FCS’s fate sometime in mid November.

That normally single sheet letter will certify to the Nuclear Regulatory Commission that all fuel has been removed from the reactor and that the license holder will never again operate the plant. After receiving that letter, the NRC will issue a license amendment that converts the current operating license into a “possession only” license under which OPPD will have 60 years to complete decommissions activities.

In order to begin operating again, a plant with a possession only license would need to undergo a new license application process and meet all currently imposed requirements for new plants. There is a higher probability for me to win a mega-millions lottery than for FCS to be restored after OPPD gives up its current operating license. (I have never purchased a mega-millions lottery ticket and have no intention of every doing so.)

The decommissioning fund is about $800 million dollars shy of the estimated $1.2 billion decommissioning cost, so OPPD will be charging its customers a fee in their bill that will be computed to build up the decommissioning fund to full requirements by 2033.

Though the closure plan came with a promise from OPPD to freeze current rates for 5 years, that promise has a limited term. I slso suspect that there are provisions within the promise that allow rate adjustments in the case of a fuel price increase that surprises the market.

I personally wouldn’t be surprised if gas prices rise Moreno quickly than expected, given the falling production in seven out of eight major shale gas resource basins along with the increased export of gas in the form of LNG and via pipelines to Mexico. Among gas market prognosticators, I’m in a minority.