Wall Street is in free fall thanks to eight years of mismanagement under the Bush administration. But presidential candidate, John McCain, continues to trumpet his 45 new reactor plan. He has never been asked to account for this reckless gamble. But here's the tally - just for construction alone: $500 billion. If that sounds like a familiar figure, read on!
So we let a juvenile delinquent run the country for eight years and he wrecked the car. Totaled it, actually. Why are we surprised? Well some of us are not surprised. Just stunned that we allowed a man who almost bankrupted an oil company (can you hear Exxon executives snickering?) to squander $561 billion and counting of our money on an unwinnable war in Iraq in the name of finding weapons of mass destruction that weren’t there. Add that to the other economic bunglings during the two terms of George W. Bush and what do we have? A country in economic collapse. The only consolation, perhaps, is that it could actually have been worse. The Bush administration might have used nuclear weapons on Iraq, or Iran or some other yet-to-be-identified Evil Empire.
Of course there will be no Juvie for Junior. In January he will scamper off to pater’s pad in Kennebunkport where he can play with daddy’s motorboats and drink, er, fruit juice and soda pop.
The rest of us, on the other hand, are left to wonder what’s next, which of course we won’t know until November 5th. Hopefully. Except that the big bailouts likely aren’t over. One of the potentially largest nearly slipped onto the books last June when Senators Joe Lieberman (a Republican in Independent’s clothing) and John Warner (a Republican in Liz Taylor’s ex-husband’s clothing) drew up what they termed a climate change bill that, according to estimates produced by analysts at Friends of the Earth, could have delivered $500 billion in subsidies to the nuclear power industry. That’s only two hundred billion shy of the entire economic bailout package just passed by Congress. Post 9/11 Bush told us to go shopping. Lieberman and Warner took this very seriously.
Fortunately, this extravagant nuclear spree never made it to the Senate floor in its original incarnation and a later version of the bill was eventually squashed by a Republican filibuster. But Lieberman, Warner and the nuclear puppetmaster behind them, John McCain, have not put their credit cards and check books away just yet. McCain continues to trumpet his "45 new reactors by the year 2030" atomic idealism, which, based on the industry’s own current cost estimates, could add up to guess what? A good $500 billion! This is more than a nice, tidy coincidence.
Nuclear industry executives have admitted they won’t build a single new reactor without full subsidization. NRG chief executive, David Crane, told the Washington Post that proposed subsidies were the only reason his company even considered new reactor construction. The subsidies may not total half a trillion dollars, which is about what the U.S. nuclear industry has received in subsidies throughout its entire 60-year existence according to calculations by Amory Lovins at the Rocky Mountain Institute. But late last year the nuclear industry scored $18.5 billion in federal loan guarantees – albeit less than half its original ask of $50 billion but still an obscene amount of money for an industry the insurance industry and Wall Street won’t touch.
The U.S. Department of Energy has since received applications for federal taxpayer-backed loan guarantees from 17 utilities in time for its September 29 deadline but the agency will not say who they are. Furthermore, the applications - for the construction of 21 new reactors at 14 U.S. sites - total up to at least $122 billion. Since "only" $18.5 billion in federal loan guarantees was set aside this is clearly insufficient. The DOE admits that 21 new reactors would actually cost $188 billion and DOE's Loan Guarantee Program Office Director, David Frantz, told reporters that $18.5 billion would likely only accommodate two new reactors.
How much of a pariah is the nuclear industry to Wall Street? In 1985 Forbes magazine described the nuclear industry as "the largest managerial disaster in business history." More recently, the Economist proclaimed: "Since the 1970s, far from being "too cheap to meter"—as it proponents once blithely claimed—nuclear power has proved too expensive to matter." A 2003 MIT Study, "The Future of Nuclear Power," concluded: "nuclear power is not an economically competitive choice. Moreover, unlike other energy technologies, nuclear power requires significant government involvement because of safety, proliferation, and waste concerns."
The U.S. Energy Information Administrationreported cost overruns for nuclear plants for the years 1966 to 1977 ranging from 200 to 380 percent. The contemporary European experience in Finland and France – where an Areva EPR reactor is under construction at each site – is not encouraging. Both are delayed – the Finnish one by two and a half years where the price tag has more than doubled.
The financial risks of new reactor construction – for the taxpayer as well as reactor owners – are considerable. The Congressional Budget Office has predicted that, granted federal loan guarantees for new reactors, nuclear companies will default on at least 50% of them.Sound familiar? Under current terms, that could leave taxpayers with a debt of at least $11 billion.
Even utility owners recognize the risk. In May 2004, Dominion Electric CEO, Thomas Capps warned:
"If you announced you were going to build a new nuclear plant, Moody’s and Standard & Poor’s would assuredly drop your bonds to junk status. Hedge funds would be bumping into each other trying to short your stock."
Standard & Poor’s took a look at nuclear prospects in its 2006 corporate finance report. It concluded that new reactor construction would bring significant financial risk. It stated in the report that nuclear generation generally has
"the highest overall business risk compared with other types of generation."
In an August 2008 report, Standard and Poors offered an ominous warning:
"Our analysis addresses the risk to credit quality arising from a limited or more typically, a complete absence of a track record, commercially untested technology, or a technology that faces more regulatory hurdles. These risks can result in credit deterioration due to schedule delays or cost increases."
Moody’s is equally cautious. In a May 2008 "special comment," Moody’s wrote:
"In choosing to build a nuclear plant, a utility is making a long-term bet on a technology that has locked in a design (currently being reviewed by the Nuclear Regulatory Commission) and where construction cost are rising rapidly (primarily associated with labor and commodities). As a result, market and technology risks might emerge that position a new nuclear plant as uneconomic over the course of construction. These developments, in turn, could put a significant amount of pressure on legislators and regulators to protect rate-payers from incorporating the full cost of a new reactor into rates at the expense of a less costly alternative, even if the alternative is developed (or materializes) in the future."
Then there are the costs at the other end of a nuclear reactor’s life cycle: decommissioning. An emerging story confirms the concern that the deepening Wall Street financial crisis is adversely impacting the availability of decommissioning funds for the nation's nuclear power stations. Decommissioning can cost upward of $500 million to $800 million per reactor but decommissioning funds were invested by utilities and are now jeopardized by the Wall Street freefall.
Just this week, Entergy Nuclear, the owner of the Vermont Yankee nuclear power station in Vernon, Vermont reported it had already lost 10% of its decommissioning fund, or $40 million, in just the past month. According to press reports, the State of Vermont compares the loss to the beating that people's 401(k) retirement funds are taking. Some reactor sites are getting hit harder than others depending on their investments.
It is also of concern that the economic depression will impact the safety at operating reactors. Nuclear power stations rely on borrowed money to purchase large amounts of expensive replacement power during extended nuclear power plant outages arising out of identified reactor safety problems. The outages are necessary to complete repairs or component replacement.
Tighter lending or even a lending freeze can put reactor operators in what is called a "Davis-Besse" mode of thinking, where operators stall and obfuscate the need to address safety issues that require an unscheduled early shutdown.
As we saw at the Davis-Bessereactor just 20 miles from Toledo, Ohio in 2002, FirstEnergy Nuclear Corporation, in collusion with U.S. Nuclear Regulatory Commission (NRC) senior managers, significantly gambled with public safety to extend reactor operations, and avoid an early shutdown and an unscheduled outage that subsequently took the reactor offline for two years. It was later determined that the reactor came within 3/16th of an inch and as few as eight weeks of a significant accident as the result of extensive corrosion that had eaten through 6 3/4 inches of carbon steel of the reactor pressure vessel. The concern is that the deepening crisis puts more pressure on industry and the NRC to hold back on an unscheduled shutdown placing the public a greater risk.
The presidential candidates need to be asked what they are going to cut to get us out of this financial mess. Loan guarantees and subsidies to build expensive, dangerous and unnecessary new nuclear power plants would be the obvious place to start.