[NB: Since this was first posted San Onofre has been shut and Vermont Yankee will be closed by the 29th of December. The NRC has decided that the containment vents for Fukushima-like reactors will not filter radiation!]
“Follow The Money
March 6th, 2013, by Arnie Gundersen
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KH: It’s Wednesday, March 6th, 2013 and this is the Energy Education Podcast. I’m Kevin. This week’s show is all about money. Nuclear plants are expensive to operate, but they’re even more expensive not to operate. Coming up, we’ll look at how some utility-owned U.S. nuclear power plants continue to drain the public’s pocketbook, sometimes to the tune of $50 million a month without generating a single watt of electricity. Plants owned by utilities are paid for by rate payers. Today we’re joined by Arnie and Maggie Gundersen to discuss nuclear finances. How are utility-run plants supported by rate payers run differently than the private merchant plants that sell power to the grid and need to meet the bottom line? When the money doesn’t make sense any more, some plants have called it quits while others are continuing to bill the public. Arnie and Maggie Gundersen, welcome to the show.
AG & MG: Hi, Kevin.
KH: So we’ve talked a lot, Arnie and Maggie, in the past about merchant plants versus utility-operated plants, and how both of them might be losing money. A utility-operated plan is one that’s paid for by the rate payers, like San Onofre. So even if it’s down, the rate payers will continue to pay the bill, whereas a merchant plant like Kewaunee is responsible for its own business. Arnie.
AG: Yeah. What happened, when all these nuclear plants were built, they were all built by utilities. And that meant that a group of rate payers all agreed to pay the bills no matter what. But in the 90’s, a whole bunch of these nuclear plants got sold to for-profit corporations like Exelon in the Midwest and Entergy in the south and up here in Vermont, and Excel. There’s a whole series of companies that went on a buying spree and bought almost half of the nuclear power plants. Each one of those got spun off as a limited liability corporation. So their only asset is the nuclear plant. So when the nuclear plant shuts down, they have no source of income because they’re supposed to be selling that power to the grid as opposed to having rate payers on the hook to pay for it. So these merchant plants are beholden only to their stockholders and when they break, then the stockholders will immediately make a decision: is it worth fixing ‘em or should we shut ‘em down for good?
KH: So the question is, who has to pay the bill? In the utility-run plants, the rate payers are paying the bill, and in the merchant plants, the stockholders are paying the bill. Let’s start with Crystal River. Crystal River is a utility-run plant. The rate payers are paying the bill. But they’ve recently come into a bit of financial trouble. Can you talk a bit about that?
AG: Yeah. In 2009, they did a major repair to the containment. They really didn’t have to replace steam generators but they chose to, and that required them cutting a huge hole in the side of the containment. And in the process, they cracked the containment. It was a 60-foot-long by 20-foot-high crack. They didn’t seek expert advice when they did it. Each of the members of the management team had seen it done before so they figured they were smart enough to do it without getting experts in, sort of like they slept at a Holiday Inn Express so therefore they could do brain surgery. But they screwed it up and the plant was shut down since 2009. Now a nuclear plant, you’re paying salaries, you’re paying guard force, you’re paying for all sorts of costs, probably to the tune of half a billion dollars a year just to keep the plant shut down. So in 2009, 2010, 2011, 2012 and just until two months ago in 2013, Floridians were paying something on the order of half a billion dollars a year to keep this nuclear plant shut down. Frequent readers of our website and people who listen to these blogs have heard me say for the better part of a year that the Crystal River unit had flatlined and they should have pulled the plug and done the merciful thing. And finally, just last month, in February, the owner of Crystal River, Progress Energy, did just that. They said this thing makes no sense. We’re into it for a couple billion dollars already and it’s going to cost a couple billion more to fix; it just doesn’t make any sense. Now they weren’t really into it for any money. The Floridians are on the hook for all of this. But because of a courageous journalist, Ivan Penn, and because of a courageous newspaper, the Tampa Bay Times, they had put this plant in the spotlight and they were making Floridians aware that they were losing something like 50 million dollars a month on the cost. So Progress decided well, we really can’t hose the people of Florida any more and it’s time to close this plant down for good. So Crystal River 3 shut down for good in February – just last month.
KH: From the time Crystal River shut down until the time that they decided to pull the plug, how much did Floridians pay just to keep it shut down?
AG: The monthly costs are about 50 million a month. And of course, some of that can get disguised and we’ll probably never, ever determine exactly what it costs, but a good number for a staff of 500 or 600 employees essentially doing nothing because there’s no electricity coming out, something on the order of $50 million a month.
KH: And it was shut down for how many months?
AG: It was into 4 years. It was well over a billion dollars. See, Progress doesn’t include that in any of their estimates because it came out of the rate base. People were paying this every month and it had been agreed to when the plant was running. So Progress will never admit that the cost to keep the plant running was well in excess of a billion, onward to $2 billion dollars in the time it was shut down. And that’s money Floridians spent and they’re never going to see again. If you remember the movie All The President’s Men, which was about the Watergate scandal, remember what Deep Throat kept telling Dustin Hoffman?
MG: Follow the money.
AG: Follow the money. That’s what this entire broadcast today is about. Follow the money.
KH: So saying about 2 billion dollars, how much does it cost to build a new nuclear plant?
AG: Well, a new nuclear plant in Georgia is about 20 billion dollars. There’s two nuclear plants going up in Georgia at the Vogel site for about 20 billion. So 2 billion dollars is about 1/10th of the cost to build a new one.
KH: Just to keep it shut down.
AG: But you have to remember, the Crystal River plant was 40 years old and they put in 2 billion dollars into a plant that was already on death’s doorstep because it was so old.
MG: It was at end of life. I mean nuclear plants are only designed for 40 years, correct? Even though they’re getting these extended licenses?
AG: Yeah, the NRC is considering allowing these plants to run to 60 years, but in fact, the oldest nuclear plant in the world has only run 47 and it was shut down, too. So we’ve got no history of a nuclear plant running beyond about 47 years.
MG: But isn’t it true that when these plants were designed, they based the design on how long they thought the steel would last, the concrete would last? Aren’t a lot of these older containments in these plants like Crystal River suffering concrete degradation for their containments, for example? And all kinds of things just having failure because of their age?
AG: Yeah, there’s a lot of age-related problems on these old plants anyway. Yet the Nuclear Regulatory Commission continues to allow them to run for an extra 20 years. They were designed to last 40 years. There’s no doubt – I mean I was involved in the design of these plants back in the day and I know we were using 40 years in the design calculation. So we’re stretching these units, in some cases to the breaking point.
MG: Money? How so?
AG: Well, the asset is completely depreciated and at this point, it just churns out money because the cost of the plant has already been covered in the electric rate.
KH: It sounds like an old clunker that I’m still paying insurance on, yet would never pass a registration.
AG: Yeah, that’s a pretty good example, Kevin.
KH: All right. So now let’s talk about two other plants. The Kewaunee plant and the Fort Calhoun plant. The Kewaunee plant is a merchant-run plant, whereas the Fort Calhoun plant is a utility-run plant. Both are relatively close to each other; both put out relatively the same power. They’re very similar except for this difference in how they’re owned. Arnie, can you compare the two?
AG: Kewaunee is a merchant plant and it is operating. It hadn’t broken, and in fact, it had gotten a 20-year license extension. So it was allowed to operate for 60 years. But the owner of the plant said we’re not making any money. We’ve got all these people and all these costs and electricity is just not making it. So therefore, they shut down a plant that was running. That’s what a merchant plant does. They run it like a business. If it’s not making any money, even if it’s operating, shut it down. So that’s what happened at Kewaunee. Exactly the opposite is happening at Fort Calhoun. At Fort Calhoun, it’s been broken for 2 years but it’s owned by rate payers, and the rate payers have continued to pump out tens of millions of dollars a month to pay the salaries of these 500 guys who are trying to repair a very old, very small power plant.
MG: Kevin, you said Kewaunee and Fort Calhoun are near each other. And I thought that our listeners might want to know where they’re located. Kewaunee is in Wisconsin – in Carlton, Wisconsin. And look at all the austerity measures Wisconsin has been under and they’re just having a terrible economic situation. Fort Calhoun is in Nebraska and Fort Calhoun was subjected to horrendous flooding last year. So Arnie, what’s the status now on both of these plants?
AG: Yeah. Fort Calhoun was shut down in April of 2011. And then the Missouri River flooded and then they said, wow, there’s a lot of problems in the plant. The foundations were in trouble. They did some structural analysis on the containment and they had lost the records and the records they could find were wrong. So they’ve discovered more and more and more problems on the Fort Calhoun reactor. But the management of the utility didn’t have a profit motive here. They were going to keep that plant running come hell or high water. So they continued to charge the rate payers tens of millions of dollars a month while this plant is shut down.
MG: Because they could. They don’t – I mean they can continue to just do this. There’s no economic reason to shut them down and they have the authority to keep running – is that correct?
AG: Right. The Fort Calhoun plant is run by a public power district. And the managers in the public power district are very pro nuclear. So because they don’t have a profit motive and because they are pro-nuclear, they’re funneling in tens of millions of dollars a month into a plant that makes no economic sense to run. Fort Calhoun’s the smallest plant in the country, under 500 megawatts, and it has a huge staff – more than 500 people. So when you amortize the cost over very little power, the cost per megawatt from Fort Calhoun is astronomical compared to other alternatives. Well, at Kewaunee, which is just a couple hundred miles to the north, the management came to exactly the opposite decision. It was a small plant. It had a 20-year license extension, could have run until 2030 or something like that. And management says, you know, we’re not making any money. So they pulled the plug on a plant that’s operating. Meanwhile, down in Nebraska, they are trying to get a plant operating that’s been broken for 2 years because they can soak the rate payers.
MG: Arnie, I want to go back to Crystal River just for a minute, because you said the Florida rate payers will never recupe this. And I don’t know what laws Florida has in place, but I do know that in California where San Onofre is and it’s been shut down, the rate payers are launching a case against Edison because of the financial debacle of the San Onofre units 2 and 3.
AG: Yeah. The San Onofre plants are owned by a company called Southern California Edison. And they were shut down since January of last year, 2012. So now we’re into 14 or 15 months of shutdown. Management made some really awful decisions and built steam generators that then failed. So now they’re stuck with an $800 million modification to the plant. And they ran for 10 months and it broke. And on top of that, they’re winding up paying something like $50 million a month for the 2,000 employees at the San Onofre site and they’re paying for replacement power, and they’re paying for all the repair costs. So the repair costs and replacement power for the last year have been $400 million, plus another half a billion to pay for the salaries that are already in the rate base. And there’s no end in sight. We still have an $800 million modification that hasn’t been paid for, too. So the people in California are looking at something between a billion and two billion at least in costs that Edison is expecting rate payers to pick up. So the people of California have gone to their public utility commission and said these costs shouldn’t be borne by us. These costs should be borne by the stockholders who own Edison. But because it’s a utility – a public utility – Edison says no, we had a deal and you guys owe us $2 billion even though we didn’t make prudent decisions and we created not just an unreliable nuclear plant but an unsafe nuclear plant. So there’ll be a battle royal in the next year between the people of the State of California, who don’t want to get soaked with $2 billion in costs, and the management and stockholders of Edison who would very much like to pass the costs on to the stockholders.
MG: So Fairewinds has done 5 technical reports on the problems with the San Onofre steam generators, and those reports clearly show that Edison chose to wiggle out of some regulations and build the steam generators without approval from the NRC. They didn’t want a public process and they wanted to have Mitsubishi, Heavy Industries, MHI, design and fabricate these (16:20) without federal approval. And by skipping that step, they have already spent – they’ve already spent more than a billion dollars on the design and fabrication of steam generators that have broken after only 2 years. The replacement steam generators have been paid for by the rate payers and I don’t know if the rate payers’ case will be successful or not, but it’s a definite reason why Senator Barbara Boxer and Congressman Edward Marky are pushing for public transparency in this process. The NRC needs to be a transparent agency.
KH: So this is a little bit different than the other problems, say, with Fort Calhoun or Crystal River. San Onofre took steps that they shouldn’t have. They avoided the process, created the problem, and now they’re asking for the rate payers to deal with the problem.
AG: Yeah, that’s a great analogy. You know, in utility law, there’s this term called prudence or prudency. Basically, a utility can get paid even if something breaks if they made a dumb mistake. But they can’t get paid if they made a malicious error. And the problems at San Onofre fall into the account of being malicious. The Edison management way back in 2004 made decisions that they were going to deliberately ignore the Nuclear Regulatory Commission. And that’s what happened. Had the NRC been involved in 2004, they would have asked the questions that would have avoided this problem. There was a plant just a couple hundred miles away that Edison is a part owner in at Palo Verde and they modified their steam generators, too. They notified the NRC. The NRC asked the right questions and it’s operating just find right now. So Edison tried to take a shortcut. They tried to avoid the NRC’s –
MG: And the public process. They didn’t want public review. The process requires public hearings and Fairewinds’ belief is that Edison did not want to undergo the scrutiny of public hearings and questioning.
AG: But they do want the public to kick in a few bucks.
MG: Oh, yeah, you got it.
KH: So Arnie, we talked about a bunch of individual units. What does all of this mean nationally?
AG: You know, Kevin, at the top of the segment, we talked about following the money. And nuclear industry is still money conscious. There’s 23 nuclear plants in the country that are identical to Fukushima Daiichi and frequent watchers of the Fairewinds site has known we’ve talked about those 23 nuclear plants extensively. The containments were too small in 1970. The senior NRC managers didn’t want to get them licensed but they were licensed anyway. And so over time, the entire industry has known that these things were fatally flawed. And of course, Fukushima showed us not once, not twice, but three times that these times are fatally flawed. The solution, as the industry sees it, is to drill a hole in the side of the containment so it doesn’t contain any more. And that’s called a vent. And then to prevent the radioactivity from getting out, what the Nuclear Regulatory Commission would like to see is a filter in that vent. Sort of like the filter on the end of a cigarette but obviously much more robust.
KH: And this is to stop the containment from becoming over pressurized.
AG: Yes. If there was an accident like at Fukushima, the vent would open. Without the filters, though, all that radioactive gas would just get spewed out like a fire hose out the side of the containment. So what the Nuclear Regulatory Commission staff has asked for is okay, you can have your vents to prevent these containments from blowing up, but you need to put a filter on it to keep the radioactive gases in. And the utilities that are running these plants are saying no, we want the vent, but we’re not going to spend the $20 million to put a filter on to protect the public. So the Nuclear Regulatory Commission staff is demanding filtered vents. The industry doesn’t want to spend $20 million on the filters. So what has the industry done is they’ve gone to Congress and Congress is inundating the Nuclear Regulatory Commissioners – the five commissioners – saying you’re spending public money needlessly. So there’s 4,000 engineers on the staff who think there should be filtered vents, but the 5 commissioners who are going to vote on this are under extraordinary pressure not to spend – not to have utilities spend the $20 million to fix the problem.
MG: So once again, it’s follow the money. And this is industry money trying to get what the industry wants.
KH: How does industry pressure the commissioners?
AG: Directly through congress. Dozens of congressmen have written to the Commission saying you’re wasting my rate payers’ money. Of course, when one of these plants blows up like Fukushima Daiichi, they might have a different opinion, but right now they’re pressuring the Commission not to allow these vents to be – these filtered vents to be installed. So there’s an ask here. At the end of the broadcast, what we’re hoping our listeners will do is contact the Nuclear Regulatory Commission. The Commissioners emails are on the website. And write to the five commissioners and say don’t cave in to nuclear pressure. Our lives are more important than the $20 million the industry doesn’t want to spend. So I hope this week, as people listen to this podcast, they’ll do just that. Write to the five Commissioners and get them to demand safety over profits. ” (Emphasis our own) – See more at: http://www.fairewinds.org/follow-the-money/ (CC BY-NC-SA 3.0)