Multinational Monitor

SEP/OCT 2008
VOL 29 No. 2


Biotech Snake Oil: A Quack Cure for Hunger
by Bill Freese

Nuclear's Power Play: Give Us Subsidies or Give Us Death
by Tyson Slocum

Conservation Corp.: Enviros Ally with Big Grain Traders
by Christine MacDonald

The Concession Trap: Auto Worker Givebacks and Labor's Future
by Simone Landon

The Commercial Games: Selling Off the Olympic Ideal
by Jennifer Wedekind


Bad Samaritans: How Rich Country "Help" Hurts the Developing World
an interview with
Ha-Joon Chang

Unhealthy Solutions: Private Insurance, High Costs and the Denial of Care
an interview with
Steffie Woolhandler

Arts, Inc.: The Corporate Control of Culture
an interview with
Bill Ivey


Behind the Lines

The State of Corporate Welfare

The Front
Climate Changing Africa -- African Inequality

The Lawrence Summers Memorial Award

Greed At a Glance

Commercial Alert

Names In the News


Nuclear’s Power Play: Give Us Subsidies or Give Us Death

By Tyson Slocum        

Most energy analysts in the early- and mid-1990s assumed nuclear power in the United States was dying a slow death. Utilities were saddled with unmanageable debt, mainly from the $60 billion in cost overruns and plant shutdowns due to the industry’s misadventures in the 1970s (when nukes were promoted as a solution to crippling high oil prices and calls for energy independence). Components in aging plants were failing, solutions to highly radioactive waste were non-existent, and the industry was still haunted by the Chernobyl catastrophe and the near meltdown of Pennsylvania’s Three Mile Island reactor. And Enron’s electricity deregulation push appeared to be the final stake in the heart of nuclear, as it was understood that the “competition” unleashed by deregulation’s “free markets” would deliver on Enron’s promise of vastly lower prices and drive expensive, antiquated nukes into the dustbin of history.

To top it off, 9/11 and its aftermath placed nuclear power facilities at-risk as targets, which prompted some to begin writing nuclear’s obituary. After all, 9/11 mastermind Khalid Sheikh Mohammed and others boasted that Al Qaeda had commercial nuclear reactors on their hit lists.

But a funny thing happened on the way to nuclear’s funeral. In 2008, nuclear power is on the brink of a revival, as unprecedented federal subsidies offered as part of the Energy Policy Act of 2005, combined with generous state incentives, have triggered a race to build the first commercial nuclear reactor in the United States in a generation.

Republican Presidential candidate John McCain is touting nuclear power as a central component of his energy program, highlighting his support for nuclear power as a way to distinguish himself from Democratic Presidential hopeful Barack Obama. But McCain’s comments notwithstanding, Obama is not opposed to nuclear power. Obama says he will consider nuclear as part of a set of technologies and fuels to meet future U.S. energy needs.

Even many environmentalists who once rallied against nuclear are now saying it deserves another chance in light of the impending threats posed by climate change.

The nuclear industry has aggressively touted nuclear power’s low-carbon emissions as a reason to heap nearly all “clean” technology subsidies on expensive new reactors.

Without those subsidies, there would be no prospect of a nuclear revival. “The supposed nuclear revival is a carefully manufactured illusion that seeks to become a self-fulfilling prophecy,” write Amory Lovins and Imran Sheikh, of the Rocky Mountain Institute, “yet it cannot actually occur in a market economy, as many energy-industry leaders privately acknowledge.”

Lovins and Sheikh, and other nuclear critics, say nuclear power is so uneconomic that there is no reason to debate how safe it is — the technology should be ruled out on economic grounds alone. Write Lovins and Sheikh, “In fact, nuclear power is continuing its decades-long collapse in the global marketplace because it’s grossly uncompetitive, unneeded and obsolete — so hopelessly uneconomic that one needn’t debate whether it’s clean and safe.”

Too Cheap to Meter? Hah!

Leaving aside safety issues, the biggest challenge facing the nuclear industry is that nuclear energy — once touted as promising electricity “too cheap to meter” — is too expensive to be competitive with other electricity sources. Where the cost of many other sources are expected to decline (like wind and solar) or stay cheap (coal, in the absence of taxes or regulations to reduce carbon emissions), nuclear’s costs are high and rising. The projected costs for building new reactors exceed the market capitalization of most utilities, rendering the risks — absent subsidies and guarantees — too great for shareholders or lenders to bear.

There are 30 or so proposed new reactors in the United States. Some are barely in the planning stages, but several are close to breaking ground on construction. All come with enormous price tags. The major new reactor proposals are:

  • Maryland: Unistar (a joint venture between Baltimore-based Constellation and French government-owned EDF). Estimated cost: $9.6 billion.
  • Virginia: Dominion Resources. No cost estimate yet.
  • South Carolina: Duke Energy and SCANA. No cost estimate yet, but Duke successfully persuaded state regulators to approve $230 million in “preconstruction costs” that will be paid by ratepayers.
  • Florida: FPL and Progress Energy. FPL estimates $9 billion each for two new reactors; Progress Energy projects $8.5 billion. The Florida Public Service Commission gave the green light to both companies to recover full costs from the state’s ratepayers irrespective of whether the plants ever get built.
  • Georgia: Southern Co. Estimated cost is $14 billion.
  • Texas: NRG, TXU, Exelon and Amarillo Power. No cost estimates yet.
  • Alabama & Mississippi: NuStart, a consortium of DTE, Duke, EDF, Entergy, Exelon, FPL, GE, Progress, SCANA, Southern Co, TVA and Westinghouse.

None of these projects have even broken ground — the point where cost estimates traditionally have skyrocketed. Indeed, one just has to look across the Atlantic to Finland, where EDF is building Europe’s only new reactor. Construction is two years behind schedule and $4.5 billion over budget.

Moody’s Corporate Finance estimated in a May 2008 analysis that nuclear’s capital cost per kilowatt was 275 percent higher than wind and 150 percent higher than solar. The ratings and risk analysis firm projects solar’s capital costs getting slashed in half in the not-too-distant future, while those for nuclear only rising. Moody’s explains that “from a back-end regulatory disallowance risk perspective, our concerns reside in the fact that nuclear generation has a fixed design where construction costs are rising rapidly, while other renewable technologies [like solar] are still experiencing significant advancements in terms of energy conversion efficiency and cost reductions.”

The projected cost of the currently proposed nuclear plants “is causing some sticker shock: $5 billion to $12 billion a plant, double to quadruple earlier rough estimates,” the Wall Street Journal reported in May 2008. New estimates from nuclear operators such as NRG Energy, Progress Energy, Exelon, Southern Co., and FPL Group “have blown by our highest estimate” of costs computed just eight months ago, the Journal quoted a Moody’s senior credit officer as saying. “Moody’s worries that continued cost increases, even if partially offset by billions of dollars worth of federal subsidies, could weaken companies and expose consumers to high energy costs,” the Journal noted.

Nuclear Political Power

Whatever the weaknesses of its core technology, the nuclear industry does have two impressive strengths.

Flowing from historic requirements that kept them geographically confined to an individual state and regulated by state-based agencies, electric utilities exercise inordinate power in state houses across the United States. This political power gives utilities the ability to extract various supports from state governments, including authorizations to charge consumers to cover the costs of utilities’ failed investments. It also gives them considerable influence with their state’s Congressional delegation.

The second asset of the industry is its willingness to spend lots of money to influence political outcomes. The nuclear power industry has made $67 million in campaign contributions to federal candidates since 2001, with 63 percent going to Republicans, according to the Center for Responsive Politics. The industry has been the third largest influence peddler in Washington, D.C. over the last decade, spending $953 million lobbying Congress and the Executive Branch since 1998, behind only the pharmaceutical and insurance industries. Led by the Nuclear Energy Institute (NEI), the trade association with a total budget of $45 million in 2006, the latest year for which data is available, the industry has not only blanketed Washington to secure the largest subsidies for energy production in U.S. history, but also to block the implementation of distributed, home-based solar that would allow millions to break free from having to write big checks each month to their utility company.

One notable example of how the industry spends its money is the creation of an entity called Clean And Safe Energy (CASEnergy). CASEnergy is co-chaired by former Greenpeace employee Patrick Moore and former U.S. Environmental Protection Agency-head Christine Todd Whitman. It bills itself as “a large grassroots coalition that unites unlikely allies across the business, environmental, academic, consumer and labor community to support nuclear energy.” In reality, CASEnergy is funded entirely by NEI, and the group is housed inside the offices of the PR firm Hill & Knowlton, after the agency received an $8 million contract from NEI to create a “grassroots” organization to promote new nuclear power plants.

Securing Loan Guarantees

The nuclear energy industry has deployed its political power to overcome its enormous financial obstacles, by placing risk for new nukes on the shoulders of the U.S. public.

The nuclear industry’s very existence is predicated on the Price-Anderson Act, which limits the liability of a nuclear reactor operator for any accident. When the Act was up for renewal in 2001, Vice President Dick Cheney said that Price-Anderson “limits the liability that would have to be paid in the event of a nuclear accident [or attack]. In effect, the government would take up the slack.” If the Act were not renewed, he said, “nobody’s going to invest in nuclear power plants.”

But Price-Anderson does not address the problems the industry faces in building new nuclear reactors. For that, it has lobbied aggressively for federal loan guarantees. Government loan guarantees are a promise to pay back loans if the borrower — in this case, the nuclear plant builder — defaults.

The lobbying effort paid off with passage of the Energy Policy Act of 2005. The Act authorized the Department of Energy (DOE) to institute a loan guarantee program for “innovative technologies,” of which nuclear power was to receive the lion’s share.

The 2005 Act instructed the DOE to develop rules for handing out loan guarantees. That process proved complicated and controversial, with disputes raging about whether Congress would have to okay the guarantee program as developed by the DOE, and what amount of guarantees could be provided.

Wall Street investment banks joined the nuclear industry in pushing for a large-scale loan guarantee program. Investment banks would like to broker financing deals for nuclear plants, but they know no deals will be forthcoming without government guarantees. “We believe many new nuclear construction projects will have difficulty accessing the capital markets during construction and initial operation without the support of a federal government loan guarantee,” six banks — Citigroup, Credit Suisse, Goldman Sachs, Lehman Bros., Merrill Lynch and Morgan Stanley — wrote in a July 2007 letter to the DOE. “Lenders and investors in the fixed income markets will be acutely concerned about a number of political, regulatory and litigation-related risks that are unique to nuclear power, including the possibility of delays in commercial operation of a completed plant or ‘another Shoreham’ [a completed nuclear facility in New York State that was unable to open due to protests over safety concerns]. We believe these risks, combined with the higher capital costs and longer construction schedules of nuclear plants as compared to other generation facilities, will make lenders unwilling at present to extend long-term credit to such projects in a form that would be commercially viable.”

As the Department of Energy program neared implementation, the nuclear industry lobbied Congress to authorize $50 billion in loan guarantees for nuclear power alone. Campaigning by public interest and anti-nuclear groups got that amount knocked down to $20.5 billion ($2 billion for waste recycling and $18.5 billion for new reactors) in the appropriations bill that Congress passed at the end of 2007. That bill provided for $38.5 billion in loan guarantees, with more than half reserved for nuclear, one fifth for coal, and the rest for renewables and efficiency.

The industry says loan guarantees are needed not because of the expense or riskiness of nuclear power, but simply because nuclear reactors are expensive relative to the size of electric utilities. “Building new nuclear plants is a capital-intensive endeavor,” says John Keeley, manager of media relations for NEI. “Given that electricity companies and utilities have relatively modest market valuations, there is an important role for the federal government to play as an insurer or an underwriter of loans to help facilitate the construction of new nuclear plants.”

“We haven’t [built new reactors] in a long time and the companies that are going to undertake it are not like oil companies like Exxon and Mobil that are worth hundreds of billions of dollars,” Keeley adds. “These are companies with market valuations in the $20-30 billion range typically. And to try to build a new two-unit site costing somewhere between $12 and $14 billion just can’t be done by these small companies alone.”

Under Congressional budgetary rules, loan guarantees are often treated as small expenses. This is premised on an assumption that borrowers will pay back their loans, and the government will never have to make good on its guarantee. In the energy loan guarantee program, guarantee recipients must pay a servicing fee, enabling proponents to claim the program will cost taxpayers nothing.

The cost to taxpayers will be “zero,” says NEI’s Keeley. “There won’t be U.S. taxpayer dollars involved. The federal government in the loan guarantee program is underwriting, but the start-up of the program is funded exclusively by the companies themselves.” He says that guarantees have been “wrongly characterized,” and are not a subsidy.

However, noting that the Department of Energy (DOE) may “guarantee up to 80 percent of the total project costs,” the Department’s Inspector General says, “This will result in significant risk to the government, and therefore the American taxpayer.”

“I would love to go out and borrow $10 billion too, and have the taxpayers pick it up if I don’t pay it back,” says Michael Mariotte of the Washington, D.C.-based Nuclear Information and Resource Service. “It’s just an absurd notion and really no way to set an energy policy.”

In October 2007, the DOE finalized the rules outlining how to apply for the program, and established criteria, including a determination of the subsidy cost to taxpayers of extending the loan guarantee. Many of these detailed criteria have not yet been shared with the public, raising concerns about the ability of the DOE to effectively shield taxpayers from risk.

Under the system now in place, corporations seeking to build new reactors must apply to the Department of Energy to qualify for loan guarantees. The government has accepted two applications — one from Unistar to build the Maryland reactor and one from USEC to construct a uranium enrichment facility in Ohio.

Once a loan guarantee is approved, a company will be armed with a certificate that it can shop to Wall Street demonstrating that 100 percent of any loan — up to 80 percent of the total cost of a project — will be guaranteed by U.S. taxpayers. Such a guarantee allows the nuclear power industry to obtain capital very inexpensively.

The industry still wants more. In July 2008, John Gilbertson, a managing director at Goldman Sachs, stated that Congress’ current allocation of $18.5 billion in loan guarantees for new reactors was “undersized,” and John Matthews, a partner at the law firm Morgan Lewis & Bockius, added that investment banks and the nuclear power industry would require $100 billion in loan guarantees for 30 new reactors.

Chronic Corporate Welfare

Federal loan guarantees and Price-Anderson are not the only subsidies that the nuclear industry has obtained or is seeking.

The 2005 Energy Policy Act provided $2 billion in “risk insurance” payments to cover delays in nuclear reactor construction, and promised nuclear power companies 1.8 cents for every kilowatt of power produced from their new facilities. Taxpayers also cover half of all administrative and legal costs associated with new reactor applications.

Even as the industry aims to build new plants, there remains no U.S. system for managing high-level nuclear waste. The industry favors initiation of a dumpsite in Nevada’s Yucca Mountain. Not only does this proposal pose grave safety risks — including those related to shipping high-level waste across the country — it would impose tens of billions of dollars of costs on taxpayers.

At the state level, utilities are obtaining pledges of full cost recovery — state regulatory agency assurances that the utilities will be able to pass costs of nuclear construction, whatever they are, on to ratepayers.

With averting climate change as justification, and environmentalist opposition softening, the nuclear industry appears well positioned to maintain and increase these and other subsidies.

The massive government support for nuclear energy contrasts quite dramatically with the support available for renewable energy and efficiency. Government support for renewables could help drive down costs, by creating economies of scale and developing new technologies. Government support for energy efficiency could help overcome the market failures that prevent investment that are cost-effective right now, but not undertaken because of extended payback periods and other factors.          

But there are, as yet, no lobbies comparably powerful to advocate for these interests.

It is thus no surprise that President Bush’s fiscal year 2009 budget requested a 27 percent reduction in funding for energy efficiency and renewable energy programs. Meanwhile, the President asked Congress to approve a 37 percent and 25 percent increase, respectively, from actual 2008 appropriations for the Department of Energy’s nuclear and fossil energy programs.

This reflects longstanding budgetary priorities. Fred Sissine of the Congressional Research Service has calculated that, from 1948 to 1972, the federal government spent about $24.3 billion (in 2003 dollars) for nuclear power research and development and about $5.5 billion for fossil energy R&D. For the 30-year period from 1973 to 2003, the federal government spent $49.1 billion for nuclear power, $24.8 billion for fossil fuels, $14.6 billion for renewables and $11.7 billion for energy efficiency.

Given the widespread availability of cheap coal alone, transitioning away from fossil fuels will surely require government intervention — subsidies, mandates and regulatory rules. But nuclear power has unmatched costs that will never diminish.

“There very clearly will be few to zero new reactors without federal taxpayer support of one type or another,” says Mariotte of NIRS. “There’s no private investment capital interested in nuclear power on its own terms. Private capital is all going to renewables right now and that’s where it will continue to go unless the government distorts the market.”

Tyson Slocum is director of Public Citizen’s Energy Program.

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