The Half-Life of Pork
News: Wall Street won't fund nuclear power plants, but the industry's best friend, Senator Pete Domenici, is lining up investors who will -- you
June 19, 2003
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Last year, at a tony Washington D.C. social club, Energy Secretary Spencer Abraham stood before nuclear industry leaders to announce an ambitious new government program. "It is our goal," he said, "to enable a new U.S. nuclear power plant to be built and brought on-line by the end of this decade."
At the time, the barriers standing in the way of Abraham's plan seemed considerable. America's electric utilities had not ordered the construction of a new reactor since before the 1979 crisis at Three Mile Island. While Congress has spent more than $66 billion on nuclear energy research since 1948, Wall Street bankers have been unwilling to follow Washington's lead. Never mind public safety concerns, the costs were just too high -- new nuclear reactors might never be able to compete with cheaper sources of electricity. In fact, when Abraham made his pledge, the industry appeared on the brink of decline.
That is not the case today. Thanks to formidable lobbying by nuclear plant operators and political pressure from the White House, the Senate is poised to approve between $14 and $16 billion in federal subsidies for the nation's next generation of nuclear plants. The unprecedented legislation would cover up to 50 percent of the construction costs for six new reactors with loan guarantees and power purchase agreements. Three utilities have already applied for preliminary reactor permits in Illinois, Mississippi, and Virginia.
The plan's chief sponsor, Sen. Pete V. Domenici, R-N.M., has said he hopes to "reestablish nuclear power as an option for these United States and the world." With the help of lobbyists from the Nuclear Energy Institute and the nation's major electric utilities, Domenici defeated a bipartisan attempt last week to strip the subsidies from the Senate's version of the Energy Act. Ten Republicans joined most Democrats in supporting the amendment, but Domenici and the GOP leadership still managed to narrowly defeat the measure in a 50 to 48 vote.
"This is not about your position with respect to nuclear power, pro or con. It is about whether or not you are going to be pro-taxpayer," says Sen. Ron Wyden, D-Ore., who sponsored the defeated amendment with Republican John E. Sununu of New Hampshire. "In the early days of nuclear power, there were subsidies for nuclear power, but never before were the taxpayers on the hook from the get-go."
It is not clear how much taxpayers will end up paying to support the subsidies provided in Domenici's bill. But the nonpartisan Congressional Budget Office says there is a high risk -- "well above 50 percent" -- that the nuclear industry will default on the federally-insured loans, leaving taxpayers with the bill. Each of the new nuclear reactors still faces the stiff competition that worries Wall Street, making profitability questionable. "We expect that the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources," the CBO reported.
The nuclear industry counters such dire analyses by saying that technological advances will eventually bring down costs. "Our goal is to get the new plants down to a range of $1,000 to $1,100 per kilowatt hour," said Steve Kerekes, a spokesman for the Nuclear Energy Institute. Such efficiency would indeed be revolutionary. The Congressional Research Service reports that U.S. nuclear plants have historically cost much more -- averaging about $3,900 per kilowatt hour for plants completed in the late 1980s. The research service concludes that, while the industry's cost projections may be feasible, they "have not been verified by experience."
None of this means that nuclear energy cannot be extremely profitable. It can be, and is -- thanks to past federal support and a federal insurance program. Companies like Exelon, Dominion, and Entergy make hundreds of millions of dollars every year, and all three have announced plans to expand. But those plans rely on more federal subsidies like the ones proposed by Domenici.
In fighting for the subsidies, Domenici is on familiar ground. For nearly a decade, the New Mexico senator has been on a campaign to change the way Americans think about all things atomic. In turn, power generators have done all they can to help Domenici stay in Washington. Electric utilities are his biggest financial backers, giving $182,000 to his 2002 election campaign. And the biggest nuclear plant operators are spreading their financial clout around, too. During the 2002 election cycle, Exelon, Dominion, and Entergy gave $3.3 million to federal candidates and parties, with about two-thirds going to Republicans, according to the Center for Responsive Politics.
Of course, the industry's wish list includes more than just subsidies. The utilities are lobbying Congress to permanently reauthorize the Price-Anderson Act, which provides a federal insurance program for nuclear reactors. And Domenici is doing his best to deliver the votes. What's more, the version of the Energy Act championed by Domenici includes yet another nugget for nuclear power. That provision would provide $1.1 billion to build a nuclear reactor in southern Idaho. Sen. Larry Craig, R-Idaho, who is behind the measure, says the new reactor will enable important government research into using nuclear power to produce hydrogen for fuel cells. Critics see it as yet another federal giveaway. "It appears to us to be just giant pork for the industry," says Bill Wicker, the Democratic spokesman for the Senate Committee on Energy and Natural Resources.
Even some supporters of nuclear energy aren't willing to get on Domenici's subsidy bandwagon. In defending his plan on the floor of the Senate earlier this month, Domenici produced several letters of support, including one from the leaders of a Massachusetts Institute of Technology panel studying the future of nuclear energy. Domenici read from that letter, and suggested that the study group -- co-chaired by two former Department of Energy officials -- was prepared to support "what some would consider to be an even more direct subsidy for new nuclear powerplants." What Domenici didn't say is that the panel is expected to adopt a far less costly approach, recommending straight tax credits for nuclear plant operators. Utilities would only get the tax credits if they produce electricity, and the total benefit would be capped at no more than $200 million per plant. "It requires performance," explains Ernest J. Moniz, one of the co-chairs of the panel. By contrast, Domenici's package could cost taxpayers billions without any new power plants ever coming on-line.
Domenici's industry-friendly bill is just a part of Abraham's long-term plan. Last year, he commissioned a study of the competitive viability of future nuclear reactors. The report, produced by the investment bank Scully Capital, concluded, "nuclear power plants financed solely with private sector funds face barriers to commercial operation by 2010." Not surprisingly, the report proposed a wide range of government subsidies, including new tax credits, government funds to cover cost overruns, and additional insurance subsidies. The report also recommended purchase agreements of the very sort proposed by Domenici. Under the plan, the government would promise to buy electricity from nuclear plants at "above market rates." If electricity were selling for $35 megawatt hour, for instance, the government would pay nuclear generators $50 per megawatt hour. Taxpayers would shoulder the loss.
An interesting coalition has lined up to oppose Abraham's high-priced push for nuclear plant expansion. Major environmental and consumer rights groups have joined with taxpayer advocates to fight any additional subsidies, saying that nuclear power has had half a century to prove its viability. "No matter how much you love the industry, at what point is it too ridiculous to prop up the industry to survive?" asks Navin Nayak, a lobbyist for the U.S. Public Interest Research Group.
The groups are also raising concerns about the nuclear plants' vulnerability to terrorist attack or reactor meltdown, and about the growing costs of storing nuclear waste. "The gorilla in the middle of the room is the long-lived radioactive waste," says Lisa Gue, a policy analyst with Public Citizen. In 2001, the Energy Department predicted that a waste disposal fund paid for by the industry would cover the projected costs of the controversial nuclear waste repository at Yucca Mountain, Nevada. But Yucca's projected price tag has climbed dramatically in the last decade, to $60 billion from $38.5 billion, according to an analysis by Gue. And Congress has been unwilling to dip deeply into the industry's disposal fund. This year alone, lawmakers have allocated $460 million to fund the Yucca Mountain disposal site. Only about $145 million is coming from the surcharges paid by nuclear plant operators. The remainder is being drawn from the same source Domenici wants to tap for his subsidies: Tax revenues.
Image: Knight Ridder Tribune
