November 18, 2005

Let us throw out a number. A rather large number. It's $37.5 billion.

What could California do with that much money? That's over $1,000 per person in this state of 36 million people. Let's buy everyone a roof over their heads. One with at least one photovoltaic panel on top of it. We'd have enough left over to invest a few billion dollars in energy efficiency measures in businesses, hospitals, schools and homes. Imagine the energy and pollution reductions we'd reap.

However, it looks like we're going to throw that money - ratepayers' cash - at keeping two aging nuclear facilities alive. The huge sum will be used to keep the nukes both running to the end of their current licenses, plus another 20-years if license extensions are sought and granted as expected.

We here at Circuit are aware that our readers probably think we're bleeding heart liberals on matters of health and safety we discuss in our editorial pages. But this isn't about health and safety. It's about money.

We are very worried about spending scarce resources on risky investments. We're pretty darn sure that it will become a bad deal for utility bottom lines in the long run. We certainly don't want more bankrupt utilities to pile on top of a cringing state economy.

Pouring $37 billion into prolonging a financially risky energy supply begs a public policy question. It's a question that isn't being asked because no one is stepping back and looking at the big picture.

That's because policy makers and Wall Street investors are getting their information in carefully parceled amounts. A hundred million dollars there, another few hundred million over here, and then, oops, let's add in more greenbacks later.

For example, the California Public Utilities Commission is assessing the investment in new steam generators for Diablo Canyon nuclear plant November 18. It will vote again in early December on the same investment for San Onofre. Together, Pacific Gas & Electric and Southern California Edison, the plants owners, will suck up about $1.4 billion in this first spending round to put their nukes on life support.

But, like a deteriorating old patient's hospital costs - that's just the start.

Let's go through the numbers.

After the $1.4 billion investment, there's replacing the reactor heads because they've shown the potential to corrode. The foot-thick steel lids have become fragile, brittle thin steel. Those heads, costing about $250 million, are the only thing keeping us from a meltdown. Next, it's replacing the rotors at a cost of $220 million.

For veracity's sake, here's the proposed nuke investments' details. We're using unsworn testimony from David Oatley, PG&E's Diablo Canyon vice president and general manager, given in August before the California Energy Commission. .

First there is the planned $706 million to $815 million to replace the plants' steam generators that are springing leaks far sooner than expected. If these are left unchecked, it would cause the reactors to shut down at the end of this decade.

After that initial investment in new steam generators, add another:
> - $375 million a year for operation and maintenance.
- $90 million/year for ongoing capital investments.
> - $55 million to initially mitigate the plant's impacts on the affected coastal critters and fauna, and another $2 millionyear in related ongoing expenses.
> - $25 millionyear for liability insurance.
> - $90 millionyear for fuel.
> - $25 million to protect against terrorism initially, and an ongoing $8 million annually.

That adds up to $18.73 billion, assuming that the plants operate at least 30 years if the Nuclear Regulator Commission gives them each a 20-year license extension.

Not included in our calculations are the billions of dollars already gathered to bury the plants once they are declared dead. On top of that, we've spent well over $30 billion for the nukes in building capital, return on investment and incentives - a figure we have not included. Those costs were basically depreciated down to zero in the deal to deregulate California's electric industry in the mid 1990s.

These numbers also do not factor in the "cost" of shutting down the plants for a year or more when the new parts are installed. Also, excluded is the cost of building permanent radioactive fuel storage on site on the California coast because the repository at Yucca Mountain will never be built. Also omitted is the cost of the feasibility studies that are set to be done to extend the licenses of both Diablo and San Onofre for another 20 years.

Whew, our calculator needs more decimal points.

To give the pro-nuke side its due, we grant that there are costs in operating any type of power plant over time, including renewable plants. There are costs too in maintaining energy efficiency measures over time.

However, if we then double the $18.73 billion for Diablo to account for the same spending at the San Onofre facility we get a conservative $37.5 billion. (San Onofre will probably end up costing even more because of technical difficulties in replacements.)

Compared to the estimated cost of the Million Solar Roofs initiative-a maximum of $1.8 billion-the commitment to a nuclear future in California is astronomical. It's also many times higher than the $2 billion investor-owned utilities will spend on energy efficiency the next three years.

When Wall Street considers the big picture, it has to deign to lend California utilities the money.

Wall Street takes risk very seriously. It would never invest all that capital using the nuclear power plants as collateral - way too risky.

No, private bankers and lenders will use the promise of ratepayer payback as collateral to protect themselves.

We don't doubt that financiers will come up with the first $1.4 billion for replacing steam generators. But when the utilities start coming back to the well for the next $250 million and another $250 million, Wall Street might just start to look at ratepayers' ability to pay back the loans. Looking at the timing of this borrowing - it will come after this winter's walloping energy prices - consumers will be more than unhappy. There will be pressure to put price caps on utility bills and Wall Street won't like that. Yes, "It's the economy stupid."

In the next round of funding, financiers will quite rightly look at those risks and increase their (fair) share of the returns - say from 7 percent to 9 percent or more. If the state's utilities are promised a rate of return at about 11.5 percent, that starts squeezing shareholder profits. If regulators continue to put caps on spending, with shareholders at risk beyond a certain point, then keeping the nukes on life support becomes an ever more risky investment for all involved-utilities, shareholders and ratepayers.

Thinking positively here at Circuit, we'd rather not even consider the cost of an accident. But others do. "Three Mile Island taught Wall Street that a $2 billion asset could become a $1 billion clean up job in about 90 minutes," said Brice Smith, senior scientist with Institute for Energy and Environmental Research.

Keeping the old plants alive, while avoiding investments in renewable energy and conservation, is simply an irresponsible state strategy.
> J.A. Savage & Elizabeth McCarthy

sidebar Diablo Steam Gen Plugged

"Principal barriers" were being "seriously degraded" in the Diablo Canyon nuclear plant's steam generator for unit 1, according to a Nuclear Regulatory Commission report released November 11.

More than 1 percent of the steam generator tubes were determined to be defective and were being plugged by owner Pacific Gas & Electric, according to the report. This was found during the units' current refueling outage.

In all, nearly 80 tubes were found to be defective.

This problem is recognized by PG&E. It is the reason the utility is asking state regulators to approve spending over $700 million to replace the steam generators in Diablo's units 1 and 2.

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