Obama’s provision of $54 billion in loan guarantees to the nuclear industry
will cost Americans much more than the probable 50% default rate that the Congressional Budget Office anticipates. While the federal
government will guarantee the profits of investors, rate payers will suffer the
inevitable rate hikes.
Higher electric rates will appear, not when plants begin operating, but
years, if not decades, before they come on line. Several states allow customers
to be billed for expensive new nuclear plants in advance. Naturally,
these are the states where the initial, new, entirely untested, plants are
proposed for construction. This arrangement further reduces investor exposure to
cost over-runs or rising interest rates that are imposed due to the downgrading
of credit ratings for facilities with deteriorating economic prospects.
It should be noted, that relieving investors of exposure to risk results in
the elimination of incentives for sound management.
Although ‘prudence’ on the part of utility managers is a legal requirement,
once sunk costs are waiting to be recovered it becomes quite elastic. Good money
is thrown after bad. Rate payers, whose dollars are committed , will have little
to no oversight, or input, into the administration of their investment
The interest burden of the staggering sums of capital that are tied up for
years, or decades, while problems arise with the ‘new generation plants’ will
ultimately be borne by the rate payers.
Initial rate hikes to cover
‘advance costs’ were to have gone into effect in Florida by January 1st,
but Harvey Wasserman reports
Two Florida Public Service commissioners, recently appointed by Republican
Governor Charlie Crist (now a candidate for the US Senate), helped reject over a
billion dollars in rate hikes demanded by Florida Power & Light and Progress
Energy, both of which want to build double-reactors at ratepayer expense. The
utilities now say they’ll postpone the projects proposed for Turkey Point and
The Associated Press reports
that Georgia Power customers will see $9/month billing increases for nuclear
power plants that many of them won’t live to see completed. Once the utility is
committed, costs escalate, doubling or tripling original projections.
study by Craig A. Severance* puts the generation costs for nuclear power
generation (based on the higher cost of current plant designs) at 25 to 30 cents
per kilowatt-hour—more than triple present U.S. electricity rates. The study
details the ruses that the nuclear industry employs in presenting fraudulent
assertions of competitive pricing.
Citizen has collected state-by-state data from the U.S. Department of
Energy. Using this data they find:
States that rely on nuclear power have significantly higher electricity rates
than states that do not. In fact, our research shows that the higher the
reliance on nuclear power, the higher the electric rates will be. That’s because
nuclear power is significantly more expensive than coal or natural gas due to
the higher capital, operation and maintenance costs necessary to protect
Americans from radiation releases.
In the 20 non-nuclear states, the 1999 average cost of electricity was 5.52
cents per kilowatt/hour. The average cost of electricity in the 31 states that
use nuclear power was 6.88 cents per kilowatt/hour. In other words, consumers in
states that use nuclear power pay 25% more for their electricity than consumers
in states that do not use nuclear power.
Furthermore, electricity rates increase in proportion to the states reliance
on nuclear power. In the five states that get more than half of their
electricity from nuclear power, electricity prices were 37% higher than in
Higher electric rates are a factor in siting business. Once the full costs of
the new plants are realized, higher rates will drive some existing industries to
less expensive locations, exacerbating the de-industrialization of the US. Lost
jobs will be another hidden cost experienced by communities that allow new
The possibility that higher rates could destroy the projected future increase
in demand that the new power plants are intended to serve is very real. This is
the very scenario that unfolded in India where Enron was provided with subsidies
to build power generation capacity that turned out to be too expensive to sell.
In fact, US demand for
electricity is currently declining as it is, even without rate hikes.
Whether or not the new generation of nuclear plants are needed by future
consumers, utilities will recover the open-ended costs of their construction
from rate payers.
Of course some of the costs are entirely beyond estimation. For example the
burden on future generations for plant decommissioning and waste ‘disposal’.
There is always the possibility of an accident resulting in widespread,
immediate exposure to radioactive material as well as long term
The obvious question is; why is Obama inducing investors and utilities to
take risks that the market won’t embrace on its own?
One answer would be that the same motive applies for the new generation of
nuclear facilities as for the first. Nuclear power plants are part of the fabric
of the larger nuclear industry which is a key element of the military industrial
While it is theorized that the reliable lifespan of today’s nuclear weapons
might be extended for decades there is no existing back up if the theories fail.
Obama does not appear to foresee a future that includes a reduced number of
nuclear warheads. An examination of the US Department of Energy fiscal year 2011
budget shows that funds
earmarked for nuclear weapons production are increasing at an alarming pace
over the fiscal year 2010 budget while funding for dismantling warheads retired
from the current stockpile is being cut by 40%. Energy supply takes only a 15%
Graph by Robert Alvarez, Senior Scholar at
Institute for Policy Studies, where he is currently focused on nuclear
disarmament, environmental, and energy policies.
The greatest cost of the $54 billion in loan guarantees that Obama is putting
forward may very well be that our children will live in a world teeming with
nuclear warheads. Obama is aggressively developing missile ‘defense’ systems,
and he is also initiating a new arms race that will require a vibrant nuclear
industry composed of all aspects of uranium exploration and mining, processing,
enrichment, and weapons production along with the pool of expert technicians
that will form the basis of US military dominance (at least in raw destructive
power) for the rest of the 21rst century.
*A practicing CPA, Craig A. Severance is co-author of The Economics of
Nuclear and Coal Power (Praeger 1976), and former assistant to the chairman
and to commerce counsel, Iowa State Commerce Commission.Aletho News