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 dollars.

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 that:

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 Levy County.

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.

A recent 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.

Public 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 non-nuclear states.

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 nuclear plants.

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 contamination.

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 complex.

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% priority:

*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.