Was nuclear the right decision for SCE&G?
JENKINSVILLE — Alan Torres waves one of his big hands across a man-made canyon, dug 40 feet down to granite bedrock.
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On the canyon floor workers scramble like busy ants over a massive concrete platform, crisscrossed with reinforcing bars and topped with a 950-ton steel bowl that looks like the bottom half of a flying saucer.
The 130-foot-wide bowl will serve as the base of the containment vessel to hold one of the first nuclear power reactors to be licensed and built in the United States since the 1979 Three Mile Island nuclear disaster turned the nation against atomic power for nearly three decades.
Torres, general manager for nuclear plant construction for South Carolina Electric & Gas Co., points to a large gray dome looming in the distance. It is SCE&G’s only operating nuclear reactor. It went into operation 30 years ago, and SCE&G said it produces the company’s cheapest electricity.
Torres, a 38-year SCE&G veteran, also helped build that one and said it’s about time the country got back into building new nuclear power plants.
SCE&G’s nuclear effort looked like a smart move in June when President Barack Obama announced that he ordered the Environmental Protection Agency to help stem global warming with a crackdown on greenhouse-gas emissions that come mainly from coal-fired power plants.
SCE&G plans to have retired six older coal-fired power generators when its new nuclear plant comes online.
Kevin Marsh, chairman and chief executive officer of SCANA, SCE&G’s parent company, said Obama’s crackdown proves the validity of SCE&G’s nuclear strategy.
Concern about the potential for costly federal control of greenhouse-gas emissions played a key role in SCE&G’s 2005 plans to study building a new nuclear power plant.
Nuclear has its radiation and waste issues, but it generates no emissions.
To SCE&G, nuclear seemed the ideal solution for the future. It offered a means to get away from reliance on coal, and create an efficient, reliable source of power that did not depend on historically unstable fossil-fuel prices.
A changing environment
In the eight years since SCE&G helped launch America’s so-called “nuclear renaissance,” the nation’s move to atomic power appears dead in the water.
A changing environment
The two-reactor, $10-billion-plus nuclear plant going up at SCE&G’s V.C. Summer site in Fairfield County, 25 miles north of Columbia, may be among the only new reactors brought online in the country in the foreseeable future.
The most likely others are two reactors under construction across the Savannah River near Augusta at Southern Nuclear’s Vogtle nuclear power station.
What happened? Why are the two South Carolina reactors likely to be among the only new ones built?
The answers are advanced cost recovery and fracking.
Advanced cost recovery is a financing method SCE&G helped perfect and turn into a South Carolina law known as the “Base Load Review Act.” The law allows SCE&G or any investor-owned utility in the state to avoid the financial risk and huge costs of building a nuclear power plant.
It does so by making ratepayers foot the bill of construction financing through increased yearly rates paid as the plant is being built, years before customers get any benefit from the electricity the plants are to produce. It’s kind of like starting loan payments to buy a new car that won’t leave the assembly line for a few years.
Without advanced cost recovery, SCE&G and its stockholders would have had to pay for construction financing for the nuclear plant, one of the most expensive current construction projects in the country. The company would not be able to bill ratepayers until the reactors generate electricity, which is projected to be in late 2017 or early 2018.
SCE&G contends that over the life of the plant, ratepayers will save about $4 billion, almost half of the reactors’ projected price tag, as a result of the Base Load Review Act.
Fracking is a 150-year-old drilling process perfected after 2005 that pushes liquid deep underground to force out oil and natural gas trapped in underground layers of rock. Hydraulic fracturing — fracking — produces fractures in the rock, especially layers of shale, and releases trapped oil and natural gas.
Almost overnight, the abundance of natural gas made available by fracking slashed the price of the fuel, and the U.S. Energy Information Administration said it is expected to make the country independent of foreign natural gas by 2020.
Robert Johnston buys none of SCE&G’s promise of the billions of dollars in long-range savings from nuclear power.
Johnston is not your normal disgruntled ratepayer. He’s chief strategy officer and executive vice president at The InterTech Group Inc., a North Charleston-based manufacturing conglomerate that also invests in utilities.
Johnston turned rate protester in 2010 when SCE&G tried to win approval for a 10 percent rate increase amid the recession. Johnston helped InterTech make its headquarters building mostly solar-powered, and he added a false roof to his Isle of Palms home so he could place enough solar panels to make his house energy independent.
His monthly electric bill is no longer $400. It’s $9.79. “I’ve effectively fired SCE&G,” he said And that’s what he’d like everyone to do.
He said homeowners could recover in a few years much of the cost of going solar from rebates, government incentives and slashed electric bills. But he also knows that most people can’t afford the tens of thousands of up-front dollars for a full conversion.
Doris Fletcher is one of those. The elderly West Columbia resident testified before the Public Service Commission during a hearing on an SCE&G rate increase request in October.
“Sleep in my bed for one week so you can see what I go through,” she told the commission.
“I have a hot water heater, but I have to keep it turned off. ... I have an air conditioner, but I can’t afford it. I sleep under a little fan ... and I can’t breathe. I’m dying, so I may not be here for the next rate hearing.”
Ratepayers are not the only ones concerned over SCE&G’s repeated rate increases to finance the reactor construction. Moody’s Investors Service, one of the nation’s top rating companies, cautioned that SCE&G’s annual rate increases to cover the nuclear construction carry “the potential of rate fatigue” by consumers. Those consumers might rebel and force regulators to impose belt tightening on the power company forcing some rate reductions that presumably undercut the company’s financial projections.
Overcoming nuclear cost
SCE&G decided to study the nuclear option in 2005. At that point, the power company’s thinking, like that of most of the nation’s electricity producers, was focused on a confluence of environmental, economic and political forces:
Overcoming nuclear cost
Concern over costly greenhouse gas regulation.
Expensive and volatile prices for natural gas, oil and coal.
A federal government eager to promote nuclear construction with financial incentives and streamlined regulations to get away from growing dependence on oil and gas from unstable foreign nations.
Over the following few years, electric power companies, especially in the South, joined SCE&G and applied for federal permits to build a total of 28 new reactors.
Despite the rush to go nuclear, one of nuclear’s biggest problems remained — cost.
For many power companies, especially relatively small SCE&G, financing was next to impossible to obtain for such pricey and historically problem-plagued construction projects.
SCE&G executives brainstormed, consulted with other companies and came up with advanced cost recovery.
Marsh was among those executives. Steeped in finance, Marsh recalled that state regulators had previously allowed the company to use a variation of advanced cost recovery when it built its newest coal-fired station at Cope in Orangeburg County in 1996.
After refining the concept, all SCE&G had to do was persuade the Legislature to make it law.
The company reasoned that lawmakers would be able to politically stomach the up-front construction costs for customers with the promise of long-range electricity savings.
In 2007, the Legislature approved the plan.
Republican state Sen. Larry Grooms of Berkeley County was among the 25 senators who signed on to introduce the bill, which enjoyed wide support from both parties.
Then Gov. Mark Sanford objected to aspects of the bill, especially a concern that it saddled current residents with costs for future growth.
In a three-page letter to the state Senate, Sanford said he would allow the law to go into effect without his signature because he approved of the effort to enable new nuclear construction.
Grooms recalls the climate at the time. Lawmakers worried that environmental concern over coal-burning power plants and fear of rapidly rising foreign oil costs might make it difficult for the state to generate low-cost electricity needed to spur economic growth.
Ironically, Moody’s Investor Services expressed concern in a rate report late last year that the higher rates SCE&G is charging to build the nuclear plant “could deter the industrial and commercial investment that has been a mainspring of South Carolina’s economic development strategy.”
In 2007, Grooms says, experts projected power shortages. “There was talk about rolling blackouts by 2012.”
Grooms says that once several large industries and the electric power cooperatives got on board, the bill sailed through.
The law has proven to be a good idea because it enabled SCE&G and Santee Cooper, a 45 percent partner in the reactors, to diversify their main sources of generation, Grooms says.
SCE&G says that when the plant comes on line, its main capacity will be almost equally divided among coal, natural gas and nuclear.
“That nuclear power plant is going to be essential to the future of our state,” Grooms said. “A lot of people are on the natural gas bandwagon, but there’s danger in putting all of your eggs in one basket.”
Critics say advanced cost recovery laws ignore free-market rules and allow power companies to build expensive projects the market wouldn’t allow.
Among those critics is Mark Cooper, an economic analyst with The Vermont Law School Institute for Energy and the Environment. He testified for The Sierra Club in hearings last year before the South Carolina Public Service Commission, which oversees the state’s utilities.
Cooper accused SCE&G of sticking with expensive nuclear construction because of “myopic tunnel-vision thinking” driven by advanced cost recovery.
In a study released this year, Cooper wrote, “The fact that advanced recovery for nuclear reactors shifts the risk of construction from stockholders to ratepayers is the one and only thing that is keeping uneconomical reactor projects alive today.”
Nuclear future dims
The economic justification many power companies saw for nuclear in 2005 evaporated in the face of fracking, which sent natural gas prices plummeting by as much as 80 percent before recovering somewhat.
Nuclear future dims
Power companies shelved plans for eight of the 28 new reactors, and the license approval process stalled on seven others as the companies rethought plans or turned to natural gas.
Last year, for example, Exelon, one of the nation’s largest nuclear power generators, halted efforts toward regulatory approval for a nuclear plant in Victoria, Texas.
Exelon, which bills itself as the nation’s “largest competitive power generator,” cited “low natural gas prices and economic and market conditions” that make nuclear construction uneconomical “now and in the foreseeable future.”
Bill Harris, a nuclear communications official for Exelon, said in an interview with The Post and Courier that the South Carolina law allows SCE&G to make decisions that competitive companies such as Exelon can’t.
“We can only realize a net return when it’s up and running,” Harris said.
South Carolina and Georgia are among about 10 states, mostly in the South, that have some form of advanced cost recovery. But few of the other laws allow power companies to avoid as much risk as those in South Carolina and Georgia.
This past week, Duke Energy’s new chief executive, Lynn Good, told a Wall Street analyst that one of her goals is to get some of the states where it operates, which includes the Carolinas and Florida, to adopt strong advanced cost recovery laws for major power projects.
Last month, Duke suspended its application to build new reactors in Wake County, North Carolina. That state has a recovery law, but it lacks the risk protections given to power companies in South Carolina.
Duke Energy said that two new natural gas-fired power plants negated the need for the nuclear reactors for at least 15 years.
SCE&G’s partner, Santee Cooper, is now trying to sell more than half of its share in the new V.C. Summer nuclear reactors because it projects it will not need that much new electricity to meet demand.
Mollie Gore, manager of corporate communication for Santee Cooper, said the state-owned power company still plans to rely on its remaining share of the nuclear reactors as part of a long-term plan to lessen coal reliance.
“Nuclear plants cost more to build, but they have the highest capacity factor and lowest fuel costs of any form of base load generation currently available.” Gore said
Dana Beach, executive director of the Charleston-based Coastal Conservation League, contends that advanced cost recovery serves as an incentive for SCE&G to go for a big, expensive project rather than work to make solar, other renewable sources and energy efficiency real options.
For states without such laws, the impact of cheap natural gas and the potential for costly regulation of coal emissions can be seen in what has happened to coal in recent years.
In 2005, coal formed the backbone of the nation’s electricity production, accounting for half of all power. Last year that was down to 37 percent.
Is nuclear a good bet?
Today, with construction of two reactors underway and some $2 billion already spent, SCE&G finds itself having to again justify its nuclear choice.
Is nuclear a good bet?
That’s not just because of fracking.
Millions of dollars in added costs at the new V.C. Summer reactors have made unlikely bedfellows out of environmentalists and an organization of the state’s biggest industries.
In separate papers filed with South Carolina’s Public Service Commission, which regulates electricity rates, the Sierra Club and the South Carolina Energy Users Committee contend that SCE&G is trying to force ratepayers to pay for its miscalculation of estimated costs like a contractor who underbids on a project to win the contract.
Scott Elliott, a Columbia attorney representing the Users Committee, an organization of 33 manufacturers including Boeing, BMW and Michelin, said his clients support nuclear power, but want the electricity at the lowest possible cost.
The Sierra Club went further and called for abandoning the reactors and the money already spent in favor of building cheaper natural gas-fired plants.
The environmentalist group made a three-pronged argument: natural gas was far cheaper and would stay that way; SCE&G has generally ignored the potential of renewable energy sources such as wind and solar; and demand for more power production could be significantly lowered if SCE&G focused more on energy conservation.
The Public Service Commission rejected the arguments of the environmentalist and manufacturers, and the case is now on appeal in the state Supreme Court, which is expected to hear arguments later this year.
Stephen Byrne, SCE&G’s chief operating officer, said in a recent interview with The Post and Courier that on the surface, today’s cheap natural gas doesn’t make the nuclear option look as good today as it did when the company opted for it.
Still, he and CEO Marsh say the company would still come down on the side of nuclear as the best option for a diverse, efficient, economic, long-term balance of energy production.
But nuclear probably would not have been a real option were it not for South Carolina’s law shifting the up-front costs to customers. Without it, Marsh said, “we probably would not have undertaken construction.”
Reach Doug Pardue at 937-5558.