With federal government spending through the roof and projected deficits setting new records every day, it is perhaps surprising that the Bush administration and Congress want to use billions of taxpayer dollars to single-handedly resurrect the moribund nuclear industry. Old habits, however, die hard. The federal government has always maintained a unique public-private partnership with the nuclear industry, wherein the costs of nuclear power are shared by the public but the profits are enjoyed privately. In an attempt to resuscitate this dying industry, the current Senate energy bill proposes unprecedented federal support for nuclear power.
Despite extensive and continuous government assistance — including more than $66 billion in research and development alone — no nuclear power plant has been ordered and built in the U.S. since 1973. After building more than a hundred plants between 1954-1973, orders have been cancelled over the last thirty years, and capacity in the industry has stagnated since 1989.
The decline of nuclear power is a result of several factors: the Three Mile Island disaster heightened public safety fears and citizen opposition to the siting of plants in their neighborhoods grew. But nuclear power was ultimately rejected by investors because it simply does not make economic sense. In truth, nuclear power has never made economic sense and exists purely as a creature of government.
In fact, a recent report by Scully Capital Services, an investment banking and financial services firm, commissioned by the Department of Energy (DOE), highlighted three federal subsidies and regulations — termed “show stoppers” — without which the industry would grind to a halt. These “show stoppers” include the Price Anderson Act, which limits the liability of the nuclear industry in case of a serious nuclear accident — leaving taxpayers on the hook for potentially hundreds of billions in compensation costs; federal disposal of nuclear waste in a permanent repository, which will save the industry billions at taxpayer expense; and licensing regulations, wherein the report recommends that the Nuclear Regulatory Commission further grease the skids of its quasi-judicial licensing process to preclude successful interventions from opponents.
But even these long-standing subsidies are not enough to convince investors, who for decades have treated nuclear power as the pariah of the energy industry. Nuclear generated electricity remains about twice as expensive as coal- or gas-fired electricity. Although the marginal costs of nuclear are lower, the capital costs are much higher. In light of this resounding cold shoulder from Wall Street, the federal government is opening the treasury wider than ever before.
The Senate energy bill provides $1.1 billion and whatever sums necessary thereafter to build and operate a gas-cooled nuclear reactor that would attempt to generate both hydrogen and electricity at the Idaho National Laboratory. If the proposed reactor ever becomes operational (which is not guaranteed) the sale of electricity from this DOE-subsidized project would inappropriately distort commercial electricity markets.
The most egregious proposal in the energy bill has the federal government providing loan guarantees covering 50 percent of the cost of building 8,400 Megawatts of new nuclear power, the equivalent of six or seven new power plants. The Congressional Research Service estimated that these loan guarantees alone would cost taxpayers $14 to $16 billion. The Congressional Budget Office believes “the risk of default on such a loan guarantee to be very high — well above 50 percent. The key factor accounting for the risk is that we expect that the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources.” But that’s not all. The bill also authorizes the federal government to enter into power purchase agreements wherein the federal government would buy back power from the newly built plants — potentially at above market rates.
Keeping this provision in the energy bill will result in a double taxation: once to build the plants and then to buy back the power from the newly built plants. This would be like paying for your kids’ education and then agreeing to pay them a salary once they graduate. But these industries are not young people in need of a leg up: Entergy Nuclear, Dominion Energy and Exelon Corporation, three companies that stand to benefit from these giveaways, recorded $8.3, $10.2 and $14.9 billion in revenues in 2002 respectively.
This week Senators Wyden and Sununu introduced an amendment to strike this sweeping provision sparing taxpayers billions of dollars and millions of tons of radioactive waste. Despite strong bi-partisan support for the amendment, the Senate voted 50-48 to essentially export the template for our indefensible farm subsidies to the nuclear power industry. Is anyone anywhere on the political spectrum paying attention?
The energy bill has evolved into the mother of all pork barrels, an indefensible package of handouts regardless of one’s political persuasion. It’s time for Congress to pull the plug on this legislative abomination once and for all.