Technically, Lonnie Carter the CEO of the nuclear utility Santee Cooper is retiring early. But most newspapers reporting on the 58-year-olds departure as the first casualty from the cancellation of the V. C. Summer nuclear power plants. It was a 75% over budget and at least 3 years behind schedule.
The person who should be getting fired is Tom Fanning the CEO of Southern Company. Fanning is dodging the opportunity to cancel these last two reactors under construction in the US when there are numerous justifications to get out of the project. Because of Fanning’s stubborn commitment to the Vogtle reactors, the rate payers of Georgia will pay dearly for decades for electricity that they don’t need and opportunities for climate disruption abatement will be lost as resources are misallocated to these reactors.
Can Vogtle learn from Summer? The Vogtle reactors are quite similar to the Summer reactors that Carter canceled this July. Both sites were adding two Westinghouse AP 1000 large conventional reactors (a design which has never successfully be completed). [Westinghouse went bankrupt in March of this year.] Both were expansions to existing plants. Both Summer and Vogtle started the licensing process in 2008, both began construction in 2013, both were supposed to be finished before 2020 to get a significant tax credit. Neither could make that deadline because they are both so delayed (costing ratepayers even more). Both were only possible because their respective PUC’s gave them nearly a blank check in that it let them start billing rate payers years and perhaps decades before the reactors went online. Both of them got offered billions for Toshiba (Westinghouse’s parent company) as a settlement (though it is unclear if Toshiba will stay in business long enough to pay anything). Both had huge still unresolved technical problems in building the plant.
So why is Fanning and Southern Company continuing this uneconomical reactor project? Because Fanning personally and Southern Company will benefit significantly even if the construction of these reactors lose money or if they are later abandoned. Despite Vogtle being over $3 billion over budget, the nuclear utility has already made over $1 billion in profits for this fiasco. This is because they are paid cost plus profit, even when the project is mismanaged and over budget. Fanning’s personal compensation increased 34% last year to over $15 million per year when the Vogtle losses and delays were well understood.
Southern Companies nuclear engineers are busy crafting lies to submit to the Public Service Commission (PSC). This PSC has already indicated that it will basically give them what ever they want. The form of this huge lie is that it will only cost $27 billion to complete this pair of reactors, nearly twice the original cost estimate. These same engineers were equally confident of their first cost estimate for this project. What will the actual cost of these reactors be? If it is average for US built reactors it will be closer to $42 billion, but it does not matter, for Southern Company has a whole collection of deceptions lined up to buttress their current lies.
Some lies are easy. Georgia Power has terrifically mismanaged the project, in part by their own design. They have flatly refused to use the computerized tracking systems (Integrated Project Systems – IPS) which are industry standards for large complex jobs of this type. They have completely captured the regulator who is doing basically no analysis of this project and simply granting delays and budget increases whenever they are asked for. The Georgia Public Service Commission (PSC) has not brought in outside experts to review the design or delays. The PSC continues to pretend that the sunk cost in this project matter, they do not economically only politically. They have not head public hearings. Nor have they listened to expert critics who were warning them of the myriad problems this project presents.
We will hear about how we need a mix of fuels (with no talk about how expensive they are). We will hear about how nuclear reactors are important for national security (despite years of denying the link between reactors and bombs). We will hear that these reactors will produce carbon free electricity (when renewables and battery storage OR energy efficiency would produce/save more power for less money, with a smaller carbon footprint). Finally, we will hear building reactors is important for the future of nuclear power in the US.
Let’s be clear, large scale nuclear reactor construction in the US is dead. Westinghouse bankruptcy is important. The recent canceling of the Summer, Levy, and Lee reactors brings to an end all likely full sized US reactor construction, except Vogtle. The nuclear Renaissance is over, we are hopefully heading into the nuclear dark ages.
This is the moment for the anti-nuclear movement and the citizens of Georgia to keep pounding on the door of the Georgia PSC and tell them we don’t want this failed project to waste more money and distract from the important work of climate disruption mitigation. Vogtle is a failed project being propped up by poor legislation and greedy utilities which don’t actually care about cost effective power generation or climate disruption.
As of this writing, over 2,000 people have been rescued from flooded areas and another 30K are expected to evacuate the US’s 4th largest city.
Harvey is being called a once in a 500-year storm. It is the third 500-year storm in to hit Houston in the last three years. And with other super storms like Sandy and Katrina in recent memory, it seems like something more than bad luck is going on. Is climate disruption responsible for Harvey? We can’t really know. But we know our activities are likely making things worse.
Penn State professor and climate change researcher Michael Mann, who led a recent study that found a human “fingerprint” on extreme weather events, wrote in The Guardian on Monday that while it’s impossible to say whether climate change “caused” Harvey, “[t]here are certain climate change-related factors that we can, with great confidence, say worsened the flooding” in Texas.
While technically Exxon’s global headquarters is in Dallas, Houston boasts an Exxon Campus with over 4000 staff, with thousands more coming. Houston is often called the Oil Capital of the World, with over 5000 energy companies based in the city, the vast majority of them working on oil and gas. Exxon has been funding anti-climate disruption research for decades. Even when they knew that the science did not support them. Nor is Exxon alone, UCS found all 8 of the largest oil companies are involved in deceptive practices when it comes to reporting on climate disruption.
Here is the quote from the UK Guardian which I think is most important:
The storm ripped through the oil fields, forcing rigs and refineries to shut down, including those owned by some of the 25 companies that have produced more than half the greenhouse gas emissions humans have released since the start of the Industrial Revolution.
Harvey has already closed Houston refining capacity of over 2.2 million barrels per day. Clean up will cost hundreds of millions, repairs could cost more.
But what of the irony here, that Houston is in the center of climate disruption denial and is now suffering from an unusual series of serious storms? No one deserves a climate crisis. But the corporate executives and the tens of thousands of oil company employees, who unlike the entire rest of the world denied the effect of their work, are paying the price for their lies and deception today.
Postscript: Houston itself votes Democratic in most political races (including the last presidential one), who are better than the Republicans on climate disruption issues. And none of the above criticisms are meant to discourage the current rescue efforts, which will most often benefit the economically disadvantaged in the area. And there will be lots of decisions as to what to rebuild in Houston and the area affected by Harvey. If we are unlucky or too quiet, then we will repeat the Shock Doctrine scenario, where capitalists profit and poor people are screwed over (as happened after Katrina). If we organize cleverly and apply immense political pressure, after the refinery clean ups are completed, we will focus on sustainable infrastructure and meet the needs of all the residents of the area.
Back in 2007 and 2008, it was heady times for the US nuclear industry. George W. Bush and Dick Cheney were in power. Nuclear subsidies were large and generous and opportunistic nuclear utilities advanced plans for 31 new reactors to be built.
These heady days were not to last. Since then well over half of these 31 reactors have been canceled. Some, like the proposed North Anna 3 reactor, are going through the licensing process (at the costs of hundreds of millions of dollars) with little hope of ever being built. And the actual number of reactors which started construction in the US of this original 31? Just 4, until this week.
You have to have a special set of circumstances to build a reactor in the US. The first and most important thing you need is CWIP or its equivalent. CWIP is short for Construction Work in Progress. Under CWIP utilities are allowed to charge their current customers for projects which are not yet finished. Utilities claim that this reduces costs to customers. What it really does is ensure their profits, even if the project is never finished or tremendously late and over budget.
But this is hardly enough. When the project starts to go bad, you need an electricity regulator, typically the Public Utilities Commission (PUC), that will allow rates to be increased to cover the costs of construction mistakes. In the case of the two Summer reactors in SC, there have been 9 rate hikes since construction started in 2013 totaling over $1.4 billion added to rate payers rates. The overall cost of the project has ballooned to $25 billion, a 75% increase over the original contract. This abandoned project will cost each of the utility customers $21,000. It also appears that the utility did not have a specific timeline and thus may be liable for some of the rate increases and are having a class action suit against it.
The Bush administration tried to do everything it could for these new reactors before construction started. Most importantly, they put tremendous federal tax credits in place to encourage construction. There was a catch, however. The reactors needed to be completed and connected to the grid by 2020, otherwise, the tax credits would vanish. Because these reactors were repeatedly delayed, central to the utilities decision to quit the project was that it no longer believed it could make this connection deadline and thus would suffer even greater losses. Efforts to extend the tax credits died in the US Senate.
Now there are only 2 reactors under construction in the US, Vogtle units 3 & 4 in Georgia. They have many of the same problems that the Summer reactors do. They are also the AP 1000 design being built by now bankrupt Westinghouse corporation. They are years late and billions over budget. Specifically, more than doubling its original $14 billion contract price to an estimated $25 Billion (according to Southern Company). But perhaps, more importantly, the same new filing for these reactors says that they will not be operating until 2021 and 2022, which is after the 2020 tax credits expire. This project is further complicated by the $8.33 federal loan guarantee which the Obama administration offered out of the Bush energy bill. Toshiba (Westinghouse’s parent company) has offered $3.68 billion for the completion of these plants in the wake of Westinghouse collapse. [A similar $2.2 billion offer for the Summer reactors was not enough to convince management to continue.] But Toshiba has many problems of its own (largely sparked by Westinghouse’s $9 billion debt because of Summer and Vogtle) and may not be able to provide any support for these troubled reactors. The thing which stops cancellation from happening is that no matter how out of control the project goes, the utilities make a profit, over a billion dollars so far.
This month (August 2017) Southern Company and Georgia Power will decide the fate of these two reactors. With a bit of luck, they will see that these reactors will never pay for themselves and similarly cancel the project. This would be the end of new nuclear power in the US as well as the end of Summer.
With quite some joy, I just penned the following wikipedia update under Westinghouse Electric Company LLC:
On March 24, 2017, parent company Toshiba announced Westinghouse Electric Company was filing for bankruptcy because of US$6 billion in losses from nuclear reactor construction projects. The nuclear projects responsible for this loss are mostly the Vogtle reactors in Georgia and the Summer reactors in South Carolina. 
This bankruptcy might halt the construction of every reactor being built in the US at the moment, at least for some period of time. Without a bailout from a likely reluctant Trump administration, these reactors might never be completed though over $10 billion has been spent on them. Before you doubt these projects might be abandoned, remember that half of the reactor projects started in the US were abandoned, many because of cost overruns.
Despite having followed this story intensely for some weeks now, I am still surprised at this result. I thought the Koreans would want to buy this reactor company for both its contracts and its technologies. Westinghouse has active construction projects and solid leads in many countries including the 4 nearly complete reactors in China. Russia and China were never serious suitors because they are unlikely to be approved by the US federal government for the sale of this sensitive technology.
My first anti-nuclear protest was at the Westinghouse reactors at Diablo Canyon in 1981. I fought Westinghouse at the Temelin reactors in the Czech Republic through the 1990s. Westinghouse developed the first 3rd generation reactors including the AP 1000 which is currently under construction in more locations than any other Gen 3 western design.
What went wrong? There is a pretty standard formula for building nuclear power plants in the US. The reactor vendor comes in and underbids the contract, while still seeking a huge amount of money. The regulators accept this low bid on behalf of the state. Not long into construction inevitable delays and cost overruns begin. The nuclear construction company turns to the utility and says, “Please pass these extra costs on to your rate payers (or in some states the tax payers.)” Historically, the regulator has obliged. This way the frequently exploding costs of nuclear construction, typically over 200% the initial contracted price in the US, do not bankrupt the construction company. But even this formula was not good enough to restart nuclear construction in the US.
Beyond this the AP 1000 was Westinghouse’s new design. It was simpler, more safe, better simulated and tested than any other reactor Westinghouse had ever built. And it was testing the future of reactor construction: Modularity. Historically, reactors are built on site. There are too many custom pieces, many of which are huge, to be built in a factory. But Westinghouse was a forward thinking company. They knew they need to change the ways reactors were built to keep costs down. They presumed, as did many in the industry, that standardizing designs and building components in factories like giant legos, which were then fastened together onsite would make it easier and less expensive. Turn out reactors are not like legos, and this modular strategy was central to Westinhouse failure at Summer and Vogtle.
The Bush/Cheney administration attempted to boot strap the “nuclear Renaissance” with a generous aid package, which included:
- Government-preferred equity investment facilities
- $18 billion of subsidized federal loans
- Tax-exempt financing
- Federal power purchase agreements at above-market rates
- Taxpayer-backed insurance
Despite this generous program, only 4 reactors began construction, two in Georgia at Vogtle and two is South Carolina at Summer. A disappointing yield for an industry that at its high point (2009) had 30 applications in for new reactors.
To land these 4 contracts, Westinghouse (which was acting as the general contractor) had to require that the construction subcontractors bid fixed price contracts. Chicago Bridge and Iron (CBI) was working on the Vogtle reactors and ran into serious difficulties working with Westinghouse and sued them. Counter-suits which further delayed construction followed. Ultimately, Westinghouse would purchase CBI for $229 million to avoid going to court for $1.5 billion.
But once Westinghouse owned most of the construction responsibilities for these reactors there became no way to pass on the cost overruns. The nuclear utilities had protected themselves from this old trick by requiring fixed-cost contracts. It is telling that once the cost overruns could not be passed on, this scam no longer worked, and it promptly bankrupted the nation’s largest nuclear construction firm.
I’ve been fighting Westinghouse my entire adult life, and I did not expect to outlive it. There will be some hard won celebrations by clean energy advocates across the land this week.
[Update Nov 2016 – I was completely wrong. Despite the strong case for the cancellation of this terrible project. Elizabeth May decided to go forward with it. Threats of Chinese trade retaliation and the British need for new civil nuclear technology to maintain nuclear sub capacity are two often cited reasons for why the UK government made this expensive, stupid and dangerous choice.]
What does it mean when the largest nuclear construction company, backed by the most pro-nuclear state, funded by the world’s largest economy, can’t build a reactor in one of the most pro-nuclear countries in the west? It means the end of the nuclear age is in sight.
I make predictions. I get that on some level this is quite arrogant. But i really want this to be true, and it has an unusually good chance. So I am going to call September 2016, “Hinkley dies”. I’ve made the case why this ill conceived reactor complex in the UK should be scrapped. So I won’t go over it all again.
The important thing here is that the new British Prime Minister Theresa May has said she will review the project this month, and almost everyone who has done a review thinks the project should be killed. But with nuclear power, this is frequently not enough. I have watched thousands to top flight reports pointing out the flaws of nuclear power, in specific and general cases, and typically these reactors get built.
And while Hinkley has its own special problems (including that none of the four attempts to build this design reactor has been successfully completed and some are nearly a decade late now and billions over budget), all of new nuclear power construction is looking down the barrel of low cost solutions using renewables .
This is crazy important. Even if you don’t care about climate disruption, even if radioactive waste does not bother you, even if you are just a black-hearted capitalist trying to make a buck, unless the market is fixed as it is in Virginia, you would have to be a bit crazy not to shift to renewables over nuclear, because they are just cheaper. Even when you consider the cost of storage of renewable power.
Let’s hope the new British PM takes seriously her own call for reviewing Hinkley Point C. If she does, she will likely stop this project and, if she does that, the entire future of new reactors in the west is thrown into question. And this is a question I have wanted to hear for half my life.
This letter to the editor was not printed by the Richmond Times Dispatch
Sadly, I will not be able to attend this year’s shareholders meeting for Dominion Resources on May 11th in Columbia SC. Were I there, I would be asking out-going CEO Tom Farrell some difficult questions about the proposed North Anna 3 reactor.
“The estimated cost of building the new reactor at North Anna is $19 billion. Dominion paid $192 million for the Kewaunee reactor in Wisconsin. You ran this reactor for 5 years and were not able to make it be profitable. Dominion closed Kewaunee in 2013. How can Dominion expect to run the North Anna plant profitably, if it is 100 times more expensive than one it has already closed for economic reasons?”
“Dominion has already put over $1 billion into the rate base for this project it claims to have not yet decided on, making this one of the most expensive non-decisions in history. Now Dominion wants to spend in 2016 over half a billion dollars (the cost of a very large solar array) to wait another year to decide on North Anna, while the clean energy regulations are being litigated. Why not invest this money is solar PV which could be generating cheaper electricity, without toxic radwaste, at a lower price, even factoring in the cost of batteries?”
The global investment for renewables new capacity exceeded investment in fossil fuels (including fracking) and nuclear combined in 2015. Is Dominion just unable to find capable people to tap into this clear emerging market? Dominion has a fairly small fraction of its capacity in high profile renewables.
Dominion is fundamentally failing to become a forward thinking utility and instead depends on its comfortable relationship with the state government to push off the costs of its mistakes (like North Anna 3) onto ratepayers and taxpayers. Wise investors would recognize that this is not a sustainable investment strategy.