This blog was co-authored by SACE staff Sara Barczak and George Cavros.
Has the so-called “nuclear renaissance” finally met economic reality? The nuclear industry recently experienced their “worst week” since the Fukushima disaster in Japan. Not only did Duke Energy scrap plans to build new reactors at their Shearon Harris site in North Carolina but the many events which unfolded in Florida, culminating with Governor Scott’s signing of Senate bill 1472 late last Friday, affirm that the “renaissance” is crumbling – and economic reality is prevailing.
The new law amends a 2006 anti-consumer law that was meant to promote nuclear reactor construction by shifting all the financial risk of constructing new nuclear reactors to the power company’s customers. The earlier law drew significant consumer pushback and has now been scaled back. This new law is a step in the right direction. Proposed new nuclear projects in Florida will face more procedural checks that are intended to better protect consumers and must show that a project remains feasible and that project costs are reasonable. Find a brief summary of the new law here and our statement on its signing here.
This is the first time a state in the U.S. has scaled back a so-called “construction work in progress” (CWIP) or “advance/early cost recovery” law for new nuclear reactors. CWIP laws generally mitigate the financial risk of constructing a reactor by shifting part or all the financial risk of construction to utility customers. Essentially, customers are charged in advance, but with no assurance that they will ever receive a benefit from that forced investment. These laws have the perverse incentive of encouraging power companies to pursue speculative projects, even when there is no intent to build the plant because there is no risk for utility shareholders.
The law in Florida was sold to state legislators back in 2006 as a way to help finance the expansion of nuclear power. The help was necessary because Wall Street was (wisely) reluctant to finance new reactor projects given the abysmal industry track record of abandoning dozens of nuclear projects due to soaring cost overruns and a drop in electricity demand. A 2010 Forbes article mentioned, “A 1985 article in FORBES (Feb. 11) made the case that the U.S. nuclear power program was the largest managerial disaster in business history.” That’s primarily why there hasn’t been a new nuclear plant built in the U.S. in over 30 years.
But this time around, the industry and its proponents promised things would be different. Former Vice President Cheney’s Energy Task Force issued recommendations that pointed to a possible nuclear power resurgence and the Department of Energy launched the “Nuclear Power 2010” program, with the goal of having two reactors online by 2010. And thus, the nuclear “renaissance” was born as dozens of new nuclear reactors were proposed in the U.S. But that cheerleading has not led to much and the “renaissance” has seriously faded. Today, just four reactors are actively under construction at two plants: Vogtle in Georgia and V.C. Summer in South Carolina.
One need look no further than Florida, where four reactors are proposed, to see how the so-called renaissance has gone awfully wrong.
Duke Energy Florida, formerly Progress Energy Florida, anticipating future electricity demand, “bet the farm” on a proposed, nearly $24 billion nuclear reactor project in Levy County. Original cost estimates were a meager $5 billion in 2007 with a start date of 2015-16. Most recent cost estimates have skyrocketed over 400 percent with the earliest start dates of 2024-25. Customers are already on the hook for over $1 billion in pre-construction costs, which includes $150 million dollars for Duke shareholders. And by all accounts, the reactors likely won’t get built yet customers will bear the entire financial burden, never having received a kilowatt hour of power.
Meanwhile, Duke just shuttered its Crystal River Unit 3 nuclear reactor that hadn’t produced any power since 2009 after being damaged during a bungled in-house upgrade. Here, too, customers are already on the hook for more than a billion dollars in repair-related expenses and replacement power costs not covered by the utility’s insurance company. The Florida Public Service Commission has thus far approved the recovery of costs related to the failed repair, and the company is seeking to recover an additional $68 million this year for a shuttered nuclear plant that will never produce another kilowatt hour of electricity. It’s estimated that the failed upgrade, decommissioning, and a new power plant will ultimately cost Duke customers about $3 billion.
And Duke Energy is not alone in Florida. Florida Power & Light is likewise pursuing two costly new reactors at their existing Turkey Point plant near Miami. That project has been delayed by four years to 2022-23 at the earliest and the utility also continues to recover pre-construction costs from customers without having made a firm commitment to actually build the new reactors. These utilities serve over 6 million customers who are affected by this avalanche of nuclear costs.
It’s no wonder that the Florida legislature finally felt compelled to act. The amendment bill was opposed by the state’s largest power companies, who for years have persuaded legislators not to change the 2006 law, even though estimated costs of the reactors have quadrupled and their construction plans were perpetually postponed. Utility lobbyists argued “minor changes to the statute can impose enormous risks and put nuclear projects in jeopardy.” Yet, the bill passed over powerful power company objections.
Even a PSC commissioner who had presided over all of the annual nuclear cost recovery proceedings since this debacle started was only confirmed by the Florida Senate after a spirited debate about her role in approving nuclear recovery costs for FPL and the former Progress Energy Florida (now Duke).
If the events in Florida are any indication of where the so-called nuclear renaissance is headed, it’s clear it has met economic reality – and economic reality is prevailing. Lawmakers should now pivot to reforming the state’s resource planning process that led to the encouragement of these costly and speculative reactor projects. A focus on meeting electricity demand with lower cost and lower risk resources, such as greater energy efficiency implementation and renewable resource development, is a good step in restoring customer confidence in the state’s energy policy.