Private investor plan for TVA unrealistic, group argues

Tuesday, October 29, 2013 5:27 PM ET Exclusive
Private investor plan for TVA unrealistic, group argues

By Matthew Bandyk

The Tennessee Valley Authority should reject a plan floated by private investors to finance the completion of the long-delayed Bellefonte nuclear plant because the proposal is riddled with errors and unrealistic assumptions, an environmental group argued Oct. 29.

The plan — spearheaded by former TVA Chairman Dennis Bottorff and claiming the involvement of energy experts from Credit Suisse — uses "uninformed political pressure in an attempt to benefit sub-regions of the TVA service territory and/or enrich former board members and political donors," according to a response from the Southern Alliance for Clean Energy.

The investor group presented the plan at a Sept. 13 briefing that featured U.S. Sens. Bob Corker and Lamar Alexander. The main elements, according to a confidential version of the presentation obtained by the Southern Alliance, would involve TVA retiring 29 coal-fired facilities, freeing up about $8 billion in cash. Up to $4 billion of this cash would be contributed toward finishing the Bellefonte plant, $2 billion would go toward the construction of the Watts Bar 2 reactor and $1.8 billion would be used to reduce rates for industrial customers by 30%.

TVA has been planning the two-reactor Bellefonte plant since the 1970s, but the project was put aside in the 1980s after the utility balked at the high capital costs. At that time, Bellefonte unit 1 was estimated to be 90% complete, but TVA has since said that the need for equipment upgrades has lowered the completion level to 55%. While the utility has made some attempts to continue construction at the reactor, earlier this year TVA cut the budget for the project to about $66 million for fiscal year 2014, down from $182 million in fiscal year 2013, and said it was focusing on finishing its other major nuclear project, Watts Bar 2.

But the investors' proposal would use private financing to cover most of the $11 billion in capital costs needed to finish Bellefonte. "Credit Suisse is confident that construction and permanent financing are readily available," the presentation said. A private company, Nuclear Development LLC, would form a special purpose entity to ground lease the plant from TVA. The utility would enter into a power purchase agreement with this entity for 95% of the plant's maximum output.

The Southern Alliance blasted the plan as amounting to a "privatization scheme" that cannot deliver on its promises. The plan's estimate that it can finish Bellefonte unit 1 in 2018 and unit 2 in 2020 is unrealistic, SACE Director of Research John Wilson said in a conference call. Previous TVA studies have adopted an informal target date of 2021 for completing the plant, he said.

"It's highly unlikely that TVA even believes that a 2021 date is feasible," Wilson said. In addition, operating unit 2 would require the construction of a 500-kV transmission line, a project that by itself could take a decade or more, he argued.

Wilson also said that the claimed rate reduction for industrial customers would be unfair for nonindustrial customers, who would have to pay for these reductions. The money savings from retiring the coal plants would not be as dramatic as the plan suggests, according to the Southern Alliance — about 45% of the $875 million in avoided capital expenditures and 15% of the $694 million in avoided operation and maintenance costs come from units that TVA has already idled or scheduled for idling, meaning that the plan essentially "double counts" these savings, the group's response said.

Bottorff did not immediately respond to an email asking for comment on the Southern Alliance's criticisms Oct. 29.

In the past the environmental group has called for TVA to not finish Bellefonte. But the opposition to the private investors' plan is not driven by a general distaste for nuclear, Southern Alliance Executive Director Stephen Smith said in an interview. The plan is more expensive than other alternatives that could provide carbon-free energy, he said. "Once you peel the onion, there is not a lot there that is useful," Smith said.

Instead of Bellefonte, TVA could get power through energy efficiency, which would cost about $850 per kW with no fuel costs, according to the Southern Alliance response. TVA has estimated that constructing Bellefonte unit 1 would cost $8.1 billion, including financing costs, or about $6,400 per kW, considering 1,260 MW in capacity for the reactor. But the presentation said that "higher upfront construction costs are offset by longer useful life and investment to date" in unit 1.

Smith said the group was not at liberty to disclose how it obtained a copy of the presentation.

According to a TVA spokesman, the utility is still considering the investors' plan. "TVA is looking over that proposal and is working to implement the best options for clean, low-cost, reliable power," spokesman Jim Hopson said. The utility has no estimate for when it could finish Bellefonte, he said, and is unlikely to have one until after work wraps up at Watts Bar.

In an Oct. 29 statement, TVA said that Watts Bar has a "most likely completion date" of December 2015, but it also said completion was possible sometime between September 2015 and June 2016. The utility made a similar forecast in July.