Nuclear Power May Rise Again
A group of power industry executives gathered in a hotel here last week to extol the virtues and future of nuclear power. Four floors down at the same hotel was a seminar on substance abuse. The electricity people were so resolutely cheerful you had to wonder if some folks hadn’t exited the elevator on the wrong floor.
Against all expectations, the power people said, the nuclear industry in the United States is in the midst of a renaissance. It has been rescued from the brink of extinction and made into a desirable business, so prosperous, in fact, that there has developed a vigorous market for used nuclear power plants. The price of these plants has increased a hundredfold in just three years.
The main point of the New Orleans meeting, coldly titled “Nuclear Asset Divestiture,” was to guess if prices might go even higher. The best estimate was yes.
Many people in the industry think the combined challenges of California power shortages, escalating fuel prices and increased attention to global warming will drive the value of these plants still higher. Last week, for the first time in 20 years, the Nuclear Regulatory Commission was presented preliminary plans for construction of a new power plant.
This surge of optimism has arisen very quickly. Even in their darkest periods, there always remained a small band of the nuclear faithful, but it was a quiet army.
Jay Brister, an executive at Entergy, a Louisiana-based utility holding company, said that as recently as three years ago, nuclear plants were considered little more than giant headaches. Shutting down a plant was viewed as pain relief, he said, “the ultimate nuclear Advil.”
What happened?
When deregulation in the 1990s prompted electric utilities across the country to sell power generation facilities, among the things some companies offered for sale were these plants. The problem, in what nuclear people like to call “the old days”--that is, 1998--was that hardly anybody wanted to buy the plants. So bleak were the prospects for nuclear power that in the first nuclear plant sales, utilities virtually gave them away.
Plants built for hundreds of millions of dollars were sold for as little as $10 million. Barth Doroshuk, president of a nuclear consulting company, said the attitude among many utilities that owned plants was, “Do whatever you have to, just get rid of the beast.”
Living Down Three Mile Island
In 1997, when Ed O’Donnell was assigned to manage the sale of his utility company’s Three Mile Island Nuclear Plant 1 in Pennsylvania, his first thought was: “What did I do wrong?”
Not only did O’Donnell face the prospect of selling a nuclear plant to a market generally skeptical of nuclear plants, he had the special disadvantage of Three Mile Island’s stigma. The plant he was to sell was the sister of Three Mile Island Plant 2, which on March 28, 1979, was the site of the worst commercial nuclear accident in U.S. history. Coolant for the reactor at Plant 2 was inadvertently flushed out of the plant and the reactor overheated to potentially calamitous levels.
After some delay, operators were able to shut the plant down with relatively limited release of contaminants into the air and the Susquehanna River. No one died as an immediate result, but three decades later cancer and leukemia rates in the region around the plant remain a point of fierce debate.
The accident, occurring at a time of heightened environmental concerns, dragged the industry to a new low point. Since then, not a single new nuclear plant has been undertaken in the United States. Although the industry continued to thrive in Europe and Asia, U.S. utilities fought just to build already licensed plants and keep existing plants from being shut down. When a multibillion-dollar plant on Long Island was finally licensed for operation after a 24-year fight, it was shut down for good because of safety concerns after the equivalent of two full days of operation.
Even if the industry had been able to guarantee safety, any hopes of new nuclear construction foundered in a sea of cost overruns. In Washington state in the 1980s, four of five plants being constructed by the Washington Public Power Supply System (WPPSS, often pronounced “whoops” by its critics) were abandoned in what at the time was the worst bond default in American history. The $7-billion WPPSS fiasco effectively killed whatever willingness the financial markets had to fund new nuclear construction.
Thereafter, except for the occasional protest and a rash of Homer Simpson glow-in-the-dark jokes, the nuclear industry disappeared from the public stage. A total of 131 commercial nuclear plants have been built and licensed. Twenty-eight of those have been shut down. The remaining 103 produce about one-fifth of the nation’s electricity. Another 65 plants were canceled before construction. That was more or less the state of things when deregulation of electric utilities began in the middle 1990s.
“There was,” Three Mile Island’s O’Donnell said, with considerable understatement, “some degree of notoriety.”
O’Donnell and his colleagues at GPU, a Northeastern utility, nonetheless set about trying to find a buyer for Plant 1. They succeeded, but barely. There turned out to be a single pair of buyers then in the market for used nuclear plants, AmerGen, a recently formed joint venture of an American and a British utility company, and Entergy.
Both companies thought there was money to be made buying clusters of nuclear plants and thereby achieving some economies of scale, especially given that the plants could be picked up with, one industry consultant said, “virtually no cash actually changing hands.”
AmerGen bought O’Donnell’s plant for an announced price of $100 million, 70% of which was for fuel to run it. At almost the same time, Entergy bought Boston Edison’s Pilgrim plant for $13 million, plus $67 million for fuel. It was a buyer’s market and remained that way throughout 1999, when a handful of other, generally smaller plants were sold for similarly depressed prices.
Late that year, a Maryland utility became the first in the country to gain the NRC’s approval to extend the life of a nuclear plant by 20 years. The license renewal of the Calvert Cliffs plant demonstrated that many of the nuclear plants built in the 1960s and 1970s could have longer life spans than originally contemplated. It meant, in essence, they were worth a lot more money than anyone thought. AmerGen and Entergy looked like financial geniuses.
“With these existing plants, you didn’t have to wait 10 years to build something,” said Entergy’s Jay Brister. “They’re up and running and from Day 1, the profits go straight to the bottom line.”
The prospect of license renewals drew more potential buyers into the market and ended the bottom-feeding bonanza. Utilities began to hold auctions. The astonishing result was demonstrated early last year when Entergy agreed to buy a pair of New York plants for close to a billion dollars. Dan Keuter, who helped negotiate the purchase for Entergy, said his bosses were incredulous when they heard the price. “You wanna pay how much?” they asked.
That standard was quickly eclipsed when another company, Dominion, bid $1.3 billion for the Millstone plant in Connecticut, which had years earlier been featured on the cover of Time magazine as a poster child for nuclear mismanagement. An investment banker advising the seller of Millstone called the auction “a grand slam in the bottom of the ninth in Game 7 of the World Series.”
The high purchase prices were justified, the buyers say, because competing fossil fuel energy costs kept rising commensurately, making nuclear power a relative bargain.
Plants Become More Efficient
Over the past 20 years, nuclear plant efficiency has risen sharply. It used to be that plants were shut down nearly as much as they were running, according to the NRC. Now, they routinely operate at 80% capacity. Refueling shutdowns that used to last several months have been accomplished in as little as three weeks.
The new efficiencies helped make nuclear energy a low-cost alternative to fossil fuel plants. John Reed, president of Navigant Capital, a firm that advises utilities selling power plants, said that as long as natural gas prices stay somewhat above historic lows, nuclear plants will have a cost advantage.
Not even the most optimistic nuclear advocates say the industry will return any time soon to its golden age of the late 1960s, when the promise of nonpolluting, nearly free atomic energy fed a construction boom. Many environmentalists remain adamantly opposed to the plants, in large part because there is still no long-term solution for the disposal and safeguarding of nuclear wastes, most of which are in temporary storage at the plants.
Since the first nuclear sale in 1998, 13 plants have changed hands, with more transactions to come. With the sales and other mergers, the industry is consolidating. Entergy now owns 14 nuclear plants. Excelon, the parent company of AmerGen, controls 21 and is looking for more. It was Excelon that made the preliminary presentation to the NRC last week on the possibility of building a series of new-technology, small nuclear generators. A decision to go ahead with a formal proposal is at least a year away, said Ward Sproat of Excelon.
But the fact that people are even talking about building new plants or taking nuclear companies public is remarkable, said Entergy’s Brister.
” If you’d proposed building a new nuclear plant five years ago,” he said, “you’d have been committed.”
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A Look Inside
There are more than 100 licensed commercial nuclear reactors in the United States, most of them built in the 1960s and ‘70s. There has been a recent resurgence in the value of these plants. Almost all the reactors in operation in the U.S. are some variation of the reactor illustrated here.
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How It Works
In a typical nuclear plant, fission in the reactor core (1) creates heat. Water piped through the reactor carries the heat to a steam generator (2). The steam generator vaporizes the water and sends it to the turbine (3). In the turbine, the steam spins blades that generate electricity, much like in a fossil-fuel plant. Plant technicians in the control room (4) monitor the reactor’s chain reactions.
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Sources: “How Things Work,” published by Dempsey Parr; “National Geographic’s How Things Work”; U.S. Nuclear Regulatory Commission
Researched by CHRIS ERSKINE and JULIE SHEER / Los Angeles Times
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