The End of Summer

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.

V.C. Summer reactor under construction in Jenkinsville SC.

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.