Profit is the motive behind push for Yucca

DAVID STROW / Las Vegas Sun 19may02

Deregulation increases profitability of nuclear plants, prompting expansion plans and push for Yucca

Listening to nuclear-power proponents, you might believe the industry could be the solution to America's energy problems.

Coal plants vomit huge amounts of black, acrid smoke into the air. Nuclear plants don't.

Natural gas-fired plants don't pollute much, but the cost of electricity that they produce gyrates wildly.

When natural gas prices soar -- as they did last year -- so does the price of the electricity produced. Nuclear plants don't have this problem -- fuel costs are steady, and so is the cost of electricity produced.

Nuclear plants can also produce massive amounts of electricity, far more than any other kind of power plant. A single nuclear plant can provide sufficient electricity to power a major U.S. city single-handedly, and it can run for as long as two years before refueling.

Today 103 nuclear plants supply one-fifth of the electricity used in the United States. Even Nevada, which has no nuclear plants, draws 8 percent of its electricity from nuclear sources.

But there's one rock-solid law in economics: Any benefit must come with an associated cost. And nuclear power has a massive cost: nuclear waste, one of the most toxic and dangerous substances known to man.

Radiation from unshielded nuclear rods is intensive enough to kill a human within minutes -- and these spent rods currently sit in storage at every nuclear plant in the country.

Nevada officials estimate the rods will remain dangerously radioactive for the next million years. That is more than five times longer than modern man -- Homo sapiens -- has existed on Earth.

So it's not surprising that this nuclear material is a hot potato that no state wants.

In April, for example, Energy Secretary Spencer Abraham tried to force South Carolina to take possession of 34 metric tons of weapons-grade plutonium at the Energy Department's Savannah River nuclear site, where it could be reprocessed. South Carolina has more nuclear plants than all but three states, and draws more than half its power from nuclear sources.

South Carolina Gov. Jim Hodges responded by threatening to block the route with armed state troopers -- and even said he was willing to block the road with his own body -- until the federal government puts the plutonium elsewhere.

Hodges, however, has no such qualms about dumping the waste on Nevada.

"The nation's most constructive long-term course is to proceed with the licensing and eventual operation of the Yucca Mountain facility to relieve South Carolina and other involved states from the heavy burden of nuclear waste and other materials stored on site," Hodges wrote in an October letter to Abraham -- even though he admitted later in the letter that guaranteeing Yucca's suitability for long-term storage was "unachievable."

Burying 77,000 tons of nuclear waste under a mountain ridge in Southern Nevada will free states such as South Carolina, Illinois, New York and Pennsylvania from keeping waste that their plants generate. And it will open the door for an ever-shrinking group of nuclear power operators to expand business, something unheard of since the Three Mile Island disaster in 1979.

"The big push to get Yucca Mountain open is really just about getting the waste away from the reactor sites so they can build more reactors in the future," said Bob Loux, Nevada Nuclear Waste Project director.

Nuclear operators reply that the federal government already promised it would remove the waste when Congress passed the Nuclear Waste Policy Act in 1982. So far they've paid $18 billion into a fund to deal with permanent waste disposal -- and gotten nothing.

"The federal government has an obligation to take possession of this material," said Craig Nesbit, spokesman for Chicago-based Exelon Corp., the single largest operator of U.S. nuclear plants. "Whether it's Yucca Mountain or another site is another issue."

Nuclear industry officials aren't willing to predict that their budding renaissance will be dead if Yucca Mountain dies. But they acknowledge it will become much more difficult.

"I don't know if there is a yes or no answer, but I'd say it certainly makes it less feasible," Nesbit said.

A reborn industry

Nuclear power has been discussed in such glowing terms before -- in the 1950s and '60s. To cover the huge costs of building a plant, utilities and municipal power agencies often split the investment and ownership of new plants.

In 1979 the near-meltdown at Three Mile Island, a nuclear plant 10 miles southeast of Harrisburg, Pa., put the clamps on any further expansion of the nuclear industry. Within 100 miles of TMI lie Baltimore and Philadelphia; within 200 miles are Washington, New York and Pittsburgh.

Orders for new plants vanished. Those that were already under construction saw price tags explode as new safety requirements went into effect. Nuclear plants went from gold mines to white elephants.

The situation remained into the 1990s. Then came deregulation -- and nuclear power was back in vogue.

Under deregulation, many regulated utilities were forced to sell their generation assets, which put nuclear plants onto the market. With the nation's demand for electricity soaring, nuclear power plants became valuable assets -- even more so because electricity can be sold at higher profit margins into deregulated markets.

First to move was New Orleans utility holding company Entergy Corp., which acquired Massachusetts' Pilgrim nuclear power plant in July 1999 for $81 million.

Since then, nine nuclear plants have been sold. The latest was April 15 when FPL Group, a Florida utility holding company, announced it would buy New Hampshire's two-reactor Millstone plant for $836.6 million.

Prices for nuclear plants began shooting up after natural-gas prices soared last year, Richard Myers, Nuclear Energy Institute director of business policy, said.

"Companies learned that volatility can be very painful," Myers said. "Certainly recent sales have been more costly, but they (nuclear plants) still look like very dependable, low-cost sources of electricity."

Just four companies have been buyers: Entergy, Exelon, Virginia's Dominion Resources and FPL Group. Ironically, one plant was the remaining Three Mile Island reactor, sold to a joint venture of Exelon and British Energy in December 1999 for $20 million.

Following this buying spree, Exelon stands as the nation's largest nuclear plant operator, with ownership interests in 19 plants. Catching up is Entergy, which owns nine and has signed a deal to acquire a 10th. Charlotte, N.C.-based Duke Energy Corp. owns seven, followed by Dominion Resources and Atlanta-based Southern Co. with six each.

Combined, these five companies control nearly half of all U.S. nuclear generators.

When a nuclear plant is purchased, it is placed within a separate subsidiary that sells electricity outside of a regulated utility. By doing so, companies are able to generate far higher profits than their previous owners.

For a power plant owner, one of the biggest expenses is depreciation, the gradual reduction in an asset's value. Eventually, an asset can be completely depreciated, and the expense disappears.

But the end of depreciation does little to benefit a regulated utility, which has a fixed profit margin. The elimination of an expense such as depreciation is passed directly to ratepayers as lower rates.

This isn't the case with a nonregulated power seller. The end of depreciation simply increases profit margins, making older nuclear plants tremendously profitable.

"Then it's just a question of keeping them running safely," Mitch Singer, Nuclear Energy Institute spokesman, said. "Then it's pure gravy down the line."

By specializing in nuclear generation, the small core of companies is squeezing more and more electricity out of their plants. Prior to the industry shift, the nation's nuclear plants never ran, on average, higher than 80 percent of capacity -- the theoretical maximum amount of electricity that the plants could produce.

In 1999 industry performance jumped to 87 percent, and in 2000 to 90 percent. By January the industry was running at 98.5 percent capacity. These numbers were achieved by shortening the periods nuclear plants are taken out of service while fuel rods are changed and maintenance is performed.

As a result of greater efficiency and the economics of deregulation, nuclear power is becoming quite profitable. For example, in 1999 when Entergy bought its first nuclear plant, its nuclear business accounted for 1 percent of its revenues and 3 percent of its net income. Last year it owned four plants, which provided $789 million in revenues, 8 percent of the company's total. On a net-income basis, nuclear power accounted for 17 percent of Entergy's total profit in 2001.

Considerable risk

Some suggest that these kinds of profits are coming at a considerable risk. Arjun Makhijani, president of the Maryland-based Institute for Energy and Environmental Research, said that nuclear operators performed routine maintenance during refueling periods.

"Now they don't even have time to do that," Makhijani said. "They're taking backup systems offline while operating (for maintenance). There are times when they don't have backup systems."

It's a claim the nuclear industry hotly denies.

"Absolutely not," Nesbit said. "You just don't go outside those (safety) limits."

Squeezing more life out of these plants is the immediate goal of the industry. Many older plants have only a few years left on operating licenses -- and that's started a push for license renewals.

The Nuclear Energy Institute says eight reactors so far have received 20-year renewals. Another 15 have filed for renewal while 27 more are expected to do so soon. These have proceeded without a permanent repository, although waste continues to pile up at the plants.

However, the next step goes beyond simply extending the lives of plants. What nuclear operators and the Bush administration have in mind is nothing less than the drastic expansion of nuclear power.

It's a simple formula, Myers figures. The United States now has 800,000 megawatts of generation capacity. Twenty years from now, it will need an additional 400,000 megawatts.

"We believe that nuclear can and should and must represent some portion of that new building, perhaps 50,000 to 60,000 megawatts," Myers said. "Having a diverse portfolio of fuels is a good thing. Like an investment portfolio, you don't want to be 100 percent in equities."

Construction on new plants could begin around 2006 or 2007, with "a significant level" getting under way after 2010, Myers said.

A large nuclear plant generates roughly 1,000 megawatts of electricity, suggesting another 50 to 60 nuclear reactors -- at a minimum -- would have to be built. Yucca opponents say these plans are among the biggest reasons for the push to build the repository.

"Without a repository, they can't even talk about it," Makhijani said. "It's impossible."

The nuclear industry is reluctant to draw the same conclusion.

"I do not think it is a prerequisite," Myers said. "What is necessary is a plausible program to manage the spent fuel from the plants. As long as it's moving forward, I think you have what you need to justify the construction of new plants."

On the same day President Bush recommended Yucca Mountain as the nation's nuclear waste repository, his administration offered three federal sites for companies to consider for new nuclear plants.

Since then, three companies -- Exelon, Entergy and Dominion Resources -- indicated they will examine building nuclear plants.

One major argument in favor of a Yucca repository has been moving the waste away from nuclear plants to a central site. But it is guaranteed that, as long as a nuclear plant is operating, some waste will be stored there.

Nuclear fuel rods can't simply be pulled from a reactor, placed on a truck and shipped out. A freshly removed fuel rod is extremely hot, and must be placed in a cooling pond for as long as seven years before removal, Nesbit said.

At many plants, those cooling pools have doubled as temporary waste storage centers as the nuclear rods pile up. As these pools run out of room, more operators are turning to "dry cask storage" as a solution.

Eighteen nuclear sites have dry cask storage centers, which are essentially huge concrete bunkers. While they keep radioactive material safely locked away, "these are not designed to be there for 10,000 years," Nesbit said.

But will Yucca Mountain be enough to hold all of the nuclear waste scattered around the country? Unlikely, Makhijani said.

Too much waste?

At a minimum, 40,000 tons of waste now exists. The nation's currently operating nuclear plants, even before relicensing, will eventually double that amount, Makhijani estimates -- slightly more than Yucca's maximum capacity of 77,000 tons.

Relicensing would increase that amount by another 40,000 tons, Makhijani said. Waste from the military and new nuclear plants would push up the total even farther.

Add it up, and the ultimate amount of waste requiring disposal within 20 to 30 years could exceed 120,000 tons -- 43,000 tons more than Yucca is designed to hold.

Singer said engineers have begun examining the possibility that Yucca would be required to store more waste, and expressed confidence it could.

"Capacity-wise, it could hold significantly more -- over 100,000 tons," Singer said.

But Makhijani insists it isn't that simple. Tunnels would be difficult to extend because of Yucca Mountain's fault structure, he said.

Cramming the waste in the tunnels more tightly would generate more heat, and could risk cracking the rock meant to protect the environment from the waste, Makhijani said.

And that, he concludes, means that Yucca will not give other states what they crave: a way to be rid of the waste forever -- unless a second repository is found.

"We have lots of little piles around the country," Makhijani said. "Now we're just adding one site. The only way to subtract a site is to close the reactors."

contact: strow@lasvegassun.com