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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Regulators Rescue Troubled Vogtle Nuclear Plant

There’s a scene in that classic black and white boxing movie, Requiem for a Heavyweight. A hulking, groggy Anthony Quinn tries to stay on his feet, while a lithe, young Mohammed Ali pounds him senseless. We saw the financial/regulatory equivalent today in Georgia.

Executives from Atlanta-based Southern Company defended their long delayed and way over-budget nuclear construction project, the Vogtle plant, before the Georgia Public Service Commission. But this time, Anthony Quinn won. The Georgia PSC commissioners gave Southern the ok to keep building.

The PSC had a choice: recommend cancellation of the huge project or let it proceed. But cancellation would require still another unpleasant discussion and decision: who foots the bill for the incomplete plant? Not the sort of decisions politicians like to make on their watch.

So the PSC ruled that power-generating alternatives to nuclear, such as combined cycle combustion turbines, would cost more than completing the plant (a conclusion that requires judgment about gas prices). And it made some modifications that will supposedly cut $700 million off what the plant will cost Southern’s consumers (that’s $18 million per year over the projected life of the plant, so no big deal.) Related: Aramco’s “Acquisition Hit List”

Economists warn decision makers to ignore sunk costs. But those sunk costs apparently did weigh on regulators. Explaining to the governor and to voters that the billions of dollars of plant investment made on their watch is now worthless… well, that's a decision few regulators would choose to make.

The public reasoning behind today's Georgia PSC decision involved assumptions about future energy costs, the company's need for a diverse energy mix, and the desirability of adding low carbon emitting generating resources.

For all the attention this decision received, probably didn’t play a significant role. Nobody we’ve ever met could accurately forecast trends in energy consumption, power technology and costs at the same time over any reasonable planning horizon. To accurately forecast these over the 40-60 year projected life of the Vogtle plant turns an impossible task ridiculous. That is the key to the problem regulators faced today, and the reason why a decision to build a large nuclear plant is so risky. 

Two Greentech Media journalists saw today's PSC decision as an “infusion of hope for large-scale nuclear… and the last chance to prove the viability of the industry” in the U.S. The verdict of the financial community was far more muted. The common shares of Southern Company fell 1 percent.

How will an over-budget, late and marginally economic nuclear power generating facility encourage others to dive into the nuclear new-build game?

Georgia regulators cited other reasons to approve this project, including the need to reduce carbon omissions and to maintain America’s nuclear power generating capability. But the big question is why should the electricity consumers of Georgia, alone, bear the burden of meeting relatively high-cost national energy goals? Related: U.S. Slaps Sanctions On Israeli Oil Billionaire

Given the size and risks inherent in building new nuclear projects, especially with relatively new designs, shouldn't the risk be spread throughout the nation? There’s something bizarre about the electricity consumers of Georgia and South Carolina (where an identical project was recently canceled) incurring possibly $25-$50 billion of financial risk for the sake of the nation's nuclear power generating capability.

Given the size and risks inherent in new nuclear projects, shouldn't the risk be spread throughout the nation, if—as the regulators imply—the entire nation actually benefits? The electricity consumers in Georgia and South Carolina shouldn’t incur significant financial risk for the sake of the nation’s nuclear capability—especially when no other domestic utility management appears ready to follow suit.

As a supposedly patriotic gesture, we can certainly applaud the sentiment. But the economics remain shaky.

By Leonard Hyman and Bill Tilles

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