Copyrighted material

Too Cheap To Meter

by J.A. Savage

on hidden costs of energy deregulation
The year is 3057. A nuclear worker in a glossy green jumpsuit and silver headgear whips out her palm pilot XCIII. She has done this before. In fact, she has done this every day since being assigned to waste monitoring eight years ago. With a tri-corder in her other hand she surveys radiation levels emanating from the plutonium rods in the newly reinforced spent fuel pool.

That scenario -- spent fuel on-site monitoring for 100 years to 10,000 years would cost in the vicinity of $5.3 trillion for all the nuclear plants in the nation, according to Nuclear Energy Institute spokesperson Steve Unglesbee. The fuel, even after 10,000 years, would continue to be radioactive for some 200,000 more years. There is no estimate of the cost to watch it that long.

Using this type of hidden cost for nuclear power, but allowing for conservative and more solid estimates, the price of electricity from fission is 15 percent to 50 percent more than the industry is telling its customers and its shareholders.

In California, those costs will make or break nuclear plant operations in a couple years when the electric industry is truly deregulated and nuclear power loses its current subsidies. If the industry keeps ignoring the hidden costs, one breakdown will lead to plant shutdowns.

More of the actual costs of nuclear power are beginning to come into focus
The price of environmental mitigation for marine habitats, plutonium storage and disposal, as well as the specter of a Chernobyl-grade accident are the main sources of hidden costs. What should also be included, but has no clear price tag, are the costs of air pollution, lawyers and increased utility management oversight and spin control.

The increase in the price of nuclear electricity on the conservative end is a little more than a penny per kilowatt hour. (A kWh is the increment that shows up on monthly bills.) One penny doesn't sound like much, but when each reactor floods the market with 10s of billions of kilowatt hours per year, it certainly adds up.

A penny in the deregulated electric market can easily dash the economics of an electric generation plant. If nuclear comes in at an honest cost of $0.045 a kWh and power from windmills comes in at a fraction less, either nukes will have to get more subsidies or go out of business.

At the non-conservative high end of nuclear costs -- assuming that one day Murphy's Law kicks in and something goes terribly wrong, the price of nuclear electricity would cost over 20 times the current estimate.

These new cost revelations come at a time when many nuclear plants are facing deregulation on a state-by-state basis. The figures below are based on California's nuclear plants which will be fully deregulated by 2004.

It's a good time to look at the numbers. More of the actual costs of nuclear power are beginning to come into focus now that subsidies are about to be peeled away from nuclear plants and owners face a competitive market. Not only are the operating (the day-to-day costs including personnel and fuel) and capital (investments in new hardware, like turbines) costs becoming more clear with the portent of losing subsidies and experience with the commodity price gained from two years of a deregulated electric market, other costs, like the effects on ocean habitats that were at first considered intangible, are coming home to roost.

While the costs in some ways are coming into focus due to the deregulated electric commodity industry, in other ways they are becoming evanescent, because of the same market movement. No longer will some critical data be filed with state regulators after 2004. With the industry calling generation costs "trade secret" this is an opportune time to review current costs before the data disappear.

Deferred maintenance and counting on costs not to change
It has been nearly two decades since some anti-nuclear activists gave up on the doom-and-gloom warnings about safety and meltdowns and started harping on the doom-and-gloom results of soaring nuclear costs. Anti-nuclear economics activists tried to convince regulators and shareholders not to put the plants on-line, even after huge up-front investments, because, given all costs put together, they would still be too risky and too expensive to run. Activists lost out to an optimistic industry, but that industry is still not so sanguine that it will attempt to build another nuclear plant.

"The initial focus of the national anti-nuclear effort was reactor safety. But I think we learned fairly quickly, amid gas lines and rising oil prices, that we were unlikely to reach more than a third of the voting public with that argument." So activists changed strategy "to focus on the more pedestrian problems of reliability and cost" explained Jim Harding, former Friends of the Earth nuclear economics guru, now Seattle City Light director of external affairs.

While the price of nuclear power looks nearly competitive at the moment, Bill Marcus, economist with JBS Energy and one of the few nuclear economists who have kept up his research, is waiting for the other shoe to drop. "What nuke owners do not do rationally is that they assume everything will get better. The assumption that everyone is making is that there are no more shoes to drop. As plants age, We don't know what will appear. I'm not sure the future will be like the past. And, from statistical principals, it's underestimating cost because of the inexorable aging of the plants."

Although speculative about future costs, estimates below are as reliable as assuming current costs will continue status quo. While many of these costs are similar throughout the U.S., the numbers noted here are for California's two operating plants, two shut-down facilities and Southern California Edison's share in Arizona's Palo Verde plant. Unless otherwise noted, all price estimates are current.

Operational costs for nuclear plants continue to drop as the foreboding arrival of a competitive market and its attendant lack of subsidies are squeezing owners. Jeff Lewis, Pacific Gas & Electric spokesperson, reports that the utility's Diablo Canyon plant operating costs -- that is, the daily requirements of putting out electricity -- are slightly under what the subsidies now cover. That is approximately $0.034/kWh.

San Onofre Nuclear Generating Station, owned 75 percent by Southern California Edison, 20 percent by San Diego Gas & Electric, and 5 percent by two cities, may run higher or lower than Diablo, but Edison management would not say, calling the number "proprietary."

Palo Verde got its operating costs far below either of those. Arizona Public Service spokesperson Jim McDonald said operating costs are at $0.0125. Arizona Public Service runs the plant.

Operating costs are only part of the story, however. "There's a real financial incentive for owners and operators to defer maintenance. The competitive industry doesn't incentivize them -- that's an argument PG&E made to the Diablo Safety Committee. The strong incentive is to keep operating costs down." noted Dan Nix, California Energy Commission deputy director, information and energy analysis division. Nix said his staff looked at federal documents for 1996 and 1997. From that, the plants appeared to be barely making it, if profitable at all.

$5.5 billion to build, but ratepayers pay $30 billion for interest and subsidies
Nuclear operating costs compete with fossil and renewable plants. In an open market for electricity, those competitors need to assume not just the day-to-day expenses in their asking price for electricity, but also their future capital investments, weather patterns, and environmental clean up such as air emissions and avian protections-as birds tend to fly into unprotected wind turbine blades. In order to stay in the game, those merchant businesses cannot afford to ignore long-term capital costs.

Capital investments, then, are an ever-changing tableau of nuclear costs. In the beginning, it was construction costs. Now it is injections of capital to fend off aging facilities and fix immediate problems.

Construction costs is what initially gored anti-nuclear economists. Up until the 1960s, central-station power plants were utilities' bread-and-butter. They're the old standbys: in Northern California it's Humboldt Bay, in San Francisco, it's Hunters Point, near Los Angeles, it's Etiwanda, in San Diego, it's Encina. They amounted to tens of millions of dollars in construction costs. But then utility managers understood that investing small pots of money in small generation only reaped small rewards for their shareholders. Why not invest large pots of money? As long as regulators were guaranteeing a significant rate of return, what did it matter if it was a return on $1 million or $1 billion? In the 1960s and 1970s, most utilities decided to make the switch to huge centralized generation plants. These expensive giants tend to run on nuclear fission.

California utility investments in nuclear plant building alone totaled nearly $11 billion. Diablo Canyon, at 2100 megawatts, comes in first at $5.5 billion, of which ratepayers have reimbursed the utility over $30 billion for interest and subsidies, according to the state Office of Ratepayer Advocates' analyst Bob Kinosian. San Onofre Nuclear Generating Station Units 2 and 3, at 2687 megawatts, cost $4.3 billion to build. Edison's share. 600 MW, of Palo Verde construction was $1.5 billion. Rancho Seco, 913 MW, shut down in 1989, cost $350 million, and Humboldt Bay, 63 MW, shut down in 1976 due to its proximity to three earthquake faults, cost $24.2 million. San Onofre Unit 1, 425 MW, also shut down, cost $89 million.

After that orgy of spending, utilities are no longer entitled to cost-plus investments. Whatever can be gleaned from the market once subsidies end is all the profit available. Obviously, investors in Diablo Canyon have been well-served, and for most of the last decade, PG&E has relied on those profits to keep the utility books looking good.

Now, with the specter of mounting capital costs looming as nuclear plants enter middle age the idea of nukes as profit centers is fading. Their licenses are for 30 to 40 years from the Nuclear Regulatory Commission and nuclear plants are now middle age. Capital additions fell off when the plants were in their teenage years, in the 1980s, but few expect that to last.

"A key problem with running existing nuclear plants is the unknown risks of plant aging. While the marginal cost of these plants is relatively low since it does not include payments for the sunk costs of construction, uncertainties about accident risks seem high," academic and author of Too Cheap to Meter, State University of New York Press, 1997, Steven Mark Cohn, said.

Striking a Deal With Diablo
In their senior years, nuclear plants, like humans, need more investment in health and safety. "The primary capital cost is in new steam generators, which is the primary barrier to releasing radioactivity into the environment," said Union of Concerned Scientists' nuclear safety engineer Dave Lochbaum. Those generators, like the one currently being installed at Palo Verde, cost in the vicinity of $100 million.

The Nuclear Energy Institute (the pro-nuclear lobby) has been pushing for the central repository at Yucca Mountain in Nevada. Storing spent fuel on that site would have a life-cycle cost of a mere $28.8 billion -- compared to the $5.3 trillion for on-site monitoring, according to spokesperson Unglesbee. However, with the president's recent veto of the Yucca Mountain site, on-site monitoring looks ever-more likely.

A third option -- keeping spent fuel on site for 100 years and then walking away from the facility -- would cost $56.7 billion.

Using the conservative assumption of $28.8 billion, the cost of waste disposal is about $260 million per reactor. With four working reactors and three shut down units, plus Southern California Edison's share of Palo Verde, California's share of that retirement account would total $1.9 billion. With an assumed 30 year life span, and using the Department of Energy's Energy Information Administration's output for the working plants at 39.5 billion kWh/year (34.6 billion kWh if Palo Verde is backed out), that would add $0.0016/KWh to the operating cost of nuclear power.

Perhaps a more salient number would be to assume that storage costs will continue indefinitely, that $28.8 billion in today's dollars will result in about $500 billion, of which California's shared would be about $32 billion. This would add over $0.08/kWh.

Decommissioning funds are fairly straightforward. Decommissioning money is supposed to take care of dismantling reactors and associated radioactive buildings and getting the pieces to the point of waste disposal. In California Public Utilities Commission proceedings, regulators estimated that for this year, the decommissioning fund for Diablo Canyon would collect $26.4 million. For Edison's share of Palo Verde and San Onofre Nuclear Generating Station, ratepayers will kick in $25 million. For San Diego Gas & Electric, it is $5 million. Sacramento Municipal Utility District collects $18.5 million per year for Rancho Seco decommissioning. Humboldt Bay's fund is already fully collected. That total, $75 million/year adds $0.0019/kWh to operating costs.

Capital costs, those investments in keeping the plants safe and efficient in their waning years, are a little more difficult to pin down. Diablo Canyon has budgeted about $33 million a year for capital investments, according to economist Marcus. In 1995 documents from Edison to the California Public Utilities Commission, the utility claimed that it would take $1.5 billion in capital costs to keep up the units for the next 20 years, working out to $75 million/year. Neither utility would confirm or deny these costs. If true, that would add $0.003 to the per/kWh operating costs.

Environmental costs surrounding nuclear-generated electricity have become clearer in the last year.

Facing fines of $25 million per day for the last 15 years, PG&E, owner of Diablo Canyon, faces a make-or-break ruling in June when the Central Coast Regional Water Quality Control board decides whether to slap a cease-and-desist order on the plant for its thermal pollution and resultant marine environment kill-off -- allegations that PG&E denies. That could be on top of the $14 million PG&E was fined by the state and federal governments in a related case for withholding evidence of pollution. The utility is currently in negotiations with the board over the case that could include a potential trade of some of the 13,000 acres (including 10 miles of coastline) surrounding the plant. PG&E's customers, however, have paid for that land over the years and no one can explain how a trade of ratepayers-to-public ownership can work.

Assuming that PG&E does not get fined, and instead opts for building a deep-water intake and outflow system for a mid-price of $75 million, plus the existing $14 million fine, the cost of thermal pollution for the life of the plant would be about $3 million per year or $0.00017/KWh.

PG&E is also faced with remediating fish kill through its cooling water intake system. PG&E's estimates for fixing the fish kill problem run from $7 million to $500 million with most plans running between $7 million and $15 million. An average, then, could be considered $10 million that equates to $0.000029/kWh.

San Onofre's nuclear plant plan to help prevent fish kill was approved last July for 22 acres of artificial kelp reef. This would be the first phase of a 150-acre kelp reef to cost between $4 million and $6 million. Edison and SDG&E have spent $117 million on other habitat mitigation, according to the RWQCB. This number is simply for reference, as ratepayers have been obligated to pay it through nuclear subsidies and only new mitigation costs will be subject to market prices.

Guessing the cost of accidents
In the category of enumerated costs, there is always the specter of accidents. The last time the government looked into the cost of a meltdown was in the early 1980s. "It scared them so much, they haven't revisited it," noted Union of Concerned Scientists' Lochbaum.

The Committee on Interior and Insular Affairs, US House of Representatives, in 1982 predicted fatalities from the then-running plants. Rancho Seco could have 30,000 deaths. From statistics from Nuclear Regulatory Commission 1997 predictions Rancho Seco even after it was shut down could have an accident could resulting in 130,000 deaths within a 500-mile radius and cause from 784 square miles to 2,000 square miles of land to be condemned. The 1982 study predicted San Onofre Units 2 and 3 could have 27,000 fatalities.

The General Accounting Office in 1986 prepared a report called Financial Consequences of a Nuclear Power Plant Accident. The accounting office said that from fatalities alone, an accident could cost up to $15 billion, depending on proximity to population. Not escalating for today's dollars, that cost works out to $0.00079/kWh for California's share. Escalating to today's dollars would likely double that cost. At the time, the GAO figured each injury would amount to $100,000, while each death $1 million and each cancer $100,000. There are no figures tied to lost opportunity cost due to land condemnation.

To help with the cost of an accident, the government plans to spread out the liability among all nuclear owners in the form of the 1957 Price Anderson Act. That Act is up for renewal next year, according to Lochbaum.

The reason for Price-Anderson, according to the Presidential Commission on Catastrophic nuclear Accidents, 1990, is "To remove the threat of uninsurable liability for catastrophic accidents (extensive core damage, failure of all safety features and a massive, early breach of containment) and thus remove a roadblock to the participation of private industry." Also, "to protect the public against the risk of uncompensated loss." This is for a Chernobyl-style cataclysm.

Aggregate public liability for accidents ten years ago was $8.7 billion-the most recent figure available. The total liability does not kick in until an accident occurs, then ratepayers in California are liable for an allotted portion of costs gathered from nuclear-owners throughout the nation. The cost of Price-Anderson for California's share is $0.009/kWh. But note, that cost would trump the numbers above, because if Price-Anderson is renewed, it limits nuclear owners' liability.

Other costs are acknowledged, but have yet to form reliable numbers to add into the equation. For instance, it is widely accepted that nuclear plants have no air emissions, but indeed, according to a recent study from the Swiss Department of Energy, there is 39.1 grams of CO2 equivalent per kWh from nukes. Small by comparison to fossil plants, it still means there is a greenhouse gas effect and some price tag could be affixed to emissions.

"They'll operate until something large and expensive breaks"
Utilities spend tens of millions to many hundreds of millions in customers' funds per year on litigation, both in civil courts and at the California Public Utilities Commission. Ratepayer payback for utilities' litigation costs will diminish by 2004 and the cost of lawyers and settlements will be added to the price of nuclear electricity.

The cost of transmission is beginning to come home to roost in the San Diego area. The California Independent System Operator has noted that it might have to continue subsidies for San Onofre because the transmission system is built around it and if shut down could disrupt the southern grid. No final figures on that subsidy are available, but it would be taking money from one pot -- that of reliability -- to add to the cost of nuclear electricity. This problem also begs the cost of lack of flexibility in planning. There is also no dollar amount connected to the initial transmission networks around nuclear plants, which are all sited in areas remote from their users, thus, more expensive then transmission built to plants nearer to population centers.

Cohn, in his book, noted that there is also an increased cost to nuclear owners whose management and public relations staff have to spend an inordinate amount of time on nuclear issues per kWh because of public concerns over the technology.

Given the above, usually hidden, costs of nuclear power -- at least the ones quantified -- add at least $0.014 at the lowest end per kWh to the day-to-day (operational) cost of producing electricity from fission. At the extreme high end, that ends up adding $0.86 per KWh.

As long as the commodity price for electricity keeps going up, as it has in the past six months, the conservative additions exposing some of the hidden price of nuclear power still puts electricity from those plants in the range of respectability, at least for the moment.

"Personally in my view, they'll operate until something large and expensive breaks," said the energy commission's Nix.

Harding, the former environmental economics maven, agreed in his own way. "Even in the short term, it's not generally true that reactors are economic. It may be true with regulatory life support, deferred maintenance, persistent good luck and competent management. One significant capital addition and you're dead."

J.A. Savage is Associate Editor of California Energy Markets, an independent publication. Besides the two articles linked above, he wrote Selling the Dam Business in an earlier issue of the Monitor

Comments? Send a letter to the editor.

Albion Monitor May 22, 2000 (

All Rights Reserved.

Contact for permission to use in any format.