Regulation
The NRC's Dale Klein told the industry that he's dedicated to making sure his shop is not "a bottleneck in the process" leading to a rebirth of nuclear power in the U.S. Fairly or unfairly, the industry generally perceived the NRC during the 1970s and 1980s as a drag on reactor development. Over many years since, the agency has worked to make obtaining a COL as easy as one-stop shopping.
But this version of one-stop shopping won't be as quick as it is easy. Gone are the days of nuclear rubber stamps. Klein said the commission is looking at a 42-month process for the COL filings it receives The first 30 months will be eaten up by a thorough technical review by NRC staff, assuming all goes well (and that's a pretty large assumption). The final year (at least) will be devoted to public hearings.
The NRC process is hardly the only regulatory hurdle a utility will face if it wants to build a new nuke. States and local governments will also be involved, and that's where plant opponents are likely to make their initial stand. In the case of regulated plants, state commissions will want assurances of prudence and cost-control. It was the states, more than the NRC, that forced cancellations in the 1980s by insisting on protections against "rate shock."
In the case of merchant plants proposed for competitive markets, the challenge will be lining up financing. There will be a complex dance among the parties over long-term power-purchase agreements, construction and operational agreements, and the spread of cost and time overruns, all in the context of federal and state requirements.
One week after the Platts conference, DTE Energy CEO Tony Early highlighted the state regulatory problem in remarks in an address to the Economic Club of Detroit. Announcing that DTE subsidiary Detroit Edison plans to file a COL application to the NRC in 2008, Early said, "At the state level, we still have major barriers. What company would be willing to make a $3 billion investment without some assurance that it could recover its costs? That's the dilemma for Michigan utilities caught in a hybrid regulatory environment. The partially regulated and partially competitive structure in Michigan fails to provide the certainty required for power plant investment critical to the state's future."
Finally, barely mentioned at the conference and elsewhere, there are the courts. We live in a litigious society, and losers in regulatory proceedings are likely to believe they can be winners in judiciary proceedings. They will have standing and they will be heard. As they usually do, the lawyers will win, whether or not anyone else does.
Financing
FPL Group CFO Moray Dewhurst shook up the Platts conference when he first said that he was "extremely bullish" over the prospects for new nukes, and then rained financial lightning bolts on the sunny parade. "The board pays me to be skeptical," he said wryly.
Dewhurst recalled the history of cost overruns, which often reached 200% to 300%, in the construction of the last generation of plants. He reminded the attendees of what happened to the now-deceased Long Island Lighting Co., which bet the company on the Shoreham nuclear plant and lost. The plant was abandoned after it was built and the investor-owned utility died.
Dewhurst drew some gasps from the audience when he estimated the cost of a new nuclear unit on a hypothetical greenfield site in the range of $4,000 to $5,000/kW, including interest and inflation. "You have to be prepared to justify that the project will make economic sense," he said. The only way to justify a nuke today in terms of existing economics, he said, is high natural gas prices.
But gas prices, after soaring two years ago, have now come down significantly and some analysts expect the natural gas price slide to continue. If an Alaska natural gas pipeline gets built—an aim of both Congress in the 2005 Energy Policy Act and the Bush administration—gas prices could fall further and stabilize, according to the EIA. Substantial growth in liquefied natural gas terminals in the U.S. could also put downward pressure on gas prices.
Added to the economic uncertainty is the prospect that it might take 10 to 12 years to complete a nuclear project. By comparison, a supercritical coal project might take seven years to permit and build. "A two-year delay," Dewhurst said, "could easily add one to two billion dollars to the total cost" of a nuclear power project.
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