Investing in Powerhouses

The Washington Post tried a front page story about nuclear energy – and if you develop a higher profile, as nuclear energy has done, then newspapers are going to take a closer look at you. We expect that and in truth the story isn’t bad.

For nuclear energy followers, the news isn’t very new at all:

In states such as Georgia, Florida and South Carolina, utilities have won permission to charge customers for some of the cost of new reactors while construction is still in progress -- a financing technique that would save utilities a couple of billion dollars for each reactor. Previously, utilities had to wait until power plants were in operation before raising rates, as they still do in most states.

This is CWIP, or Construction Work in Progress, approved by legislators in some states and not in others. The salient point behind it is that a utility can recoup interest charges and thus not suffer interest on top of interest – and thus, its customers don’t suffer it either. The Post gets to this, though much later in the story:

Southern Co. said the [CWIP] law passed in 2000 will help its Georgia Power subsidiary shave nearly $2 billion off the cost of the two new nuclear reactors at its Vogtle site -- and Georgia Power owns only 45 percent of the project.

That’s only to the good. One could argue that companies should shoulder the burden alone, but with utilities, it never works out that way – the ratepayer will see the cost one way or another. Finding a way to contain interest charges is, in our view, a net good – certainly arguable from multiple perspectives, but in sum, a deal for the ratepayer.

The cost of a plant is really the focus of the Post article, but there’s really nothing new about that – to us, that is – though it provides interesting material to the general reader. We found its attempt at balance a bit funny:

"It's a terrible idea," said Jim Clarkson, a consultant with Resource Supply Management, a Georgia firm that advises companies on how to reduce electricity use. "We've had decades of subsidies for nuclear plants and all sorts of preferential treatment. They still require loan guarantees because the smart money won't touch them."

"Nuclear power is very important," says John W. McWhirter, who represents the Florida Industrial Power Users Group. "We just wish consumers could be protected."

As David Bradish pointed out here awhile ago, subsidies (if you define them fairly broadly) flow across the energy spectrum and not overwhelmingly to nuclear energy projects. Making it seem unique to nuclear projects really isn’t honest – and that’s even if we let loan guarantees into our definition of subsidies.

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In a way, what we’re doing is living on borrowed infrastructure, last built out during construction of the national freeway system 60 years ago, and providing for subsequent generations relatively inexpensive public works – including energy plants. Consider the following:

Demands for energy, wood, minerals, cement and cars [go] up and up. … This growth has placed intense demands on China’s highways, which the government is dealing with by spending 9 percent of GDP on modernizing infrastructure.

Contrast that 9 percent with the less than 1 percent of GDP the United States invests (and most of that through the states) and ingenious solutions for putting up a few plants – like CWIP – gain considerable appeal. If the United States means to remain an economic powerhouse (allowing for the developing and developed status of China and the U.S.), it needs to invest – or make it plausible for private capital to invest - in some actual powerhouses.

Raymond Scott (1908 – 1994) was a bandleader, composer and tinkerer in electronic instruments. His music had a novelty-like appeal to it, being lively and original if also quite eccentric. Probably his best known piece (to modern audiences) is the two part Powerhouse and that’s because both parts were used very frequently to score Warner Bros. cartoons, often to represent factories working along (notably baby factories staffed by drunken, mis-delivering storks.) You can learn more about Scott and hear his version of Powerhouse here.