Nuclear projects face financial obstacles

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By Steven Mufson
Washington Post Staff Writer
Tuesday, March 2, 2010

Hopes for a nuclear revival, fanned by fears of global warming and a changing political climate in Washington, are running into new obstacles over a key element -- money.

A new approach for easing the cost of new multibillion-dollar reactors, which can take years to complete, has provoked a backlash from big-business customers unwilling to go along.

Financing has always been one of the biggest obstacles to a renaissance of nuclear power. The plants are expensive, and construction tends to run late and over budget. The projected cost for a pair of proposed Georgia plants would be $14 billion; the Obama administration last month pledged to provide them with $8.3 billion in federal loan guarantees.

So utilities have turned to state legislators and regulators to help contain capital costs. 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.

"We tell people it's like paying off the interest on your credit card as you go along, rather than letting it compound," said Suzanne Grant, a spokeswoman for Progress Energy.

But businesses and other electricity users in those states aren't buying that argument. Instead, they are saying utilities are pawning off much of the projects' liabilities on customers because bank lenders and investors will not take the risks.

"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."

The reaction of big businesses, as well as other consumers, has turned states that were bastions of support for nuclear power into hazardous territory. And it could thwart the Obama administration's efforts to jump-start nuclear reactor construction by handing out chunks of the $18.5 billion in federal loan guarantees Congress authorized in 2005.

Turning to the states

Thirty to 40 years ago, expensive nuclear plants drove some utilities into bankruptcy. That has made banks gun-shy about lending and investors wary about buying bonds. Moreover, the new plants are so expensive that a single unit could equal a quarter to 100 percent of the market capitalization of an entire utility company, potentially damaging the utility's credit rating.

That's why utilities turned to the states, lobbying in recent years for the ability to charge customers while construction is in progress. "Without this legislation, we would not be considering building new nuclear generation in Florida," Grant said.

The savings for the utilities are huge because they have to borrow less money. Southern Co. said the 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.


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