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Small Steps Forward

January 21, 2011

When I was on vacation in Atlanta over the holidays, I noted a very short article in the Atlanta Journal-Constitution that pointedly noted that Georgia ratepayers would start paying for the new Vogtle reactors starting this month. The ability to start recovering construction costs while construction is underway helps the utility decrease the financial risk of the project. This helps them get access to the capital they need to finance the construction of the facility. Kudos to the public utilities commission in Georgia for understanding the financial challenges of new facility construction in a deregulated utility world and acting appropriately.

As you might expect, there is a lot of unhappiness about this early rate hike. Several groups in Georgia are upset because the cost and schedule overruns ($660M to $8B, and 7 years to 16 years) for the first two reactors at Vogtle set records for the industry in North America. The utility, NSSS (Westinghouse) and the construction company (Shaw) will be very closely watched. Cost and schedule control will be very important. (There has already been a $108M adjustment.) If costs and schedules escalate as they did in the 1970’s and 1980’s, the nuclear industry will go back into hibernation. If things stay on schedule and on budget, more utilities will be interesting in using nuclear for their base load generation.

This week I noted another way for utilities to mitigate the financial risk of nuclear construction-get bigger. This week Duke Energy announced they would purchase Progress Energy creating a utility with 7,000,000 customers, an enterprise value of $65M, and a market capitalization of $37M (according to reports on www.nucleartownhall.com). Both of these utilities are strong supporters of nuclear power. Each has plans to build more reactors. This combination creates a company large enough to take on the financial risk of nuclear construction.

I think these two developments are positive for the nuclear industry. Both show that utilities and state regulators (in at least some states) are taking steps to keep the electricity generating industry on a sound financial footing. It is now up to the NRC, NSSS and the construction companies to do their part to insure that safe facilities can be brought online on time at costs that make financial sense for everyone.