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Going Nuclear?

nuclearplanttowerby Jeremy Duda / Az Capitol Times
February 15th, 2010

For Arizona politicians, the easy part of plunging back into the nuclear-energy business is well under way - the talking part.

Now come the details, which include such hurdles as finding enough water, winning federal permits and - what else? - coming up with the billions of dollars needed to pay for construction of what are simultaneously the world’s most desirable and dangerous power plants. “It’s a whole lot easier to talk about than to actually get it done,” said Arizona Corporation Commission Chairwoman Kris Mayes.

The talking, it seems, will continue indefinitely.

Gov. Jan Brewer and numerous lawmakers have pledged their support for more nuclear plants in Arizona. Corporation commissioners call nuclear power a critical need for the state’s future. And utility companies are at least tentatively open to the possibility of building more nuclear plants in Arizona some day.

The reason for all the talking is that nuclear plants paradoxically are uniting some of the nation’s most bitter political enemies.

Because the burning of other fuels in large power plants increases the pollution blamed for global warming, nuclear power’s lack of carbon emissions is wooing environmentalists who once despised the health risks exemplified by the Chernobyl accident and the Three Mile Island near-catastrophe. A change of heart by former foes would put them in league with conservatives who have never totally acknowledged a global- warming threat, but who like the commercial prospects for nuclear plants.

Other factors, such as America’s dependence on foreign oil and Arizona’s growing population, are keeping the conversation going.

But although there seems to be agreement that nuclear power is worth examining, there is at least one other agreement: That the impediments look daunting, and the lack of a clear commitment - meaning money - from the federal government seems to block all optimism.

Executives with Arizona Public Service, the state’s largest utility and the largest shareholder in the Palo Verde Nuclear Generating Station west of Phoenix, are talking quite a bit about more nuclear plants, but they say the conversation cannot turn into action until money is flowing from Washington.

In his State of the Union address last month, President Obama called for a new generation of nuclear power plants in the United States.

Shortly afterward, U.S. Energy Secretary Steven Chu proposed tripling a loan guarantee program that would be able to provide about $54 billion for companies that want to build nuclear facilities. But for APS to even entertain the idea of building another nuclear plant in Arizona, it would need stronger assurances than that.

Marty Shultz, vice president of government affairs for APS, said that because of the massive costs involved, few investors are willing to provide the financing needed to see such a project through to the end, and few companies are willing to take the risks associated with nuclear plants that can cost more than $10 billion.

The answer, he said, is federal financing guarantees for companies that want to build nuclear plants.

No responsible CEO would risk such a financial blow without some assurances, Shultz said.

“Our balance sheet and income statement at this point couldn’t command the attention of Wall Street in terms of financing a plant of the size of a nuclear plant required in Arizona,” Shultz said. “This is a highly regulated industry, so you need to have federal policies consistent with the president’s rhetoric in his State of the Union.

You have to have federal policies consistent with Secretary Chu’s recent announcements on increasing the loan guarantees.”

Jim McDonald, a spokesman for APS, said, “There are many, many things that have to happen to make (building a nuclear-power plant) even a realistic or any kind of meaningful possibility. The most important of that is that there needs to be a national mandate. There needs to be a clear national energy policy that calls for nuclear power, and there is not one right now. And as long as there is not one, then APS won’t be in the new nuclear business.”

APS included nuclear power as part of its long-term resource plan. But McDonald said the company has no plans in place for more nuclear plants. Without strong federal guidance, he said, that won’t change.

An example of the financial risk: In 2009, the parent company of South Carolina Electric & Gas had its bond rating downgraded by three rating agencies. Fitch Ratings, one of the three, cited the financial pressures and increased business risk from South Carolina Electric & Gas’s plans to build two new nuclear reactors.

And a 2007 report by the rating agency Moody’s said nuclear power projects pose a significant financial risk for utility companies because of issues such as cost overruns, negative public reactions over safety and security concerns, and the lack of storage areas for radioactive waste. APS, said Mayes of the Corporation Commission, has a bond rating that is just one notch above junk. “I would fear that if APS was to enter into any kind of hard contract to build a new nuclear plant, they could be downgraded,” she said.

The financial risk is not the only impediment.

Nuclear plants use millions of gallons of water per day, and the question of where that water would come from to feed a new plant is as critical as the question of financing. But while supporters point to the federal government as a solution to their financing woes, no one has a good answer for the water issues in this very thirsty state.

Mayes said Palo Verde uses effluent - treated wastewater that is not suitable for human consumption - to meet its water needs.

But the deal the utility companies struck with the city of Phoenix for that effluent water is unlikely to be duplicated, she said, because there is no other source in Arizona that can provide enough water.

Surface and groundwater are essentially off the table in a state that often struggles to find enough water for its growing population, she said, and it would probably be prohibitively expensive to build a pipeline from California or another neighboring state.

“It would seem highly unlikely that APS would be able to get that kind of effluent, in those amounts, ever again for the price that they got it,” Mayes said. “We don’t have that kind of effluent anymore. We’re dumping it all on golf courses.”

If Arizona’s talking about nuclear power ever ends and the serious doing begins, the federal government will assume the biggest role. But plenty of other actors and agencies will be part of the doing:

Governor’s Office
Brewer is among the politicians who has thrown support behind nuclear power, and she frequently mentions the need for another nuclear plant when she talks of creating a larger clean and renewable energy sector in Arizona.

In January, she told the Western Business Roundtable, “Let there be no doubt. Let there be no mistake. Let there be no mischaracterizing. I am a strong advocate for the development of more nuclear energy in Arizona.”

Shultz said Brewer’s recent advocacy of nuclear power is a critical step on the road to more nuclear power.

“She’s got a bully pulpit, so she can call for the support of new nuclear and call on the federal government for the appropriate policies,” Shultz said.

Brewer spokesman Paul Senseman said governors play an important role in setting such policy agendas for their states, and that having a governor who is strongly supporting nuclear power will be critical in making it a reality for Arizona. That support, he said, sends a strong signal to any company that is considering building a new nuclear plant.

“In most cases, it’s governors who are driving these policies,” he said.

The Legislature
The Legislature can provide more than moral support. Mayes recommended that the state take an active role in providing financing, which would also require the support of the governor.

She said the Legislature could set up an entity similar to the Water Infrastructure Finance Authority - a state agency that finances infrastructure for drinking water - for companies that want to build nuclear plants. She also said the state could assist companies with the multimillion-dollar fees companies must pay to simply submit an application for a nuclear facility.

The Legislature could play an advocacy role as well. For example, Rep. Warde Nichols recently sponsored HCM 2014, which calls on the federal government to carry out pro-nuclear policies. The measure has bipartisan support, with Reps. Robert Meza, Lynne Pancrazi, Kirk Adams, Cloves Campbell, John McComish, Andy Tobin and Steve Yarbrough signing on as co-sponsors.

“What Arizona lawmakers are doing in calling for this strengthening of and creating of federal policy, I think, is a good first start,” Shultz said.

Renz Jennings, who opposed the construction of the Palo Verde nuclear plant when he was a legislator, said the Legislature pledged its support to the plant but played little role in its creation. But if the Legislature were to oppose a new project, he said, it would likely put a new plant in jeopardy.

“If they had raised any doubt in the marketplace, APS would’ve pulled back,” said Jennings, who was elected to the Corporation Commission after Palo Verde went online. “I think the plug would’ve been pulled.”

Corporation Commission
Mayes said Arizona “definitely should be looking” at new nuclear plants, and should have done so before now, which is a good sign for nuclear advocates because more nuclear power in Arizona would require years of support from the commission.

As the entity that regulates Arizona’s utilities, the Corporation Commission would have to approve plans submitted for a new nuclear plant.

A new plant would need the support of not only the current commission, Shultz said, but multiple generations of commissioners as well. The commissioners who are in place now are largely supportive, but Shultz said a new plant would need commission approval over the course of the 12 years or more that it would take to plan and build a nuclear plant.

Palo Verde was largely funded through massive rate increases in the 1970s and 1980s under a program called Construction Work in Progress, which allowed APS to pay for projects through rate hikes. The Corporation Commission later eliminated the program, and Mayes said she doubts a similar funding mechanism would be approved today.

Utility Companies
A new plant, of course, would require a tremendous amount of effort from the utility companies that would build it. APS is the largest shareholder in Palo Verde, and took the lead in the project in the 1970s. But APS was just one part of a cooperative effort among multiple utility companies. Numerous companies would have to be willing to take the financial risks.

The companies would also have to be committed to a multi-year process.

Simply preparing the application takes up to 18 months, according to Scott Burnell, a spokesman for the Nuclear Regulatory Commission. Once the applications are submitted, approval can take five or six years, Mayes said, followed by years of construction.

During the process, the companies would have to play defense against opponents of nuclear power. Palo Verde faced strenuous opposition from environmentalists and other detractors who launched public awareness campaigns, sponsored ballot initiatives, testified before the Corporation Commission and Nuclear Regulatory Commission, and even sought to undercut financing for the project.

But even with a concerted effort by those numerous entities in Arizona, everything comes down to the federal policies and mandates that would be needed to actually get a nuclear project started, let alone finished.

Even with multiple utility companies working together on a nuclear plant, as happened in the 1970s and 1980s, the financing mechanisms that helped create Palo Verde are not necessarily available anymore, Mayes said. A new nuclear plant could cost more than $20 billion, she said, but the massive rate hikes used to fund Palo Verde were wildly unpopular.

Without the ability to finance a nuclear plant themselves, Mayes said the utility companies would need federal financing guarantees.

The feds
Everything depends on the federal government. Supporters of additional nuclear energy plants said Secretary Chu’s recent announcement about expanding a 2005 loan guarantee program is a sign that the federal government is ready to get serious.

But McDonald of APS said utility companies would have to see a greater, long-term commitment to nuclear energy before they started planning to build a new plant.

The federal government could take other steps that would help encourage more nuclear power, such as rescinding a ban on reprocessing spent fuel rods from nuclear plants. The reprocessed fuel is cheaper, and allowing utility companies to use it would make nuclear power cheaper to produce.

Shultz said lifting the federal ban would make it more financially feasible to build nuclear plants. He said France, which allows reprocessed fuel, gets about 80 percent of its electricity from nuclear plants, while the U.S. gets about 20 percent.

Getting federal permits is another hurdle. But the Nuclear Regulatory Commission has taken steps that make the licensing process easier, according to spokesman Burnell. The commission now allows companies to apply for combined operating and construction permits, Burnell said, an option that was not available when Palo Verde went before the commission.

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