Nuclear Power and the Death of Regulation (and the Rebirth of Nuclear Power)

Michael Giberson

Earlier this week, NRG Energy filed an application to build two new nuclear power plants adjacent to the existing South Texas Project (STP) plants. It is the first such application submitted to the Nuclear Regulatory Commission in nearly 30 years. Loren Steffy, business columnist at the Houston Chronicle, appreciates the subtle irony in the story.

STP, of course, is a monument to the nuclear fiasco of the 1970s, a steel-reinforced tribute to cost overruns, construction delays and a kaleidoscope of federal regulations that made the idea of building a new nuke, well, radioactive.

The deregulation we have today was born, in part, from the outrage over the runaway costs of STP and its North Texas counterpart, Comanche Peak. Frustrated lawmakers argued that ratepayers shouldn’t have to foot the bill for the confluence of poor project management and cumbersome regulation…. Houston-area customers paid dearly — and are still paying — for STP.

Back when STP was built, the old Houston Lighting and Power expected to recoup its cost from customers. But the bill for STP grew so huge that HL&P realized it would never earn back its investment.

These “stranded costs,” as the industry called them, presented a conundrum under deregulation…. Ultimately, those costs were included in the more than $2 billion that CenterPoint was allowed to recover from ratepayers as part of deregulation.

They are now factored into the costs retailers pay for electricity transmission and then, in turn, pass on to us. The stranded costs have helped make Houston’s electric rates the state’s highest and among the highest in the nation.

(If I may interrupt to make a point. When you see comparisons between prices in “regulated” and “deregulated” states, ask whether stranded costs left over from the pre-deregulatory days are still being recovered from consumers. -MG)

This time, though, it will be different.

NRG’s investors, not ratepayers, will assume the risk for the new nukes. If they’re a flop, if construction falls behind schedule, if the government meddles, it’s not our problem.

“We don’t have ratepayers paying for plants anymore,” said Brett Perlman, a power industry consultant and a former member of the Public Utility Commission. “That’s one of the benefits of the market.”

… NRG is building the new plants adjacent to STP, that monument to everything that didn’t work in the old days.

“Here you have two regulated units that ratepayers paid for — and are still paying for — and right next to it you will have two units that shareholders paid for,” Perlman said.

By the way, Steffy’s column is a bit more nuanced than the extracted portions suggest. You should read the original.

Not everyone is thrilled about the resurgence of nuclear energy. As this Scientific American story notes, some see it as part of a response to global warming but others prefer other technologies and worry about waste disposal and other safety issues. But the practical alternative to building nuclear plants is probably building coal plants, and coal comes with its own waste disposal and safety concerns.

For the moment, though, leave the cost-benefit analysis aside, and just enjoy the historical irony. Nuclear power helped bring down old-style regulation — in fact the mis-management and cost overruns epitomized exactly what many economists said was wrong with the regulatory model. And now, phoenix-like, we have nuclear energy rising from the ashes.

A final note: The only thing spoiling the pureness of the irony is awareness that the resurgence of nuclear power is not limited to deregulated companies risking only shareholder money. Federal power entity TVA, and companies operating under more-or-less traditional regulatory models like Duke Energy and Progress Energy also are expanding or planning to expand their nuclear power output. The resurgence of nuclear energy in the United States can’t be tied exclusively to changing retail rate regulation. A Baltimore Sun story suggests that a convenient regulatory re-interpretation of the word “construction” by the NRC has been a big help in Maryland. But that’s another story.

3 thoughts on “Nuclear Power and the Death of Regulation (and the Rebirth of Nuclear Power)

  1. The biggest hurdle, I think, will be securing the financing, and if recent Wall St. comments are correct, Uncle Sam will need to cough up a large loan guarantee.

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