]]]]]]]]]]]]      NUCLEAR MEDICINE FOR ENERGY ILLS    [[[[[[[[[[[[[[[ 
                         By John Sillin                    (10/26/88)

   (From The Wall Street Journal, 21 September 1988, p. 26:3.
  Mr. Sillin  is a consultant  with Management  Analysis Co. and
  Science Concepts Inc., energy service and advisory firms.)
              [Kindly uploaded by Freeman 10602PANC]

   The U.S. is  stumbling toward another  energy crisis thanks to
public policies that  discourage utilities from  investing in new
electric generating facilities, particularly nuclear ones.
   Four years ago  on this page  John Siegel of  the U.S. Council
for Energy Awareness and I  raised the prospect of an electricity
shortage before the  end of the  decade.  We thought  it would be
caused by: 1) increases  in demand for electricity  of 4% to 5% a
year between  1982 and  1990 (roughly  twice industry forecasts),
due to sustained economic  growth and falling electricity prices;
and  2)  few  commitments  to  new  electricity  supply.   Recent
developments show our predictions were very close to the mark.
   Last year,  electricity demand  rose 4.5%  in the  U.S.; it is
growing at a  higher rate this year.   Assuming a continuation of
this trend for the  rest of 1988, annual  demand growth will have
averaged 3.7% since 1982.   These increases reflect real economic
growth averaging 3.8% over  the same period.  Electricity prices,
adjusted  for  inflation, will  have  declined by  more  than 15%
between 1982 and  the end of  this year.  By  1990 they will have
declined by  20% due  to stable  fuel costs  and improved utility
operating efficiencies.

   Growth in  electricity demand would  have been  even higher in the
   past six years had manufacturing not contributed so little to
   economic  growth in  1985 and  1986, when  industrial electricity
   usage  fell  4%.   This  situation  has  changed,  and industrial
   production rose more  than 4% in  1987 and is  increasing at a 7%
   rate this year; electricity demand growth has outpaced GNP growth
   over  the past  18 months.   Positive economic  conditions should
   continue and,  with continued electricity  price declines, should
   sustain 4%-plus  growth in  electricity demand  through the early
   1990s.  The implications are ominous. First, any surplus of
   electricity  will disappear by 1990.  As a result, a new
   electricity  supply is needed.  During the 1990s, the U.S. power
   network  will need to expand  30% to 50%.  This is roughly
   equivalent  to  adding 60  large  power  plants  a year. Because
   such plants have lead times of between five and 10 years, there
   will  be years of  inadequate supplies and  the economy may suffer
   increasingly severe economic disruption. Given the  lack of
   alternatives,  utilities will  be forced to increase their use of
   oil to generate electricity.  This increase from about half  a
   million barrels  a day in  1987 to between two million and  three
   million  barrels a  day by  1995 will increase both  the  trade
   deficit and  U.S.  dependence  on  the unstable Persian Gulf.  If
   acid rain and the greenhouse effect turn out to be real, this
   increased fossil-fuel use will exacerbate them. What is being done?
   In the early  1980s, the reigning  assumption that electricity
   demand  would  be  low contributed  to  regulatory  policies that
   discouraged  utilities from  investing  in conventional  coal and
   nuclear  generating  plants.   State  regulators  did  not  allow
   utilities  adequate  financial  return on  new  plants,  and many
   utilities still  don't know  how much  return will  be allowed on
   plants  currently  operating.    Frequently  utilities  with  new
   nuclear plants have had to  cut or discontinue dividends, and one
   has declared bankruptcy [Public Service Company of New Hampshire,
   the  principal  backer  of  Seabrook,  in  1988].   While overall
   corporate profits rose 20% in the second quarter and energy sales
   increased, utility profits declined 20% Utilities  are  directed
   by  state  regulators  to  pursue  a planning  approach  that
   emphasizes  demand-control  programs and energy purchases from
   small third parties.  This approach doesn't fit today's situation.
   Demand  growth  is  not  easily  controlled  during  a  robust
   economy.  Electricity  uses are  too numerous  to count,  and new
   ones are being developed all the  time.  And there are simply not
   enough  small, third-party  sources of  electricity to  meet high
   growth in  demand.  Energy from  such sources  accounts for about
   1.5%  of  U.S.  electricity  supplies  --  despite  10  years  of
   subsidies and guaranteed markets. Electric utilities are responding
   to the strains by attempting to purchase  power, as in  the New
   England  utilities' efforts to import  Canadian  electricity.
   This works  as  long  as sellers outnumber  buyers,  but  many
   utilities  are  already  short  of capacity and  by 1990  there
   will  be little  power available for purchase anywhere.   Also,
   U.S.  utilities are  buying combustion turbines fueled  with oil
   and natural  gas --  quick to install, costly to operate.  The
   industry pursued this option in the 1960s in  response   to
   brownouts;  the   oil  shocks   of  the  1970s demonstrated the
   risks inherent in this approach. What  needs  to be  done?   Re-
   establish nuclear  power  as an option to  meet increased
   electricity  demand.  This  is the path that  most  other
   industrial  countries  are  following.  Nuclear energy satisfies
   more than 70% of France's electricity needs, 66% of  Belgium's, 53%
   of  South Korea's,  50%  of Taiwan's,  45% of Sweden's,  38%  of
   Switzerland's,  and  30% of  Japan's  and West Germany's.  (By
   contrast, only 18%  of electricity  needs in the U.S.  are supplied
   by nuclear  power.)   In addition,  these and other
   industrialized   countries   are   proceeding   with  the
   installation  of  large, advanced  reactors,  frequently  of U.S.
   design. These  countries  have  successful  nuclear  programs
   because plants these  can be built  more expeditiously, and  thus
   at much less  cost, than  those  in the  U.S.   Also, actual  usage
   as a percentage  of potential  output is  about  75% --  compared
   with about 65% in the U.S., where the average is dragged down by
   about a dozen plants that are underperforming or closed. What can
   be  done to make  nuclear power as  successful in the U.S. as it is
   overseas?  First,  basic reforms can be made to the Nuclear
   Regulatory Commission, which has authority over licensing nuclear
   plants for construction and operation.  The NRC should be governed
   by a  single  administrator (versus  the  existing five
   commissioners), whose job it would  be to ensure that all nuclear
   plants  are built  and  operated safely.   The  licensing process
   often  becomes  politicized because  no  single  commissioner has
   sufficient authority to set policy and direct staff activities.
   Second, the NRC should approve standard nuclear-plant designs.
   After  approval, each  plant  of such  design  would not  have to
   undergo  the current  licensing process,  which can  take several
   years.  Third, legislation allowing for one-step licensing should
   be passed.   Currently, utilities  must first  get a construction
   permit  to  build a  plant,  and  then an  operating  permit once
   construction has been completed.  This  can result in delays, and a
   utility has no  assurance the plant will  be allowed to operate
   even after  construction is completed.   One-step licensing would
   reduce  the delays  and eliminate  the uncertainty  by addressing
   plant design, construction and operating issues at the outset.
   There already have been a few steps in the right direction. The
   Senate  has passed and  the House  is considering measures that,
   while not  perfect, would improve the  structure of the NRC and
   allow for  standardized plants.  Also, there  have been a few
   recent decisions on  emergency planning that  have been favorable
   toward nuclear power.  These measures would prevent irresponsible
   state  politicians   from  holding   multibillion-dollar  nuclear
   projects hostages, as happened  at Seabrook [Gov. Michael Dukakis
   of Massachusetts]  and Shoreham [Gov.  Mario Cuomo  of New York].
   An executive  order that covers  much the same  ground awaits the
   president's signature. The   nuclear  utilities   themselves  have
   established  the Institute  of Nuclear  Power  Operations, whose
   objective  is to encourage operational excellence at all U.S.
   nuclear plants.  For example, INPO has identified  and established
   performance targets to be  used by plant  managers.  It monitors
   progress in meeting these  targets  by reviewing  plant
   operations,  maintenance and training  activities.  And  while the
   institute has  no official enforcement  authority, it  is not
   hesitant to  recommend strong corrective action when there are
   deficiencies. Utilities  have taken  several  other steps  to
   improve plant management.  Utility  chief executive  officers have
   become more directly involved in nuclear-plant management, and
   utilities have separated nuclear operations from the  rest of their
   companies in recognition of the special skills required.  Utilities
   that can't operate nuclear plants to high  standards are subject to
   pressure from fellow institute  members to make  necessary
   improvements or divest themselves of the nuclear assets.

   The  NRC  is  cooperating in  this  by  allowing  transfers of
nuclear  plant  operating  licences.  There  have  been  few such
transfers so  far, but they  may become more  frequent given that
there are about a dozen closed or underperforming plants and that the
reliability of the electricity supply is deteriorating. Some other
steps are needed.  Rate-regulation policies need to reflect the
greater  financial risk associated  with investing in plants with low
operating costs, such as  nuclear and large coal projects,  by
allowing  higher rates  of  return  on investment. Second, investors
in  large power projects  should not be subject to onerous
regulations from  which small  projects are exempted, particularly
the  Public Utilities  Holding  Company  Act.  This gives small  power
projects  an unfair  competitive advantage and discourages investor
risk-taking. The nation's economic health  is at risk if  the U.S.
fails to develop  new electricity  supplies. Nuclear power  must  play
a greater  role,   but  this  requires government  policies  that
encourage new investment and a nuclear industry performing at the
highest standards of excellence.

      [The following is not part of the original article.]
More: George Melloan, "Californians Will Pay Dearly for PURPA Power",
The Wall Street Journal, 31 March 1987, p. 37:3. (See floor 11 of this

Return to the ground floor of this tower
Return to the Main Courtyard
Return to Fort Freedom's home page