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]]]]]]]]]]]] 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.
INDUSTRIAL PRODUCTION
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.
GREATER FINANCIAL RISK
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
tower.)
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