Let's Talk Government Ownership of Unprofitable Nuclear Power Plants

U.S. National Capital building
Image derived by Simeone from originals by Martin Falbisoner and the U.S. Government
November 2, 2017

When I first read Edward Kee’s (of the Nuclear Economics Consulting Group) commentaries about nationalizing economically struggling merchant nuclear plants, I thought the idea was provocative.  

Today, federal government take-over of money-losing nuclear plants might be something to seriously start talking about. Here’s why.

Cheaper than Alternatives? Saving nuclear (and coal) power assets in certain competitive markets (chiefly targeting PJM Interconnection) via U.S. DOE’s Grid Resilience proposal has been pegged to cost anywhere from $300 million to $32 billion per year, depending on how the details shake out.

PJM’s pivot from the DOE NOPR seems to be reform of locational marginal price (LMP) setting (i.e. price formation). LMP reform is expected to raise off-peak energy prices, and many assert it will be a windfall to nuclear, coal, and other generators. PJM’s market monitor calculated energy market cost increases at $3 billion per year.

Alternatively, the sale price of Entergy’s operational license for its Fitzpatrick nuclear plant to Exelon was a measly $110 millionNEI’s somewhat dated list of nuclear plant sales shows most plants sell for a pittance, compared to the cost of the NOPR or LMP reforms.

Back-of-the-envelop, it seems the cost to taxpayers of buying a few distressed nuclear assets - and even operating them at a loss - might be less than the alternatives.  

National Security and Limits of Markets. When former DOE Secretary and nuclear scientist, Ernest Moniz, says a decline in the U.S. nuclear power sector threatens national security, we should all pay attention.

Moniz’ new think tank argues maintaining the U.S. nuclear power industry is critical to preserving a domestic nuclear energy supply chain that enables U.S. leadership on nonproliferation, supports the U.S. Navy, sustains nuclear engineering expertise, and empowers national defense actions.

Competitive electricity markets can be adjusted to more accurately value carbon-free nuclear power. And, perhaps markets can price “resilience”. But, markets definitely cannot value national security.

National defense (i.e. national security) is a public good, not a purchasable private good. Public goods are by definition non-rivalrous (i.e. consumption by one person does not impact ability for others to consume) and non-excludable (i.e. it is impossible to prevent widespread enjoyment of the good), and therefore not well suited to be supplied by the private sector. Society overall benefits from these public goods.

Said another way, federal taxpayer support for the national security benefits associated with saving a nuclear power plant may make sense, whereas support from ratepayers in certain competitive markets does not.

Investor Limitations. Public companies whose shareholders expect dividends - like Exelon, First Energy and PSEG – can’t weather a down market for long. Private equity has cyclically gobbled up devalued assets during down markets, profiting when markets recover and assets become profitable.  However, beyond Riverstone Holdings, there may be few private equity takers for today’s distressed nuclear assets.

The U.S. government is in a better economic position to go long on nuclear.  And, economically struggling nuclear plants might not lose money forever, especially if natural gas prices inch up (perhaps as new pipeline capacity moves gas out of the Appalachian shales, and LNG exports expand). So, the taxpayer investment might eventually turn a profit.

A Win for Shareholders. Nationalization might be an attractive option for current nuclear plant owner/shareholders. Plant owners could sell the assets, but still earn risk-contained revenues through contracts to operate the plants. Meanwhile, this would free balance sheets from long-term liabilities associated with plant decommissioning and the seemingly endless responsibility for oversight of spent fuel waste stored on-site.

Nuclear Power Sector is Already Semi-Nationalized. The nuclear power industry already has at least one foot through the nationalization door. Without the federal government capping nuclear industry liability (i.e. Price Anderson Act), signing contracts to take custody and dispose of spent nuclear fuel (i.e. Nuclear Waste Policy Act), bankrolling civilian and military atomic research and development for light water and breeder reactors (i.e. Atomic Energy Act), and other programs, the industry would not exist.

Saving Competitive Markets. While not a slam dunk for competitive markets, nationalizing might be a better alternative compared to unit specific subsidies, DOE’s NOPR, or raising prices through esoteric price formation reforms. Nationalized nuclear capacity could be subject to minimum offer price rules in capacity markets, and dispatched in the energy market according to current least-cost market rules. Taxpayers would incur loses if the plants fail to cover costs, but this could be okay if there are net benefits.  If not, the government can choose to close the plant. 

Sure, competitive forces would otherwise see these plants retire, and nationalization may reduce the efficient operation of the plants, but these compromises may seem rational in the face of contemporary alternatives.

As Mr. Kee points out, many other countries - like France, China, Korea, Russia, and the UAE - have or had nationally-owned nuclear plants. While a seemingly radical notion, the time (and federal politics) might be right to start talking about the nuclear nationalization option.


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