nuclear subsidies

The word out of Switzerland yesterday was that "Iran and and six world powers had agreed on the outlines of an understanding that would open the path to a final phase of nuclear negotiations but are in a dispute over how much to make public."  What exactly is the dispute over?  The AP noted that

Pressured by congressional critics in the U.S. who threaten to impose new sanctions on Iran over what they say is a bad emerging deal, the Obama administration is demanding significant public disclosure of agreements and understandings reached at the current round. But the officials say Iran wants a minimum made public.

Iranian leaders are opposed to two agreements, saying previous two-stage negotiations were detrimental to their interests.

If we have an agreement and nobody knows the details, we can always claim compliance

Earlier today, word of a framework agreement being reached spread over the internet.  The original AP article flagging the areas of dispute pretty much disappeared from everywhere, heading down the memory hole (nearly everywhere; I found one paper still displaying the earlier report and took a screen shot). 

In its place, AP's newest update on the successful agreement could be seen.   But descriptions of the deal remain vague, and the narrative on the disputes over disclosure disappeared.  Time will tell how these concerns were resolved, or if they were just papered over. 

Thank goodness for "Congressional critics" on this one, and let's hope the negotiators get it right before the sanctions are lifted.  While US sanctions can be implemented again should Iran fail to live up to its side of the agreement, reinstituting sanctions from the broad array of countries now participating will be near impossible.

The transparency issue remains quite important and should not be ignored even if the narrative in the press reports has shifted. There is a rather morbid irony in a country with a special police force (the Basij) focused on identifying and punishing people for the most personal of breaches of a state-defined code of morality,1 arguing that the fundamental terms of an agreement to prevent nuclear proliferation in this important region of the world should be private.  The entire line of argument is ludicrous.  What you wear, who you are with, and what you read or watch on TV?  State business.  Basic commitments to prevent nuclear weapons development?  Nobody's business.

I mean, why should the rest of us worry that Iranian consent to an agreement with invisible clauses won't actually be followed?  Greg Jones of the Nonproliferation Policy Education Center has been tracking the Iranian nuclear effort for quite some time.  Probably his documentation of past non-compliance, even when the expectations were visible, should be ignored as unimportant. We should also overlook the examples Jones' presents where Secretary of State John Kerry said there was Iranian compliance, but objectively there was not.  I'm sure that behavior won't be a factor in the current negotiations, and Kerry has learned from his past over-optimism. 

And by all means we should also ignore what seemed very much like an April Fool's Day joke headline yesterday -- but unfortunately turned out to be real:  "Iran militia chief:  Destroying Israel is 'nonnegotiable'," quoting the Basij's commander Mohammad Reza Naqdi.  You know how customized those inalienable rights can be across countries... let's just consider this the Iranian version of our own "Life, liberty, and the pursuit of happiness" and move on, shall we?

Proliferation is an externality of nuclear power

Coal power has pollution and mining accidents.  Oil has pollution and spills and security chokepoints.  Wind has bird kills and corn ethanol pesticide runoff, water and soil depletion, and overuse of antibiotics.  Every form of energy has some negative effects, and nuclear is no exception. 

In addition to very significant challenges to manage the radioactive wates and periodic catastrophic accidents, the nuclear fuel cycle has the ongoing externality of proliferation.  It is not, as many nuclear power boosters like to argue, a totally separate issue and one that should be ignored when evaluating the trade-offs and economics of their fairy-tale massive expansions of nuclear reactors worldwide.  Quite the opposite:  it is an issue that has been central to the evolution and expansion of nuclear power since the inception of the industry.

The processes and expertise for building weapons and generating electricity are not exactly the same.  But they don't need to be for there to be problems.  The civilian and the military paths are certainly interlinked, and there is enough overlap that countries frequently use claims about their need for nuclear power as cover for all sorts of other military and geopolitical aims. 

There is a strong logic to this tactic.  Working on power gives them the time and space to develop equipment, expertise, and professional (or not-so-professional) ties with people in the know.  Activities during these years enable them to build the knowledge and technical base that can easily be extended at a time of their own choosing towards weapons.  It allows them to distribute production capacity, harden production sites, and establish production redundancies that make military action to roll back programs, should the need arise to do so, much more costly in blood and treasure.

And yet the world pretends this isn't happening, and the "right" to develop "peaceful" nukes is somehow sacrosanct -- more so even than the human rights that the current Iranian government so frequently ignores.  This right to peaceful programs is claimed even if the subsidy-free price of nuclear power would be well beyond a level at which the nuclear investments would be justifiable, and at which many other alternatives would easily outcompete nuclear as the marginal source of energy. 

This right is upheld even though more rational reading of the Nuclear Nonproliferation Treaty (NPT) agreement suggests that the "rights" for non-nuclear states to pursue near-bomb capabilities can both be properly limited and properly constrained under the terms of the agreement.  Indeed, doing so could short-circuit what has become a decade-long circus of negotiators arguing about whether or not Iran is doing innocent "research," actually building a bomb, or doing research so they can build a bomb quickly when they decide they want one.

And just for fun, here's an ad from the pre-revolution days in Iran.  The ad clearly illustrates the US role in promoting nuclear power in Iran as though it were little more complicated than plopping down a windmill in a farm field somewhere.  Nuclear is presented as a resource that, with a little government help of course, can soon come to a neighborhood near you. 

Historical artifact?  Not really.  How many countries are playing out this same scenario today -- whether with the US, France, Russia, South Korea, or others as their plant subsidizer?  And without any government subsidies to financing, accidents, land, construction, waste management, and decommissioning, how many of these plants would be built based on their own economic merit?  It is a question well worth asking.

• 1A brief summary from Wikipedia: "In Iran, Basiji act as 'morality police' in towns and cities by 'enforcing the wearing of the hijab; arresting women for violating the dress code; prohibiting male-female fraternization; monitoring citizens' activities; confiscating satellite dishes and `obscene` material; intelligence gathering; and even harassing government critics and intellectuals. Basij volunteers also act as bailiffs for local courts.'

1)  Corporate happy talk 1:  Hamming it up with frack water and earthquakes

Tracking and quantifying the side-effects of particular energy fuel cycles is always challenging.  If you do it wrong, or ignore the external costs entirely, particular fuels get a free ride.  Other forms of energy, most often renewables or energy efficiency, get hurt.  Bloomberg Business has been busy filing freedom of information requests in the state of Oklahoma to map out meetings between oil industry representatives, including Harold Hamm, and state regulators and researchers examining the relationship between disposal of fracking wastewater and more earthquakes. 

The e-mails suggest a steady stream of industry pressure on scientists at the state office. But oil companies say there's nothing wrong with contact between executives and scientists. "The insinuation that there was something untoward that occurred in those meetings is both offensive and inaccurate," says Continental Resources spokeswoman Kristin Thomas. "Upon its founding, the Oklahoma Geological Survey had a solid reputation of an agency that was accessible and of service to the community and industry in Oklahoma. We hope that the agency can continue the legacy to provide this service."

2)  Corporate happy talk 2:  Too Soon to tell

Willie Soon, of Harvard-Smithsonian Center for Astrophysics, has every right to challenge climate science or any other science he wants, so long as he does so objectively and rigorously.  He's been portrayed as a lone and resolute defender of right against the supposedly "junk" science of the masses of researchers who find convincing and growing evidence that not only is our climate changing, but humans are playing a big role.

Alas, his stature began to crumble when it was discovered that nearly all of his work has been funded by fossil fuel interests; and, of particular importance, Soon had not disclosed his source of funding. 

Look, in the real world, dollars naturally chase viewpoints most likely to align with the funders -- so it is not surprising that anybody doing work that challenges climate change will attract funding from the parties with the most to lose from carbon constraints.  This is no different from how groups on the other side get funded -- though are frequently attacked for bias even though they forthrightly declare their funding sources. 

Ineed, it is Soon's lack of transparency that is most inexecusable, and that should result in discliniplinary action against him.  His lack of disclosure is far from the norm, as this review of published papers indicates. Peter Dykstra has a nice summary of the situation, and of Soon's disclaimers and defenders, in a post in the Desmogblog.

The whole thing brought back memories of this encounter with another climate change skeptic at Harvard.

3) Subsidy stacking, Georgia style

Different government agencies and different levels of government often have overlapping incentives for similar activities.  When a single person, corporation, or product can dip into multiple programs at multiple levels of government, this is called "subsidy stacking."  Many small subsidies can coalesce into an big pile of political pork.  This may induce more development or consumption of the subsidized product.  Alternatively, where federal subsidies drive overall production, the state and local largesse may end up simply directing more of that production towards specific geographic areas which little incremental boost to the market development of the subsidized activity. 

The proliferation of all-electric vehicles in Georgia may be an example of this, according to The Economist.  The state has more electric vehicles (total, not per capita) than any other state but California. The magazine notes that "..savvy Georgians are driving all the way to the bank in nearly-free electric cars.  Nissan sells more of its Leaf models in Atlanta than in any other city..."

Maybe it's just part of a broader strategy by the state to boost demand for the too-cheap-to meter nuclear-fueled electricity from the under-construction Vogtle reactors that will someday grace Georgia's electric grid.  That project, Vogtle 3 and 4, is now estimated to cost $17 billion to build. 

Oh, and for fun -- and to provide a bit more of a feel for just how much money $17 billion really is -- here is a sampling of but a few of the companies you could buy at today's market capitalization for less than the cost of Vogtle's two new reactors:  Continentental Resources, Ryanair, Alcoa, Whirlpool, ConAgra Foods, Nordstrom, Dr. Pepper Snapple Group, First Energy Corp, Wynn Resources, Harley-Davidson, Burger King Worldwide, Japan Airlines, and Ralph Lauren.

Maybe those electric cars won't be so cheap to refuel in Georgia after all...

4)  Corporate happy talk 3:  Arctic drilling needed now because fracking won't last

The National Petroleum Council, an advisory body to the US Secretary of Energy that is comprised primarily of energy company representatives, reached the highly surprising conclusion that that

To remain globally competitive and to be positioned to provide global leadership and influence in the Arctic, the U.S. should facilitate exploration in the offshore Alaskan Arctic now.

Who could have guessed?  The study was requested by Secretary of Energy Ernest Moniz.

In related news:

• Arctic drilling moving ahead.  The Obama administration approved drilling in Arctic waters and Shell prepares to resume drilling.
• Regulations might be tightened.  Regulatory proposals that would make requirements for drilling in the region by US-licensed firms somewhat more stringent have been proposed; chance of passage is not known.
• Subsidies to Arctic oil operations remain poorly characterized; receive support from surprising quarters.  The Center for America Progress advocates socializing one of the key infrastructure costs of Arctic drilling -- an ice breaker fleet.  They list a litany of reasons and justifications (including a graphic showing that Russia already has far more ice breakers than we do), but the bottom line is that any cost to police, manage, or oversee Arctic drilling operations needs to be paid by the beneficiary companies and not by taxpayers.  And regulations aside, liability and insurance requirements for operators in difficult and environmentally-sensitive regions need to be cranked way up.  If making these firms fiscally responsible for the costs and risks of their operations happens to slow development, boost the sophistication of operators able to succeed, or increase the breakeven on development, isn't that what markets are supposed to do?  CAP is on the wrong side of this one.  Rather than advocating for subsidizing ice breaking to Arctic oil operations, maybe we ought to be filing trade cases against other countries that are providing subsidized ice breaking services to their own domestic natural resource champions. 

5)  French model of nuclear not looking so good

Large losses and a continued bleak market prospect is leading France's energy minister to push for a broad overhaul and restructuring of state-controlled nuclear firms.  Areva, in particular, was reporting losses in excess of its market value, "suggesting that the troubled company, plagued by cost overruns and write-downs, may need new funds to continue operating." Translation?  "Give us more state subsidies."

Of course, the problems with the French model of nuclear development aren't really that new.  They just keep taking slightly different forms.

Conventional industries have it easy. Make a good product; invest in technology and engineering to make it better and keep costs in line; then crank up the output and sell it wherever you can.  Unit costs drop.  Word of mouth bolsters your smart advertising campaign to millenials, creating feedback loops on social media, driving customers to buy still more of your product and fueling double digit growth.  Grow production and sales, both in domestically and abroad.  Grow brand recognition.  Grow revenues.  Grow profit.  You are limited only by your skills and your imagination.

Economic pressures conflict with nonproliferation goals in the nuclear sector

Were the world of nuclear vendors so easy!  They've got an industrial structure that begs for high throughput because their upfront capital investment and engineering demands are so great.  More units sold (in theory, at least; FOAK1 -reality has been a good deal rougher) should bring the total cost per delivered product down sharply but for one tiny problem:  their products are linked to nuclear weapons, or the potential for nuclear weapons. 

And so, unlike a toothpaste manufacturer, n-vendors are a bit constrained in ramping up production and selling all they've got.  One can't slap reactors up just anywhere, after all.  And, despite the wishes of shareholders and managers alike, one can't sell "nuclear products" to just anyone.

Thus the dance begins.  The industry continually tries to demonstrate why they should be allowed to sell more stuff to more people, and how it won't really be a problem.  They generate colorful graphics on how everybody else outside the US is already doing what they want to do, and therefore the US firms doing it too won't cause any incremental harm.2   They run more numbers to calculate the grevious financial losses not only to the industry, but to the country overall. Political optics matter:  it is very important that this not just be seen as their problem, but instead be reframed as everybody's problem, and not just now, but in the future as well.  There are losses now from reduced exports and jobs in foreign-owned US plants; but also future costs as the "needless" restrictions on exports bleed investment and squander our technical lead in an industry we created. 

The push to sell more is so strong, one might forget that we talking about nuclear equipment, designs, and fuels, and not Crest 3D White Vivid Flouride Radiant Mint flavored toothpaste.  (And, yes, in case you were wondering, this is the first time Crest 3D White Vivid toothpaste and nuclear reactors have been linked in the same sentence, and no doubt Procter & Gamble hopes it will also be the last... Though, in a testament to the ingenuity, or insanity, of humans, radioative toothpaste -- one containing thorium, and another thorium and radium -- was actually sold in the 1950s).  But this dynamic is how we end up with industry-published documents arguing that the US' nuclear export policy should be more like Russia's (see item 2 at the link) and have some people take that argument seriously.

Nuclear cooperative agreements should protect against proliferation, but often don't

It is against this backdrop that recent testimony and related background materials prepared by Henry Sokolski of the Nonproliferation Policy Education Center is so useful.  He focused on many aspects of nuclear cooperative agreements (123 Agreements) for a hearing before the Senate Foreign Relations Committee last month (PDF version here; presentation and background slides here).

Some of the key points:

• Once passed, 123 Agreements offer limited latitude for Congressional oversight. (Testimony by Sharon Squassoni of the Center for Strategic and International Studies also speaks to this issue, highlighting the lengthening of agreement duration and their auto-renewal absent a "no" vote by Congress as examples of the dwindling power of Congressional oversite).  
• Appropriate use of Congressional power prior to passage critical.
• Industry claims about financial ($740 Billion) and job (5-10,000 jobs per $ billion) losses from "overly stringent" export restrictions need to be taken with a grain of salt.  Not only is there the common risk that numbers from self-interested parties may not be so reliable, Sokolski points out that the key companies under discussion are often "American" in name only.  Westinghouse is headquarted in the US, but entirely foreign owned; 80% of the revenues from GE-Hitachi export sales go abroad; enrichment firm URENCO's US subsidiary is entirely foreign-owned as well.  And only a small portion of current exports from these firms are even subject to 123 Controls.

Given these characteristics, why the fuss?  Sokolski argues that the main reason for the "sort-of American" industry to focus on modifying the controls governed by the 123 Agreements has nothing to do with direct exports, but rather with limits on their ability to re-export technology and components to third countries, and to recycle and enrich nuclear fuel. 

If you are foreign-owned, but still reliant on products or intellectual property derived from the US, your freedom of action to ramp up production and sales is severely constrained in two main areas:

• Equipment and design.  Transfer of US-origin nuclear reactor design information critical to other countries' (e.g., Japan, Korea, PRC) manufacture and retransfer of nuclear components to 3rd to other states, (e.g., Vietnam, UAE, Turkey, etc).
• Fuel.  Transfer of US-origin nuclear materials (e.g., yellowcake and LEU fuels) and their subsequent enrichment or reprocessing overseas (e.g., in China, RoK, Japan, etc.) if they are derived via US-exported or designed reactors.

While the industry views this as a flaw of the 123 process, Sokolski sees the restrictions as an important source of leverage to control proliferation -- and one that needs to be used much more than it has been.  Relying on existing IAEA controls is not a substitute, he argues, noting that the IAEA review process did not stop the pursuit of bomb options with reprocessing and enrichment in Iraq, Iran, Syria, North Korea, or Libya.  Weaker restrictions on fuel recycling from US-derived reactors, for example, could generate enough material for many bombs, as the slide below hypothesizes based on the reactor count in China. 

The central driver in whether or not to allow the export of nuclear goods and services from the US must be based on natural security, not commercial interests.  Sokolski:

Generally, these matters have been discussed in the context of promoting nuclear power's further expansion overseas, of increasing the number of jobs or of concluding nuclear agreements and cooperation initiatives more generally. All of these considerations are important. They are not, however, the primarily lens that should be used for weighing these matters... security concerns should be the first business of our government. Certainly, the most profound contributions Congress has made to promoting and controlling truly peaceful foreign nuclear activities were premised on putting U.S. national security first. This was true in 1946 when Congress created the Atomic Energy Commission, in 1978 when it passed the Nuclear Nonproliferation Act, in the 1990s when it conditioned the Nuclear Agreed Framework with North Korea, and today as it considers legislation relating to our nuclear negotiations with Iran.

• 1"First of a kind," is a term frequently used by industry and academics to estimate the overnight costs of new reactors. The average costs of later reactors tend to be projected at much lower costs/kWe due to economics of scale and learning, and FOAK estimates are presented as best-guesses of the first few plants, but not the "real" costs one should focus on when evaluating policy options. In reality, however, the costs of later units have often escalated rather than decreased. This has been due to low production runs of the exact same reactor type limiting scale effects, the discovery of new problems from the early units, variation across sites that makes routinized installation impossible, regulatory or financial pressures that build based on macro factors in the civilian nuclear segment overall, or some mixture.
• 2NEI President Marv Fertel frames it this way in his Senate testimony: NEI "Opposes initiatives to condition U.S. nuclear cooperation on new terms that our potential partners will not accept and other supplier nations will not require." So if our partners (that is, their potential customers) won't accept certain terms, we should drop them?

1)  Toronto Hydro looks to implement power subsidies on steroids to large consumers.  Trying to cut down power bills?  Use less energy has long been the solution.  But if Toronto Hydro gets its way, every customer would pay a flat rate for as much power as they could consume.  Small power consumers would pay more (the utility still has to cover big fixed costs, after all), while power hogs would see bills go way down. The logic escapes me here.  Perhaps somebody has been studying gasoline pricing in Venezuela too long, or maybe bar hopping with Toronto Mayor Rob Ford. 

Were the utility located in a place where nobody else could use the power, and absent a big push to boost consumption, the water would simply be spilled over the dam, perhaps there might be some logic to the proposed approach.  But in a real world, where not only can the hydro power be shipped to customers far and wide, but the ability to control when the power is generated makes the resource even more valuable as a way to firm intermittent renewable supplies, the idea is pure bonkers.  Criticism has been fierce, so hopefully the proposal will die a quick death.

2)  Truth in advertising:  overly rosy fuel efficiency estimates for Ford Hybrids trigger consumer rebates.  Where's mine?  OK - so you bought a hybrid looking to save fuel and it turns out the the test EPA uses to measure fuel efficiency isn't very accurate and you need to buy more gasoline than you'd been led to believe.  Fair?  For sure not.  And Ford is going to pay 200,000 drivers up to $1,050 each to compensate for the mistated operating costs.  Cutting gasoline demand as promised would have been the best route, but at least customers are getting compensated for their extra costs. 

The thing is though, none of the gasoline cars I've ever owned have met their EPA mileage ratings either.  None.  Not on highways, and not in the city.  Not when new and not when broken in.  So where is my check?  I'm not holding my breath here, but the basic point is that if we want efficiency metrics to help direct markets, we ought really to be able to trust the measures on which our purchase decisions are made.  We are clearly not there yet.  And DOE's recent effort to compare gasoline and electric vehicles doesn't seem to get us much closer. 

3)  Navy still looking to outbid other markets for biodiesel supplies; not hard to do at close to $100 per gallon.  Biodiesel from waste oil and grease can be sustainable, but is quite limited in supply.  Other sources of supply are far less green, and sometimes positively disastrous:  global biodiesel demand, for example, remains a significant source of deforestation in Indonesia and Malaysia. 

But limited sustainable feedstocks haven't stopped the US Navy from "greening" its fleet through biodiesel procurement.  The most recent is a solicitation to buy at least 37 million gallons of drop-in biofuels, what appears to be the single largest bulk biofuels purchase ever.  Though the Department of Defense says it will purchase the biofuel blends only if they are cost-competitive, this procurement is valued in excess of $3.5 billion.  So unless there is something horribly wrong with the facts published in this article by Domestic Fuel, we are approaching $100 per gallon.  Only in the Defense Department could that possibly be viewed as "cost-competitive." 

4)  US Environmental Protection Agency Administrator Gina McCarthy admits carbon rule details in part crafted to help keep uneconomic nuclear reactors operating.  Is this a surprise?  Only that they were so forthright in acknowledging the policy driver.  The subsidies themselves are not surprising at all:  the nuclear industry is a finely-honed subsidy machine.  No surprise either that this issue received prominant coverage in a Chicago newspaper.  (Thanks to Michael Mariotte of NIRS for calling my attention to this article).

5)  Louisiana Dreaming:  The Bobby Jindal corporate cash machine continues.  Whenever somebody tells me that government subsidies are a Democratic tendency, I always point them to Bobby Jindal and the state of Louisiana.  Both parties love and live on government pork, they simply use it for different things.

In Louisiana, the subsidy news hooks change, but provision of massive subsidies remains remarkably constant over time.  Most recently, it was revealed that the cast of the highly lucrative show Duck Dynasty is also tapping into $70,000 per episode in state subsidies.  The film industry is probably even better than the nuclear industry in ginning up subsidies for every move it makes, and that is saying alot.

But Louisiana subsidizes pretty much everything, and big recipients are always the fossil fuel industry.  In 2012, I documented how two-thirds of tax-favored federal bonds to rebuild after Hurricane Katrina were captured by the oil and gas industry, and evaluated a slew of other subsidies to that sector as well.  Tax breaks give away the vast majority of the state's corporate tax base, and their most recent tax expenditure budget runs 406 pages (though at least they have one, unlike Wyoming). 

In my 2012 blog posting on the Jindal largesse, a google search for Jindal incentive returned 1.2 million hits.  I had a moment of panic today when I redid the search and a mere 128,000.  Then I tried a slight shift, searching for the plural Jindal Incentives instead.  Boom:  4.2 million hits.  My faith in Governor Jindal is restored!

With no plan for a long-term nuclear waste repository in process, the nuclear and utility industries argued that continued collection of the nuclear waste fund fee was unwarranted.  Litigation against the US Department of Energy was led by the National Association of Regulatory Utility Commissioners, and of course, by the well-funded lobby group, the Nuclear Energy Institute.  The DC Circuit Court ruled in the industry's favor, and DOE lost its appeal.  As a result, collection of the nuclear waste fee (running about $750 million per year) ceased in May 2014.

To be fair, with little progress on what to do with the nuclear waste and the single US repository candidate (Yucca Mountain in Nevada) suspended, industry concerns over the direction of the Fund and the uses of the collected fees don't seem entirely unreasonable.  In fact, had the industry pushed to escrow collections for the nuclear waste fund until there was progress on long-term waste management challenges, I would have viewed the move as logical and measured.  Such a shift would have kept the Fund balance growing both through accrued interest (which continues still) and fee contributions to principal (which do not) -- while also giving the industry an additional layer of protection against fund "leakage" until such a time that a long-term plan is worked out.

But cessation of fee collection entirely is not reasonable at all.  Taxpayers remain liable for having to deal with the industry's nuclear mess, and neither the ruling nor the cessation of new collections change that fact one whit.  Rather, the industry-led move simply ensures that there will be even less money available once work on a repository again begins in earnest and real cost information (rather than just engineering projections) are finally available.  The collection stoppage thus becomes yet another example of the nuclear sector sloughing onto taxpayers the liability and financial responsibility for the nasty and risky parts of the nuclear fuel chain.

Linking long-term costs with current power consumption

Congress established the Nuclear Waste Fund in the Nuclear Waste Policy Act of 1982. Collections to capitalize it began the following year.  Like Social Security, the goal was to ensure nuclear consumers contributed funds during the active lives of the reactors to cover long-term liabilities that would at least in part occur after the operating lives of the reactors were over.  And like Social Security, it is not so easy to ensure collections are at the right level to cover these future, unknown costs.

As deals go, the Waste Fund was (and is) a pretty good one for US civilian reactors.  In return for a 0.1 cent fee on each kWh of nuclear-generated electricity, the federal government would take on the politically- and technically-daunting tasks of building, siting, and managing a repository for high level radioactive waste. The venture was hardly a "normal" engineering project:  the repository would need to be overseen for centuries, and current estimates for the life cycle costs of the repository run as high as $170 billion.1

Not only would the feds provide a place to host the waste, they actually agreed to a specific time by which these services would be ready.  Given the risk of the enterprise, this was an extremely poorly structured risk sharing arrangement, and one that has turned out to cost taxpayers dearly.  Initial payments to utilities for missing this deadline were about $1 billion, with contniuing payments running at about $500 million per year.2   The money for these breach of contract payments comes from general tax revenues, not from the Nuclear Waste Fund.  Planning for other long-term liabilities -- pension plans, or post-retirement health care obligations, for example -- are quite challenging for corporations and municipalities alike.  But in comparison to the financial uncertainty and lengthy timelines associated with storing high level radioative wastes, these other areas look almost easy. 

Despite the complexity and risk, taxpayers get nil even if things work out well

For taking on all of that risk, taxpayers will earn a risk premium of ZERO from the generators of high level radioactive wastes (~80% nuclear reactors/20% military).  Normally, high risk, capital-intensive endeavors need to have high expected returns in order to justify the effort to take them on.  In stark contrast, the repository was set up to operate as a non-profit, break-even enterprise, with no return on taxpayer-invested capital despite the risks.  The fact that nuclear is the only energy resource requiring such complex waste management adds an interesting twist.  Having the government provide these services in return for a small, fixed fee provides an important competitive advantage to the sector relative to other sources of electricity.  This is partly in the form of avoided costs (because the waste fees are too low), but importantly through reduced capital costs as well since federal responsibility for the wastes takes that long-term uncertain risk away from investors.

The statute allows the fee amount to be increased if analysis in DOE's periodic "Waste Fee Adequacy" assessments (this one is from 2013) indicates it needs to be.  In theory, this means that the feds could make up for years of lost waste fee collections by ramping up the levy per kWh once the collection again begins.  At best, such adjustments could boost fees to cover higher expected repository costs only at breakeven.  Statutory change would be needed to build in a proper rate of return and thereby eliminate the competitive advantage the Waste Fund gives to the nuclear sector (changes that I believe should be pursued).

However, even an adjustment to ensure breakeven seems unlikely.  Since the program's inception, fee increases of any type have never happened.  During those three decades, the real value of the 0.1 c/kWh fee has dropped sharply due to inflation:  each $1 collected at the start of the program in 1983 would require $2.38 to be collected today to be of the same real value.

Industry proponents argue that fees have not gone up because there has never been a need:  there is about $30 billion presently in the fund unspent, after all, and that money continues to accrue interest.  But such a conclusion seems an oversimplification given the massive task at hand.  The repository is basically a one-of-a-kind megaproject, and (DOE's Fee Adequacy studies not withstanding) it is hard to argue that we really have a clear picture on how much it will end up costing.  No permanent nuclear waste repository has opened anywhere in the world yet, and megaprojects in general have a resounding track record of coming in massively late and overbudget.  By the time the real need for funds is known, there will be no utilities still operating to pay in.

Time for a little free lunch

Not surprisingly for a project of this size, political and delivery problems abounded.  Nobody wanted to host the repository, including the state of Nevada where the federal project was finally placed.  Costs ran high; timelines long.  Then, the Obama Administration determined that, after many billions of dollars spent, the Nevada site was not suitable. The geology, among other factors, was not as favorable as had been believed.  What was left was a very big and a very expensive hole in Nevada ground.

The nuclear waste repository hadn't exactly been humming along towards completion prior to cancellation.  However, the formal cancellation altered the legal reality:  now, money was being collected from ratepayers and put into a fund already in surplus, but it was clear that there was not an active and viable plan for managing the waste anymore.  This ran afoul of the statutory authority.

Alas, despite a shift in legal reality, many important economic realities did not change:

1)  Taxpayers still bear enormous service delivery risks, and these liabilities do not decline during the fee holiday.  The federal government, and therefore federal taxpayers, continue to bear the financial and technical risks of managing this waste stream for many centuries.  The likelihood that a repository project won't have massive overruns like any other massive public or private infrastructure project is untenable.  This point was even flagged in the judge's ruling on the waste fee case, as reported by CNN (and based on DOE's 2013 Waste Fee Adequacy report):

"According to the Secretary (of Energy), the final balance of the fund to be used to pay the costs of disposal could be somewhere between a $2 trillion deficit and a $4.9 trillion surplus," U.S. Appeals Court Judge Laurence Silberman wrote. "This range is so large as to be absolutely useless as an analytical technique" to determining the size of the fee.

2)  Overall collections were too low anyway.  Even if the megaproject cost projections are accurate (which they won't be), the structure of the nuclear waste repository program as a non-profit break-even nationalize enterprise conveys a subsidy to nuclear over other technologies even under the old rules.  (See chapter 7 here for more discussion of repository subsidies).

3)  Taxpayers still have to pay utilities for onsite storage due to delivery delays.  The federal government, and therefore federal taxpayers, continue to have to pay utilities for onsite storage of spent fuel because of the poorly structured risk sharing agreements implemented with utilities.  The longer the delays, the more these costs will rise.  Given that federal taxpayers will be responsible for the waste for so much longer than the utilities now temporarily storing it, it is rather odd that some utilities will nonetheless receive most or all of their contributions from the per kWh fees back via the settlements for onsite storage.  Excel Energy customers in the Upper Midwest, for example, are nearly half way there already according to MinnPost, a regional publication.3   This is a warning sign that managing the wastes and repository is likely to cost far more than DOE has currently predicted.  It is also a good example of the large difference between commercial, market-neutral pricing of waste management services and the subsidized break-even approach being deployed by the federal government.

4)  The "pay-in" window for existing reactors is shrinking.  The US nuclear reactor fleet continues to age, with market pressures forcing closure of facilities early.  Once a reactor stops selling nuclear power, its contribution to the socialized Nuclear Waste Repository comes to an end.  A cessation of collection for even a few years could comprise a significant portion of the remaining reactor years of the existing US fleet. 

These same closures also mean that the theoretical ability to implement higher fees per kWh once the fund starts again in order to make up lost revenue is not a real option.  Lower collections today simply mean an even bigger taxpayer subsidy to handle nuclear power's wastes tomorrow.  

Were you involved with nuclear waste issues in the early 1980s?

Nuclear proponents sometimes argue that the government "wouldn't let them" keep their waste, as though it was a sacrifice for them to give it up.  The rationale for waste as an asset is the theoretical ability to use wastes from conventional reactors as input fuels for more advanced fuel cycles.  But this line of reasoning runs into two problems:   first, the right to retain or ship wastes for reuse prior to conveying to a federal repository seems to remain; and second, that the economics of the advanced reactors have yet to work.

Far more likely is that not only was the industry thankful to remove this large, uncertain, and long-tail liability from their balance sheets, but that they lobbied hard to get it approved, and to include the favorable terms that we see today.

Were you there?  Were you involved in these issues in the early days of nuclear waste nationalization?  What really happened?  Please send an e-mail and let me know.

• 1DOE 2013 Nuclear Waste Fund fee adequacy report, page A-7.
• 2Randall W. Miller, "Wasting Our Options? Revisiting the Nuclear Waste Storage Problem," Washington & Lee Journal of Energy, Climate & Environment, Vol. 4, 2013, p. 366.
• 3"Curious about how Xcel Energy and its customers fit into this picture, I called Mary Sandok, media relations manager. Her response: Xcel Energy customers in the Upper Midwest, who are served by Prairie Island and Monticello nuclear generating plants, have paid more than $400 million into the federal Nuclear Waste Fund. Regarding our settlement with the federal government: to date Xcel Energy has collected approximately $182 million under a settlement agreement reached in mid-2011 stemming from claims the company filed against the federal government due to its failure to begin removing used nuclear fuel from our nuclear plant sites by a 1998 deadline. These payments reflect reimbursement to Northern States Power Co. for costs associated with the storage of used nuclear fuel through 2012. The current settlement agreement is set to expire at the end of 2013, and we are in discussions with the government to extend it."