July 1, 2001
L.A. Loves a Loophole
There's no getting around it...
Nuclear Power: Ask a Contrarian
No one needs to tell the readers of PUBLIC UTILITIES FORTNIGHTLY about the technical, economic, regulatory, and institutional obstacle course facing the nuclear power industry. All you need do is look around to see an industry struggling to live up to expectations. Some would term the nuclear outlook "grim:"
• No economic incentives to build new nuclear plants.
• No new plant orders in the United States (a modest complement of foreign orders)
• Precious few attempts to renew operating licenses; even fewer succeed.
• Plant closures long before licenses expire; they won't be able to compete economically and still meet requirements imposed by the Nuclear Regulatory Commission.
• Infrastructure dries up for suppliers and skilled workers; American business writes off its entire nuclear enterprise as one big expensive failure.
These grim snapshots come from that widely cited, though fanciful think tank that goes by the name of C.W. and Associates (em specialists in what is more popularly known as the "Conventional Wisdom."
As an investment banker, I have come to know C.W. intimately. Ironically, however, that experience has taught me not to follow the crowd, but to think as a cautious contrarian.
During the 1980s I needed to make an important investment decision that depended on whether interest rates would continue climbing or drop. I was walking down Sixth Avenue when I passed a newsstand, and I caught a glimpse of the new issue of Time magazine. It had a big dollar sign on the cover, with the words, "Interest rates soar!"
That clinched my decision. I went to the office and went long on Treasuries, convinced that interest rates would fall, not climb. Sure enough, the next day the Fed lowered the prime. My clients thanked me, but I owed it all to Time.
Six Points to Ponder
Today's conventional wisdom discounts the following six major factors, any one of which could bring nuclear power back to the forefront:
1) The nuclear industry isn't going away.
C.W. seems to write off nuclear power as a major player. In fact, it makes a huge contribution (17 percent) to the world's supply of electric power.
This massive investment will stay around for a long time, together with the fuel-cycle industry that serves it. For example, the operating license of Comanche Peak 2 will not expire until 2033 (em even without a license extension. The United States (em and the world (em will continue to need skilled nuclear workers and a base of suppliers for decades to come, just for existing plants. While the nuclear industry will certainly undergo changes, I don't believe it will be allowed to disappear.
2) The nightmare of foreign oil dependence will return.
We forget that until the early 1970s, Americans had never heard the phrase "energy crisis." Oil was cheaper than bottled water. But during the 1970s we learned what it feels like to lose control of our economy to foreign oil producers. That bad dream could return overnight, as long as we depend on an import lifeline that extends half way around the world.
C.W. all but rules that out, but