Memoir of a Movement – Paying For A $4.3 Billion Mistake

Memoir of a Movement

By Mark Evanoff

CHAPTER 10

PAYING FOR A $4.3 BILLION MISTAKE

“Diablo Canyon is another Achilles’ Heel
in a country that has too many already, and
is a tragically expensive way of getting where
we don’t want to be.”

–David R. Brower

The promise of cheap electricity from Diablo Canyon will never happen. Not only have their been enormous cost overruns incurred by PG&E’s negligence, nuclear power itself is not a viable option. Compounding these problems is the realization that the electricity from Diablo Canyon is not needed. Lowered electricity demand, and the construction of smaller facilities will meet northern Ca1ifornia’s electricity demand well into the next century. By 1984, before both units at Diablo are in full operation, PG6cE will have an approximate peak reserve margin of about 30 percent.1 In other words, at the highest times of electricity use, PG&E will still have 30 percent more generating capacity than is actually needed.

If the plant goes into operation, ratepayers will be asked to pay approximately $4.3 billion in construction costs. The Public Utilities Commission will wrestle with the problem of determining the fairest way to allocate the cost of a poorly built and unneeded plant.

During the rate-basing hearings PG&E will argue that the costs of building Diablo were prudently incurred, the electricity is needed, and stockholders should be allowed to collect a fair rate of return on its investment. Opponents will argue that the plant will be too expensive to operate and is not in the public interest. The assumptions under which the PUC issued the Certificate of Public Convenience and Necessity in 1966 are no longer true. Electricity demand is lower and the cost of operating a nuclear power plant are significantly higher than expected. So the situation is more complex than just charging ratepayers for the cost of correcting the design errors at Diablo and for the interest payments incurred after the discovery of the design errors. The basic question remains, should PG&E be allowed to earn a profit on a plant that is not needed, and should that plant operate in the first place?

In theory, if a plant is too expensive to operate, the PUC will not allow it to enter the rate base. But the PUC will not look into the economics of running Diablo Canyon until after the plant goes into operation. Because of Diablo’s enormous cost, the PUC allow PG&E to receive interim rate relief before determining what the public should be charged for Diablo Canyon over the life of the plant.

The Mothers for Peace find this particularly upsetting because they petitioned l the PUC in 1980 to reopen hearings on the Certificate of Public Convenience and Necessity to examine the economic ramifications of operating Diablo Canyon and to study the feasibility of converting the plant to an alternative fuel. The PUC rejected the petition arguing that reopening the Certificate hearings would lower PG&E’s bond rating.

Public Utilities Commission President John Bryson further argued that because the plant is already built, it would be too expensive to operate. It would not be in the ratepayers’ interest to pay for the plant and not receive any electricity from it. Making PG&E absorb the cost of building Diablo wasn’t an acceptable option. The Commissioners did say that PG&E would not be allowed to build a plant like Diablo Canyon today. However that attitude means that the state agency responsible for looking after both the uti1ities’ interest and the public’s interest will allow a wrong decision to continue, simply because the mistake has already been made.

A simple alternative would be to adopt a rate basing procedure called avoided cost. Under this scenario a utility could only charge ratepayers for what electricity cost to generate from fossil fuels. If a utility chose to build a nuclear power plant, and electricity from the nuclear power plant cost more than electricity from an oil fired plant, PG&E would have to absorb the extra construction cost. By the same token, if PG&E supplied electricity from renewable sources that supplied electricity cheaper than an oil plant, PG&E could keep the extra money collected. The avoided cost procedure simply requires utilities to supply the cheapest available electricity. lf mistakes are made, the stockholder pays.

A number of states have recognized that utilities shouldn’t be allowed to make money on unneeded power plants and have taken steps to ensure the public doesn’t pay.

The New York Public Service Commission stated, “Construction of generating plants involves substantial lead times during which changes in economic conditions may result in the Company having capacity in excess of its optimum objective. While this does not demonstrate imprudence, neither does it mean the burden of picking up the fixed charges associated with the plant should be placed entirely on the ratepayers.”2

Minnesota incorporated the concept into its rate basing decision. “The fact remains that the capacity is presently not serving the public, and the public is therefore not to be burdened with paying a return on a plant that is not useful to them.”3

“Investors must bear some of the risks involved with operating a business enterprise. . . The customer should be required to pay only for that portion of the facility which is used or useful in rendering service to him.”4

Compounding the problem of oversized reactors is their vulnerability to breakdowns. A large plant going out of service affects the entire service system, analogous to putting very large eggs into one basket. lf one egg breaks, a major source of electricity is lost. A utility must have sufficient reserve margin to replace its largest generating facility should it go out of service. Because of this, PG&E will not be able to retire “any of the conventional plants it had promised to remove from service after Diablo Canyon went into operation. The old plants must be ready to supply electricity when Diablo goes out of service.

PG&E once promised Diablo’s operation will not raise electricity rates. In its rate application to the Public Utilities Commission it requested that rates not be raised because the operation of Diablo Canyon would save on oil purchases. However this prediction is based on optimistic assumptions. The utility maintains that the plant will operate at 65 percent capacity and will displace 20 million barrels of oil a year, priced at $43 a barrel. But just in case the prediction is wrong, PG&E is requesting the creation of a balancing account. If Diablo is more expensive to operate than they predict, the utility wants to collect more money from the ratepayer. By the same token, if Diablo coasts less to operate than predicted, money will be returned to the ratepayer.5

Diablo will cost ratepayers money because PG&E’s assumptions are wrong. PG6cE burned only 9.5 million barrels of oil in 1981 and used even less in 1982. Fuel savings will be less than predicted. Additional cost savings are calculated on replacing 20 million barrels of oil priced at $43 a barrel. In 1982, the price of oil was $35 a barrel. The oil that Diablo displaces will not be as expensive as PG&E predicted.

A second factor that will raise Diablo’s cost is its inefficiency. When PG&E applied to the PUC for permission to build the plant, engineers predicted a 90 percent capacity factor. PG&E’s rate application has reduced that prediction to a 65 percent capacity factor. However even this is inaccurate. Westinghouse reactors the size of Diablo Canyon historically operate at about 54 percent capacity. Large nuclear power plants suffer numerous breakdowns and cannot operate 100 percent of the time.

Further complicating the diseconomies of Diablo Canyon is its companion: project, Helms Pump Storage, PG&E’s second boondoggle. Located in the Sierra foothills, the Helms Pump Storage facility is designed to generate electricity during periods of high electricity use. The slightly modified perpetual motion machine is dependent on electricity from Diablo Canyon.

The concept is simple. Helms consists of two lakes at different elevations, five miles apart, connected to one another by a tunnel containing three sets of generators. During periods of high electricity use, gates on the upper lake are opened, and water drops 1500 feet to the lower lake, spinning turbines and generating electricity. During the night, when electricity demand is low, the turbines reverse themselves and surplus electricity from Diablo pumps the water back up hill.

The electricity generated at Helms is not free. Only 75 percent of the electricity required to pump the water uphill is recovered when it falls downhill. Essentially electricity from Diablo Canyon is put through a machine and sold back to the ratepayer at a higher cost. P&GE argues that because Diablo’s electricity is not needed at night, it’s prudent to operate Helms. The utility will buy the electricity to power Helms from the ratepayer, but it will pay only for the cost of generation, not a proportional cost of construction. (Construction is the most expensive part of electricity supplied by nuclear power. lf PG&E had to build its own nuclear power plant, financed by stockholders, to power Helms, PG&E couldn’t afford the deal.)

PG&E will collect $1.5 billion for Helms whether or not the facility actually operates. Furthermore, when Diablo is down, Helms can’t pump the water back up hill. The PUC will not disallow Helms because of PG&E’s enormous investment. Once again, the more costly a mistake, the greater a chance a project will be allowed to proceed. The Public Utilities Commission will protect the financial health of a utility before protecting the ratepayer from financing a utility bailout. Not only will PG&E be bailed out, it will be allowed to earn a profit on the cost of the mistake.

High electricity bills are not the only problem facing California residents. The radioactive wastes that worried nuclear information specialist Emery Dowell in 1957 is still a problem. PG&E had to increase Diablo Canyon’s on site spent fuel storage ponds from five years capacity to 19 years capacity because there is no place in the United States to put the radioactive waste generated in the reactor. It is unlikely that the Federal government will have a high-level waste repository during Diablo’s lifetime.

At one time the U.S. hoped to build reprocessing plants so wastes created at nuclear power plants could be reused as fuel. But the only commercial facility to ever operate in the United States, West Valley, closed in 1972 because its owners had problems with the technology, and the facility was uneconomical. The federal government is stuck with the clean-up costs which will be several hundred million dollars.

A 1982 study conducted by the Health and Energy Learning Project surveyed all reprocessing facilities in the world and found none that were commercially viable.6

The plants only operated between 10 percent and 35 percent capacity. For reprocessing to be economical, a plant would have to operate at 80 percent capacity. The La Hague reprocessing plant in France, the largest in the world, operated at 10 percent capacity and had one major accident every four months between January 1980 and June 1982.

Weapons designer Theodore Taylor predicts if a reprocessing plant operating for ten years were destroyed by accident or intent, enough radiation would be released to render an area the size of Western Europe, uninhabitable.

A “solution” to the waste disposal problem being considered by the Department of Energy is utilizing commercial reactor waste in the nuclear weapons program. The DOE has developed a new technology called Laser Isotope Separation that inexpensively removes weapons grade plutonium from commercial reactor waste. Secretary of Energy Don Edwards outlined the idea in testimony before the Energy Research Advisory Board, September 3rd, 1981, “We are going to be needing some more plutonium for our weapons program, and the best way I can see to get that plutonium is to solve your waste problem.”

The Department of Energy needs to increase plutonium production by 70 percent to build the new generation of MX missiles, Trident missiles, cruise missiles, and the Pershing II missile. Robert Alverez of the Environmental Policy Center estimates the U.S. could produce 27,500 war heads by 1990 from the spent fuel in commercial reactors.

The DOE anticipated a hostile public response to Edward’s suggestion, and had already completed a study examining the political implications of using commercial reactor waste in the weapons program. The study suggested methods to sell the idea to the public. 7

Using commercial reactors to make plutonium for the military violated the Non-Proliferation Act. Countries without nuclear weapons are not allowed to use plutonium for commercial reactors to build nuclear bombs. The document says this problem can be avoided by arguing, “The U.S. is already a nuclear weapons state and there can be, therefore, no valid concern about weapons proliferation.”

To calm public opposition to using the peaceful atom to make bombs, the author suggested admitting the facts of atomic energy, “There is no technical demarcation between the military and civilian reactor and there never was one. What has persisted over the decades is just the m