This study was conducted for the Energy Information Administration (EIA) within the U.S. Department of Energy. It has three objectives:
• To present a history of nuclear power plant cancellations, including estimates
of the sunk costs involved.
• To develop estimates of the costs associated with the potential cancellation of
nuclear power plants currently planned or under construction.
• To determine how the costs of these potential cancellations are likely to be
regionally distributed and allocated among three major groups: utility ratepayers,
utility shareholders, and income taxpayers.
The study first examined the history of nuclear power plant cancellations, then selectively examined the regulatory treatment of costs for those cancellations which involved more than $50 million in losses. This revealed the precedents established for allocating the costs of project abandonment among the three major payer groups and provided a basis for projecting the regulatory treatment likely to be adopted in future cancellations.
The study then identified specific nuclear units currently planned, or under construction, which are most vulnerable to cancellation in the future. Finally, data on expenditures for these plants and the additional costs associated with their cancellation were used to estimate the total potential costs of abandonment and their regional
distributions.
The major conclusions of this study are as follows:
• The Nation's electric utility industry has substantially reduced its earlier
commitment to nuclear power, by cancelling almost half the nuclear capacity it
had ordered since the inception of commercial nuclear power.
• Five major causes of nuclear power plant cancellations have been identified, the
most significant being: lower forecasted load growth, construction financing
constraints, and reversals in the cost advantage of some nuclear units.
• In the past, the regulatory treatment of nuclear power plant cancellations most
frequently adopted by regulatory commissions allocated most of the abandonment
costs to utility ratepayers and income taxpayers, rather than to utility investors.
• A number of nuclear power plants in various stages of completion have been
identified as being vulnerable to cancellation and potentially involve total
abandonment costs ranging from $4.5 to $8.1 billion.
• If completed, many of the nuclear power plants already cancelled, or subject to
cancellation in the near future, could provide net economic benefits to ratepayers
and the Nation as a whole — primarily by replacing electricity generated
by oil- and natural gas-fired power plants.
By year-end 1982, the electric utility industry had cancelled 100 nuclear units, totaling 109,754 megawatts-electric (MWe) of capacity.^ These cancellations represented
45 percent of the total commercial Nuclear Steam Supply System (NSSS) capacity previously ordered. For comparison, only 39 fossil fuel-fired generating units, totalling about 23,000 MWe, have been cancelled since 1972, the year of the first nuclear cancellations. The costs associated with these nuclear plant cancellations have been substantial. It is estimated that about $10 billion was expended on the 100 nuclear units cancelled since 1972, which represents nearly 7 percent of all utility expenditures for power plant construction during that period. Most of these cancellation costs have been incurred since 1977, during which time 72 reactors have been cancelled, 42 of which involved abandonment costs of at least $50 million per plant cancellation. Publicly owned utilities have been disproportionately represented in these cancellations —
$4.2 billion of the total cost of nuclear power plant cancellations was accounted for by six reactors that were being constructed by publicly owned utilities.
Five major reasons were identified as underlying these cancellations:
• Lower forecasted load growth
• Financial constraints
• Regulatory changes and uncertainty
• Reversal of economic advantage
• Denial of certification by the State.
The fact that these reasons were cited does not necessarily confirm that they were indeed the causes underlying the individual cancellation decisions. To further test their
validity, each of the five reasons was examined to determine whether it is consistent with empirical data reflecting industry-wide conditions, and whether it represents a
sufficient rationale for cancelling a power plant.
Lower Forecasted Load Growth
Downward revision in load forecasts was cited as causing, or contributing to, about half the plant cancellations. This is consistent with the peak load forecasts submitted by
the utilities to the North American Electric Reliability Council (NERC) over the past 15 years. A reduction in a utility's forecasted growth in peak load may, or may not,
be a sufficient reason to cancel planned nuclear capacity, depending on how far into the future the plant would have to be deferred until the growth in electricity demand
justifies resumption of construction. Another consideration is that for many utility systems the scheduled addition of planned nuclear capacity could be justified solely on
the basis of the displacement of higher cost generation from existing oil-fired and/or natural gas-fired capacity.
However, if a utility is experiencing difficulty in financing new capacity, a reduction in its forecasted peak load growth will make nuclear plant cancellations all the more
attractive by improving the utility's near-term financial position without jeopardizing its legal obligation to serve its customers.
Financial Constraints
Because of their greater flexibility in setting electric rates, publicly owned utilities can more easily cover increases in their operating costs than can their privately owned
counterparts. Consequently, limitations on capital available for new construction is predominantly a problem faced by investor-owned utilities — the segment of the industry which provides about three-fourths of the Nation's electricity. Investor-owned utilities claim that constraints on raising capital were solely responsible for the cancellation of five nuclear units and contributed to the cancellation of 39 other units.
Over the past 17 years, the amounts of capital investment required annually to sustain the construction programs of investor-owned utilities dramatically increased. As a
result, these utilities must now rely on the capital markets for over half of their new capital requirements, whereas in the 1960-1965 period only 30 percent of their capital
requirements were met from external sources. Unfortunately, this increased reliance on the capital markets has occurred during an era when utility bond and preferred stock
coverage ratios have fallen perilously close to their minimum indenture limits, and most utility common stock prices have fallen well below their respective book values.
Although the unfavorable capital market conditions have not precluded electric utilities from raising funds through the sale of common stock, such sales have harmed utility investors by diluting earnings per share and depressing common stock prices even further.
To limit such devaluation, utility managements have a strong incentive to curtail investment, a strategy which appears to have been widely adopted within the industry.
Limited capital availability is a valid reason to cancel planned generating capacity of all types, but nuclear plants are particularly vulnerable because of their longer lead
times, higher capital costs, and greater uncertainty over what those costs will ultimately be.
Regulatory Changes and Uncertainty
Utility spokespersons stated that continuously changing regulations, licensing delays,and uncertainty regarding future standards for nuclear plants, although not solely
responsible, substantially contributed to the cancellation of 37 units. The experience of operating nuclear power plants over the past 15 years has revealed many unforeseen safety- and health-related problems requiring correction and continuing oversight. Furthermore, it appears that the safety regulatory process was not prepared to deal with problems in an efficient manner. Perhaps the most familiar example of this was the 10-month moratorium on the issuance of operating licenses and the promulgation
of new rules requiring the completion and approval of emergency evacuation plans prior to licensing, both of which occurred in response to the Three Mile Island accident.
Although many utilities cited the regulatory climate as a primary reason for some plant cancellations, this reason alone is insufficient justification. It can, however, create
sufficient conditions for cancellation by increasing planning lead-times and construction costs. The former impact may force reliance on a shorter lead-time alternative to ensure meeting the utility's projected load growth. The latter impact may reverse the generation economics of the nuclear power plant relative to other alternatives — particularly coal-fired power plants. In addition, increased construction cost due to regulatory factors exacerbates the impact of financial constraints.
Reversal of Economic Advantage
The utilities reported that 18 nuclear uinits were cancelled partly, or solely, because the economics of alternative generation sources became more favorable. During the
period, 1967 to 1977, when the utilities initially made commitments to construct these units, nuclear power appeared to offer the cheapest new source of baseload generation. However, during the interim period covering the normal planning and construction lead times of these plants, as well as unanticipated delays, the economic advantage of these units was continuously eroded. An EIA study released in mid-1982 concluded that new nuclear plants entering service in 1995 would offer a significant cost advantage over coal-fired plants only in New England and the South Atlantic Regions.
Denial of Certification by the State
State siting authorities forced the cancellation of six nuclear units by denying them certificates of convenience and necessity. In general, five major reasons were cited
for denials of certification:
• Forecasted demand for electricity was too low to justify the additional capacity.
• The plant was not the least-cost alternative.
• The utility could not finance the plant's construction.
• State law prohibited the siting of the proposed nuclear plant.
• Political opposition.
The first two reasons have been discussed above. The third reason is not a sufficient rationale because an investor-owned utility's ability to finance construction is essentially determined by its ability to raise electric rates, which is under the control of the utility's regulatory commission. Thus, if a new power plant is considered to be
desirable, the required financial resources can be assured by the commission granting prompt and adequate rate relief.
A number of States have enacted laws that place prohibitions on the siting of proposed nuclear power plants. For example, in 1976, California passed a law prohibiting the
certification of sites for nuclear power plants that were not already under construction until the issues of fuel rod reprocessing and nuclear waste disposal are resolved and
underground/berm containment is studied. In addition to ratepayer advocates, possible sources of political opposition to nuclear plant construction include conservationists, environmentalists, and businesses with vested interests in other fuels — particularly coal.
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