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Welfare-Case Companies: The Southern Company and Nuclear Energy


Think nuclear power is risky? That point is indisputable -- if you're talking about the economics.

When people think of risks associated with nuclear power, they tend to think of "The China Syndrome" and Three Mile Island. That is, most of us immediately think of the safety risks.

However, nuclear power is actually as much -- or more -- of an economic risk for those financing it. In fact, it's become widely accepted -- on the political left and right -- that nuclear power is not yet a viable source of economical energy without government subsidies.

Take the massive federal loan guarantees eagerly accepted -- and heavily lobbied for -- by energy companies that need the money to build new reactors.

In February, President Obama announced that the federal government would guarantee $8.33 billion in bank loans to Southern Company (SO) in support of its bid to build a pair of reactors in Georgia. (The company's proposal must first be approved by the Nuclear Regulatory Council.) NRG Energy (NRG) and Constellation Energy Group (CEG) have also been promised backing by Washington to fund new projects.

These guarantees would come from $18.5 billion in funds authorized under the Energy Policy Act of 2005, during the Bush administration. President Obama has since proposed tripling that figure to $54.5 billion.

"Why loan guarantees? Because six top investment firms told the Department of Energy in 2007 that they were unwilling to finance new reactors in light of the industry's horrible financial track record," Ellen Vancko, nuclear energy and climate change project manager for the Union of Concerned Scientists writes in an opinion piece for the New York Times. "Utilities don't want to take that risk, either. But both would consider new reactors if taxpayers assumed the risk -- in the form of federal loan guarantees."

Vanko elaborates:
Based on the industry's history of cancellations and defaults, both the Congressional Budget Office (2003) and the Government Accountability Office (2008) estimate that the average default risk on a federal loan guarantee for new construction could be as high as 50%.
Robert Hahn, a visiting senior fellow at the Smith School, Oxford University, and Peter Passell, editor of the Milken Review, have this to say:
What passes for energy policy is a Rube Goldberg construction, a machine powered by direct subsidies, tax breaks and mandates that is going in no particular direction. Is ethanol worth the cost in lost taxes and higher food prices? If General Motors' heavily subsidized plug-in electric car catches on, will there be enough electricity to keep them on the road on a hot summer afternoon? Don't ask Congress or the White House -- they don't have a clue.
And Jim Riccio, head nuclear policy analyst at Greenpeace, which is obviously equally concerned by the environmental aspect of nuclear energy, says of nuclear economics, "Warren Buffett's corporation Mid American has already determined that new nuclear power doesn't make economic sense. The president should have listened to 'the World's Greatest Investor' rather than nuclear industry lobbyists."

Additionally, the Harvard International Review states that "about 800 large reactors would have to be built around the world by 2050 just to achieve a significant reduction in the expected increase in carbon dioxide emissions. This would require building as many as one reactor every 18 days for 40 years."

Achievable? Considering that it takes at least 10 years to construct a single nuclear power plant in the US (and that's an optimistic estimate, provided by the Nuclear Energy Institute, a trade group whose self-described objective is to "ensure the formation of policies that promote the beneficial uses of nuclear energy and technologies in the United States and around the world"), the answer to that question is, undeniably, no.

Jerry Taylor, a senior fellow at The Cato Institute, one of the most widely cited and influential critics of federal energy and environmental policy in the nation, sums it up in his succinct style:
Getting this industry off the government dole would finally force it to innovate or die -- at least in the United States. Welfare, after all, breeds sloth in both individual and corporate recipients. The Left's distrust of nuclear power is not a sufficient rationale for the Right's embrace of the same.

When the day comes that the electricity from solar or nuclear power plants is worth more than the costs associated with generating it, I will be as happy as the next Greenpeace member (in the case of the former) or MIT graduate (in the case of the latter) to support either technology. But that day is not on the horizon and government policies can't accelerate the economic clock.
When Cato agrees with Greenpeace, which agrees with AEI, which agrees with the Union of Concerned Scientists, which agrees with Wall Street, there's no better indication that the government has some homework to do on corporate welfare.
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