Commercial Nuclear Power has been in the headlines for the past few weeks due to the tragedy in and a (SB1176) in the Connecticut State Legislature. Unfortunately, there is a greater chance that Millstone Power Station will be shut down by the consequences of the action of the State Legislature than by any impact from the casualty in Japan.
SB1176 is Titled “An Act concerning Electric Rate Relief” but in its first section it imposes a new tax on nuclear generation of two cents per net kilowatt hours of electricity generated and uploaded to the bulk power grid. Proponents of the bill state that this will not impact Connecticut Rate Payers since Dominion sells its power in negotiated contracts to customers outside the state. These proponents assume that Dominion will absorb the tax to keep their rates competitive or they will raise the rates to these customers but this will have no impact on local electric rates.
It is estimated that the tax on Millstone’s output will generate $330 million in revenue annually based on an annual generation of over 16.5 million megawatt hours of electricity by Millstone Station. There is no way that any business would willingly absorb a cost of $330 million with no return on investment. The company would either pass the cost to the customer, sell the company to some group willing to absorb this new cost of doing business, or simply go out of business.
The State Legislature deregulated power generation in Connecticut in 1998. As part of that bill, the original owner of Millstone Power Station, Northeast Utilities (NU), was forced to get out of the generating business although the company remains in the distribution business through Connecticut Light and Power and United Illuminating. Since NU was in the final steps of recovering from operational mismanagement at Millstone in the mid nineties, it was more than willing to get out of the generating business.
Dominion, a Virginia based Power company, bought Millstone at a state-sanctioned auction for around $1.3 Billion in 2001. According to testimony before the Energy and Technology Committee by Dan Weekly, Dominion Vice President for Governmental Affairs, since the purchase Dominion has invested over $600 million in operational improvements “in order to increase margins of safety, attain greater efficiency, and improve reliability at Millstone.”
This investment has meant that Millstone Station has improved reliability so that the annual output is more than when Northeast Utilities was operating three plants at the station. Millstone 2 was operational 86% of the time in 2010 and Millstone 3 was operational 89% of the time. Dominion also made the necessary investments to extend the useful life of Millstone Two to 2035 and Millstone Three to 2045. It also means that the tax contribution of Millstone to the Town of Waterford has remained at 30% despite the allowed equipment depreciation schedule. In fact, the assessed value of Millstone has gone up by one or two percent each year.
Millstone Station also employs around 1100 employees and purchases approximately $200 million of goods and services annually from local vendors.
Based on this performance, the Connecticut State Legislature should be looking for ways to encourage Dominion to continue to increase plant safety, reliability, and performance and consider increasing its investment in Connecticut by constructing another base load plant on the site. Instead, the legislature is considering a bill that may lead to the shutdown of one or both of the plants at Millstone Station, the loss of high paying technical jobs, and the loss of much of the local purchases. Waterford and neighboring communities would lose the Millstone employed residents who serve in local government and buy goods and services from local retailers.
More importantly, the nation would lose one or two base load electrical generators and Connecticut would be even more reliant on natural gas as the supplier of electricity. Since 1998, natural gas has grown as the energy supplier as oil has decreased. It is important to note that there is no natural gas in New England. All of it must be imported from other states or abroad. While natural gas prices are currently very low when compared to oil or other sources of energy, there is no guarantee that this will remain the case. It is important that Connecticut, and all of New England, diversify fuel sources to prevent any further increase in electrical rates. Nationwide, according to a 2007 study, 50,000 Megawatts of new nuclear plants are needed to maintain the existing energy supply diversity as the existing 104 nuclear power plants reach the end of their extended lives between 2035 and 2055. Since it currently takes ten years to license and then ten years to build a new nuclear power plant, the nation needs to be taking action now to make up this impending gap in electrical power.
According to reliable sources, Dominion is not bluffing when their officials announce that one or both of Millstone Power Station Plants will shut down if the tax on nuclear generation is passed in its current form because the tax will make operating the plants too expensive. A look at Dominion’s 2010 Annual Report posted on the http://www.dom.com, shows that “Expectation of future success is predicated on the continuation of our regulated infrastructure growth plan, which was introduced in 2006.” (page 10 of the report). The report also comments that “Virginia is one of the best states for business…Virginia continues to be largely recession-resistant. Its economy continues to grow.” (page 14 of the report). “(Dominion) will continue to seek a combined construction and operating license (COL) from the Nuclear Regulatory Commission, which we expect to obtain in 2013…A decision to proceed with a construction schedule at North Anna will not come until we approach receipt of the COL” (page 16 of the report). There is no comment or consideration of expanding the “merchant fleet” of power plants which include Millstone Power Station.
It seems that unregulated generation has not been the profitable business that was expected when Dominion purchased Millstone Power Station in 2001. According to the 2010 SEC Form 10K that is posted at the Dominion web site “Dominion’s merchant power business is operating in a challenging market, which could adversely affect its results of operations and future growth.” (Page 24 of SEC Form 10K). The Form 10K notes that the market is driven by the “cost of natural gas plus the cost to convert the fuel to electricity.” (page 24). The report also notes that, on an after tax basis the merchant generation margin was a loss of $209 million in 2010 when compared to 2009 (Page 40 of SEC Form 10K). There is no way to tell if this loss is a result of Millstone operations since there is no breakdown by individual power generator.
Based on the above information, there is little incentive for Dominion to remain in the unregulated market or make a large investment in the merchant plants. The addition of a $330 million tax expense will only exacerbate this situation. I doubt that either the state or Dominion will be able to find a buyer for the plants to keep them operating. This is not how to say that “Connecticut is open for business.”
The SEC Form 10K for 2010 also shows that the estimated cost of decommissioning Millstone 2 is $651 million and decommissioning Millstone 3is $680 million in 2010 dollars. The funds currently in trust for the decommissioning are $385 million for Millstone 2 and $374 for Millstone 3. (Page 12 of SEC Form 10K). If the time frame for decommissioning Connecticut Yankee in Haddam Neck is an example, Dominion could decommission Millstone Power Station for the cost of two years of the $330 million in taxes.
Again, the shutdown of Millstone Power Station would have a significant impact on Waterford due to loss of tax revenue and the skilled jobs at the station but will also mean that Connecticut will lose two base load electrical generators which will drive the cost of electricity even higher.
State Senator Andrea Stillman and Representative Betsy Ritter are sponsoring a public meeting regarding Millstone and the Fukushima disaster on Monday April 11, 2011 at 7:30 PM in the Waterford Town Hall auditorium. I am sure that there will also be some mention of the impact of SB1176 during that presentation.