The Real Meaning of Kewaunee’s Demise

A commentary by Michael Vickerman, Director, Policy and Programs at RENEW Wisconsin: 

 Shock waves reverberated across the Upper Midwest when Dominion Resources announced in late October that it would permanently shut down its Kewaunee nuclear generating station in early 2013. Operational since 1974, the Kewaunee station, located along Lake Michigan 30 miles east of Green Bay, currently generates about 5% of the electricity that originates in Wisconsin.

Virginia-based Dominion, which bought the 560-megawatt Kewaunee plant in 2005 from two Wisconsin utilities, attributed its decision to its inability to secure long-term power purchase agreements to keep the plant going. Without securing purchasing commitments from utilities, Dominion would have to sell Kewaunee’s output into the regional wholesale market at prices well below the plant’s cost of production.

While the pricing environment for all bulk power generators is nothing short of brutal these days, Kewaunee carries the additional burden of being an independently owned power plant, since the entities most likely to buy electricity from that generator—utilities--have power plants of their own that compete for the same set of customers. And a growing number of these utility-owned generators burn natural gas, which is currently the least expensive generation source in most areas of the country.

Dominion’s decision comes down to simple economics. Wisconsin utilities believe that over the foreseeable future natural gas will remain cheap and supplies will remain abundant. That would explain their unwillingness to enter into long-term commitments with Dominion, even though Kewaunee recently acquired a 20-year extension to its operating license and does not need expansive retrofits to comply with environmental standards, unlike a host of utility-owned coal plants in Wisconsin.

But even if Dominion’s managers were convinced that natural gas prices have nowhere to go but up in 2013 and beyond, the company, lacking a retail customer base in the Midwest, could not risk producing power below cost while waiting for the turnaround.

Wisconsin utilities have placed heavy bets on natural gas in the expectation that it will remain the price-setting fuel for years to come. Over the last 12 months, they have bought several combined-cycle generators from independent power producers. Buying power plants enables them to pass through their acquisition and operating costs directly to their customers while generating returns to their shareholders. I suspect these utilities are anything but broken up over the impending demise of a nonutility competitor that could have supplied electricity to Wisconsin customers for 20 more years.

But there is another side to this story; the low-price energy future that Wisconsin utilities are embracing can only materialize if natural gas extraction companies continue to sell their output below production costs. This expectation is unrealistic, given the massive pain being inflicted on these companies in the form of operating losses, write-downs, and credit rating downgrades.

Don’t just take my word for it, ask Exxon Mobil ceo Rex Tillerson, whose company spent $41 billion during the shale gas boom to acquire XTO, a large gas producer that is now yielding more red ink than methane. As reported in a recent New York Times article, Tillerson minced no words in assessing the impact of its recent misadventures on the company’s bottom line. “We’re all losing our shirts today,” Tillerson said. “We’re making no money. It’s all in the red.”

Much of the industry’s woes are self-inflicted. The lease agreements that drillers eagerly signed during the height of the shale gas boom obligate them to extract the resource by a certain deadline, regardless of whether such activity is profitable. That these companies cannot disengage quickly from existing leases is greatly diminishing their appetite for exploring new natural gas prospects. Until a pricing turnaround occurs, they will refrain from spending money on exploring new resource provinces like Ohio and Michigan.

Sooner or later, this slowdown in exploration activity will tip the supply-demand equation in the opposite direction, resulting in lower-than-average gas storage volumes. Barring a repeat of last winter’s unusually mild weather, the crossover point should occur around January 1st . But with so many balance sheets in tatters from this highly unprofitable market environment, nothing short of a strong and sustained price increase will be required to persuade drillers to start taking risks again.

When this corrective price increase begins rippling through the electricity markets, it will be interesting to observe how the customers will respond. Right now Wisconsin utility managers are convinced that they are making the right call on natural gas. So completely have they swallowed the shale gas “game-changing” mystique that they were willing to let a 560 MW nuclear plant fall out of the supply picture for good. In this brave new world of theirs, gas is the new coal, and resource diversity is passé.

In the aftermath of Dominion’s announcement, a few commentators have defended the impending closure as a textbook example of how markets work. But this view ignores the delusional thinking that sent shale gas extraction into overdrive, causing prices to plunge below the cost of production. The real game-changer, as it turns out, here was not the emergence of “fracking” technology but the industry-generated public relations campaign that implanted the narrative of a nation awash in cheap natural gas into virtually every American cranium. But as we now see, this narrative has boomeranged on the natural gas industry, and they are paying for their current woes in ways that guarantee a pronounced pendulum swing in the direction of higher prices.

The question going forward is: will this narrative also boomerang on Wisconsin electricity users, after the last employee leaving Kewaunee turns out the lights?

 Michael Vickerman is program and policy director of RENEW Wisconsin, a sustainable energy advocacy organization. For more information on the global and national petroleum and natural gas supply picture, visit previous posts Madison Peak Oil Group’s blog: http://www.madisonpeakoil-blog.blogspot.com. This commentary is also listed on RENEW Wisconsin's blog: http://www.renewwisconsin-blog.org/

Expansion of Point Beach nuclear plant questioned

From an article by Tom Content in the Milwaukee Journal Sentinel:

Groups say state has enough electricity

Wisconsin doesn't need expanded power output from the Point Beach nuclear plant because the state has more than enough electricity to meet its needs, two advocacy groups said in a filing with the Nuclear Regulatory Commission.

NextEra Energy Resources Inc. has proposed expanding the total power output from the two-reactor plant by 17%. The plant supplies electricity to Milwaukee utility We Energies.

In a filing with the NRC, the Wisconsin Citizens' Utility Board and Clean Wisconsin raise questions about the plan, saying the NRC is relying on outdated information about the plant and its importance to the reliability of Wisconsin's power grid.

The NRC said the plant's output is needed to meet demand for power that's growing by 2% a year, citing a 2008 Wisconsin report. But the recession cut demand for electricity, and the state said the growth rate in demand has slowed to 1% a year, the groups say.

The groups also say the issue is "outdated and inaccurate" in contending that the project, known as an uprate, is needed in light of a weak transmission grid that has led Wisconsin to import power from Illinois.

But that is no longer the case, following billions of dollars of investment by American Transmission Co. in the eastern Wisconsin power grid and construction of new power plants, the consumer and environmental group said.

"The proposed . . . [updgrade] would actually result in needing to build more transmission in Wisconsin to enable (Point Beach) to export the uprate power out of state," the groups say.

American Transmission Co. has proposed a $173 million upgrade of the transmission line network in the Manitowoc County area to enable the full output of the nuclear plant to reach the rest of the power grid.

In light of the state's excess power supply, the PSC last year opened an inquiry into whether power plants should be mothballed or idled. Utilities say demand for power is expected to ramp back up as the economy improves.

Say no to revving up rickety reactors

From a column by John LaForge of Nukewatch, a Wisconsin-based organization, in The Capital Times:

The owners of two 40-year-old nuclear reactors at Point Beach, on Lake Michigan north of Two Rivers, want to increase the power output for each unit by 17 percent -- from 1,540 megawatts to 1,800.

The gunning of rickety old nukes is getting a green light all over the region.

The Monticello reactor, 30 miles from Minneapolis, will boost its output to 120 percent of the original licensed limit -- from 613 megawatts to 684. Monticello’s been rattling along since 1971, and it rattles badly. In 2007, a 35,000-pound turbine control box (6 feet by 6 feet and 20 feet long) broke its welds and fell onto a large steam pipe that was cut open, causing the loss of so much pressure that an automatic reactor shutdown was tripped. Decades of intense vibration and poor welding were blamed for the crash. The reactor had been operating at 90 percent power. So why not push the limits to 120 percent?

In 2009 the federal Nuclear Regulatory Commission rejected claims that the accident record at the two Prairie Island reactors, south of Minneapolis, is so bad that its license extension should be denied. In May 2006, one of them accidentally spewed radioactive iodine-131 gas over 110 of its own workers, who inhaled it. Internal radiation poisoning is the kind for which there is no decontamination. Even so, the NRC could soon OK letting the Prairie Island jalopies run until 2033 and 2034, respectively, rather than shut them down in 2013 and 2014 as the license now requires.

Back in Wisconsin, Point Beach’s “extended power uprate” (EPU) plan was published in the Federal Register by the NRC Dec. 10. The draft environmental assessment and “finding of no significant impact” are hair-raising. The public has until Jan. 8 to comment.

Should we be skeptical? Point Beach has received two of only four “Red findings” -- the worst failure warning available -- ever issued by the NRC. In 2006, the NRC found that operators had harassed a whistle-blower who documented technical violations. In 2005, Point Beach was fined $60,000 for deliberately giving false information to federal inspectors. In May 1996, it was the site of a potentially catastrophic explosion of hydrogen gas that upended the 3-ton lid on a huge cask filled with high-level radioactive waste. The lid was being robotically welded when the gas exploded.

Energy reform energizes debate between 88th Assembly candidates John Klenke, Jim Soletski

From an article by Scott Williams in the Green Bay Press Gazette:

A failed attempt at comprehensive energy reform in Wisconsin is energizing the race for 88th Assembly District in Green Bay.

Rep. Jim Soletski, the Democratic incumbent and a chief sponsor of the rejected bill, says he hopes to try again at energy reform.

Republican challenger John Klenke, a retired Schneider National trucking executive, opposes Soletski's efforts, which he says could become an "albatross around our necks."

The two candidates are vying in the Nov. 2 election to represent the 88th District, which includes most of Green Bay's east side and a small portion of the west side.

Soletski, who is seeking his third term, worked hard to pass the Clean Energy Jobs Act and its mandate that 25 percent of Wisconsin's power come from renewable resources by 2025. Despite months of effort by him and other backers, the measure died in committee this year.

Soletski, a former nuclear power plant worker, said he would, if re-elected, propose a different version of the concept, requiring that 25 percent of all replacement energy development in Wisconsin involve renewable sources.

He said he favors, for example, lifting the state's ban on new nuclear power plant construction.

"Everybody has been kicking this problem down the road for 30 years," he said. "We have alternatives that we should be using."

Klenke, who is making his first bid for elected office, said he was motivated partly by Soletski's work on energy reform.

The challenger said he, too, supports more nuclear energy development, as well as natural gas exploration. But a state mandate on industry would drive up utility costs for everyone, he said.

"The government's role should be to do no harm," he said.

This manufacturer supports Wisconsin’s Clean Energy Jobs Act

From an article by Neal Verfuerth on BizTimes.com:

The sun is the source of all energy on Earth. Yet, here in Wisconsin, the direct use of the immense energy of the sun is not considered a renewable resource. Most people do not believe this when the concept is first introduced to them because they know - intuitively - there is nothing more renewable than the sun … at least for the next 5 billion years.

But it’s true.

It will take a majority vote of both the Assembly and the Senate at the state Capitol and the signature of Gov. Jim Doyle to make the sun’s direct energy a renewable resource in Wisconsin.

The good news is that a broad list of business, trade and environmental groups, including Orion Energy Systems Inc., are working with the governor and the legislature to make this happen.

“Direct-use” renewables such as solar hot water heating, geo-thermal heating and “light pipe” technology would soon be included in Wisconsin’s Renewable Portfolio Standard (RPS) as a result of the passage of either the Clean Energy Jobs Act (LRB-3883/1), or independent legislation authored by Sen. Jeff Plale and Reps. Jim Soletski and Ted Zigmunt (SB273/AB401).

The Renewable Portfolio Standard (RPS) identifies those technologies defined as “renewables” in our state.

Why is this good for the people of Wisconsin? Well, the new law will create jobs, reduce our dependence on fossil fuels (Wisconsin imports all of its fossil fuel resources from out of state) and dramatically reduce the emission of greenhouse gases and other health threatening pollutants.

Report: Nuclear power will set back race against climate change

From a news release issued by Wisconsin Environment:

Madison, WI - Far from a solution to global warming, nuclear power will actually set America back in the race to reduce pollution, according to a new report by Wisconsin Environment. Leading environmental organizations, consumer groups and energy experts gathered today to release the report and call on state and federal leaders to focus on energy efficiency and renewable energy instead of nuclear power as the solution to global warming. . . .

Wisconsin Environment’s new report, Generating Failure: How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming, analyzes the role, under a best-case scenario, that nuclear power could play in reducing global warming pollution. Some key findings of the report include:

• To avoid the most catastrophic impacts of global warming, America must cut power plant emissions roughly in half over the next 10 years.
• Nuclear power is too slow to contribute to this effort. No new reactors are now under construction in the United States. Building a single reactor could take 10 years or longer. As a result, it is quite possible that nuclear power could deliver no progress in the critical next decade, despite spending billions on reactor construction.
• Even if the nuclear industry somehow managed to build 100 new nuclear reactors by 2030, nuclear power could reduce total U.S. emissions of global warming pollution over the next 20 years by only 12 percent -- far too little, too late.
• In contrast, energy efficiency and renewable energy can immediately reduce global warming pollution. Energy efficiency programs are already cutting electricity consumption by 1-2 percent annually in leading states, and the U.S. wind industry is already building the equivalent of three nuclear reactors per year in wind farms. America has vast potential to do more.
• Building 100 new reactors would require an up-front investment on the order of $600 billion dollars – money which could cut at least twice as much carbon pollution by 2030 if invested in clean energy. Taking into account the ongoing costs of running the nuclear plants, clean energy could deliver 5 times more pollution-cutting progress per dollar.
• Nuclear power is not necessary to provide clean, carbon-free electricity for the long haul. The need for base-load power is exaggerated and small-scale clean energy solutions can actually enhance the reliability of the electric grid.

To address global warming, state and federal policy makers should focus on improving energy efficiency and generating electricity from clean sources that never run out – such as wind, solar, biomass and geothermal power, according to Wisconsin Environment and the coalition groups that attended today’s event.

Nuclear power is a false solution to climate change

From a guest column by Al Gedicks in the Green Bay Press Gazette:

The argument that nuclear power can contribute to reducing harmful greenhouse gas emissions that cause global climate change ("Ban on new nuclear power plants should be lifted" Oct. 16, Green Bay Press-Gazette) is flawed for three main reasons.

First, nuclear power is not carbon-free electricity. At each stage of the nuclear fuel cycle, from uranium mining, milling, enrichment to construction, decommissioning and waste storage, nuclear power uses fossil fuels and contributes greenhouse gas emissions that accelerate global climate change. Compared to renewable energy, nuclear power releases four to five times the CO2 per unit of energy produced.

A recent study of solutions to global warming by Dr. Mark Z. Jacobson of Stanford University concluded that over its entire lifecycle, nuclear electricity emits between 68 and 180 grams of CO2-equivalent emissions per kilowatt hour, compared to 3 to 11 grams for wind and concentrated solar.