legislation. Some of the elements such as consistent backfit evaluations and preapproval of reactor designs and sites discussed in the regulatory section above will probably require at least strong congressional oversight and possibly legislation. Legislation that makes the process inflexible or restricts public access could be counterproductive. 4. Certify utilities and contractors. If efforts to improve reactor management are only partially successful, stronger measures could be warranted. A poorly performing utility can affect the entire nuclear industry through the response of the public and the NRC to incidents with safety implications. The NRC might consider withdrawing the operating licenses of utilities that do not demonstrate competence or commitment in managing their nuclear plants. Evidence of capability of the utility and its contractors might be made a prerequisite for a new construction permit to alleviate concerns of the public, investors, and critics about the quality and cost of the plant. 5. Support R&D on new reactors. Some new reactor concepts have features that, if proven out, could make them inherently safer than current operating plants, thus alleviating some of the concerns of the utilities and the public. If advanced LWRs do not appear adequate to overcome these concerns, then the availability of an alternative reactor, such as the HTGR,would be important. Research, development, and demonstration of these technologies will be necessary to make them available. 6. Address the concerns of the critics. Improved public acceptance is a prerequisite for any new orders. At present, the public is confused by the controversy over safety and is therefore opposed to accepting the risks of new reactors. The best way to reduce controversy would be to resolve some of the disagreements between the nuclear industry and its critics. This could be initiated by involving the critics more directly in the regulatory process. Involving knowledgeable critics in regulation or in the design and analysis of new reactors may be the only way to assure the public that safety concerns are being addressed adequately. 7. Control the rate of nuclear construction. Many of the concerns over nuclear power originated from the early projections of rapid growth, and expectations of a pervasive "nuclear economy." The present modest projections appear less threatening, but some people will oppose all nuclear power as long as a major resurgence is possible. Controlling the growth rate might alleviate these concerns, thus reducing the controversy, rebuilding public acceptance, and making some new construction possible. None of the options described above will be very effective by itself. Some could be very difficult to implement. It appears at least possible, however, that combinations of these options could contribute to a much more favorable environment for nuclear power. Whether any of these strategies would "work" is a function of several factors including: ⚫ the extent to which Federal policy strategies resolve the problems and make nuclear power more attractive, ⚫ the electricity demand growth rate and the eventual need for new powerplants, and ⚫ the improvement in designs and operations in the absence of policy initiatives. The future of the nuclear industry will be shaped by the evolution of these factors. The degree to which the Federal Government should become involved (the first factor above) depends on an assessment of the uncertainties surrounding the other two factors. Under some conditions (e.g., relatively rapid growth in demand for electricity, reliable operation of existing plants and improved technology available) a revival is quite possible. Under other conditions, even a strongly supportive policy strategy could fail. Successful implementation of any strategy will depend on how well the concerns of all interested parties have been addressed. The Uncertain Financial and Economic Future If significant new electric-generating capacity is needed in the 1990's and beyond, and if nuclear power is to provide a major fraction of that capacity, utilities must order reactors some time before the end of the decade. Utility executives will compare the reliability, safety, and public acceptance of nuclear power (issues that are explored in other chapters in this report) relative to other types of generating capacity, especially to coal. But above all, they will treat the question of whether to order a nuclear plant as a strategic decision to be taken in the context of expected demand for electricity and the current and future financial status of the utility. Utility ex ecutives will compare the risks and returns from construction of more nuclear powerplants with the risks and returns of several other options for meeting their public obligation to provide adequate electric power. This chapter will explore the elements of strategic choice for utilities that arise from the uncertainty of future rates of growth in electricity demand, the uncertainty of economic return on investment, and the uncertainty of construction and operating costs of nuclear powerplants. The chapter will also assess the regional and national implications of individual utility choices. THE RECENT PAST: UTILITIES HAVE BUILT FAR LESS Utilities have built far less new electric-generating capacity in the 1970's and early 1980's than they expected to a decade ago. In 1972, the peakyear of generating capacity forecasts, utilities overestimated construction in the last half of the 1970's by 25 percent and overestimated construction in the first half of the 1980's by 60 percent (46). Utility predictions of future generating capacity declined over the decade but still greatly exceeded actual construction. The actual generating capacity of 580 gigawatts (GW)* in the sumer of 1982 was about 75 GW lower than what had been forecast as recently as 1977 (70). Both nuclear and coal plants were canceled in the late 1970's and early 1980's, but nuclear plants were canceled in far greater numbers and with far greater cost in sunk investments. Over 100 nuclear units were canceled from 1972 to 1983, more than twice the number of coal units (29,35). Almost $10 billion (1982 dollars) in investment costs was tied up in the 26 sites (some with 2 units) where at least $50 million per site had already been spent (35). Another 11 nuclear units totaling $2.5 billion to $3 billion in construction *One gigawatt equals 1,000 MW (1,000,000 kW) or slightly less than the capacity of the typical large nuclear powerplant of 1,100 to 1,300 MW. GW as used in this chapter always refers to GWe or gigawatts of electricity. costs are expected to be canceled and another 5 units with $3 billion to $4 billion costs may be canceled (35,53). Of 246 GW of orders for nuclear plants ever placed, about 110 GW have been canceled. All of the 13 orders placed since 1975 have been canceled or deferred indefinitely and no new orders have been placed since 1978. Utilities expect to complete many of the nuclear plants under construction but have not planned to build any more. Utilities still, however, are planning to build new coal plants. A total of about 43 GW of coal construction is planned for completion from 1988 to 1991 (see fig. 3) but only 11 GW of nuclear capacity is planned (much of which is likely to be canceled) (68). One obvious reason for so many canceled and deferred plants is that from 1973 to 1982, electricity load grew at less than half the pace (2.6 percent per year) that it had grown from 1960 to 1972 (7.1 percent per year). Most utilities in the early 1970's used simple trend-line forecasts that took neither gross national product (GNP) or response to electricity price into account. They were unprepared for the change in electricity growth rates. Figure 4 shows a remarkable down ward trend in utility forecasts of future load growth. It is no surprise that utilities, making plans in the late 1960's and early 1970's, and unable to foresee the economic changes of the 1970's, planned to build more generating capacity than was eventually needed. Even with all the cancellations and deferrals, there was almost a 50-percent increase in electric-generating capacity from 1973 to 1982 while the average reserve margin* increased from about 21 percent in 1973 to about 33 percent (68,70). In between, the reserve margin peaked at about 37 percent as utilities completed and brought online plants that had begun construction before the slower load growth was recognized as the norm rather than as an anomaly (58). In addition to the slowdown in electric load growth, powerplants also have been canceled and deferred due to the widely acknowledged deterioration in the financial condition of utilities. At the beginning of the 1970's, utilities enjoyed good financial health. Almost 80 percent had bond ratings (Standard and Poors) of AA or AAA. Utility stock sold well above book value so that there was little difficulty financing new generating capacity from new issues of either debt or equity. By 1981, however, utilities were in a greatly weakened financial condition. Currently, there are no electric utilities with AAA bond ratings and less than a fourth with AA ratings. At its low point in 1981, utility stock sold on average at only 70 percent of book value. This meant that any issue of new stock to pay for new generating plant would dilute the value of the existing stock (see box A later in this chapter). The financial deterioration was influenced in part by the general financial conditions of the decade, especially the rapid rates of inflation and the poor performance of the stock market. Beyond the influence of general economic conditions, however, the financial status of utilities deteriorated because of the enor *Reserve margin" is defined as the percent excess of "planned resources" over "peak demand" where "planned resources" includes installed generating capacity plus scheduled capacity purchases less sales. |