Under the leadership duo of Bill Sansom’s tenure as the Tennessee Valley Authority’s Board Chairman and Tom Kilgore’s years as CEO, we have witnessed some of the largest financial mistakes ever made in the history of the agency. The Kingston Coal Ash Disaster in 2008 will end up costing TVA more than $1 billion in clean-up and corrective actions as a result of that energy disaster. And now we’ve learned that this TVA leadership “missed” the ever-increasing cost of completing the second reactor at the Watts Bar nuclear plant in Tennessee by about $2 billion dollars.
Last week, when the TVA Board of Directors convened in Greeneville, TN, the task before them was to carefully evaluate and consider next steps for the Watts Bar 2 nuclear reactor project. Over the past several months Tom Kilgore had been releasing information about a major cost overrun and multi-year delay in schedule. The CEO’s request for another $1.5 to $2 billion in construction costs as well as a three-year schedule extension should have raised eyebrows and provoked considerable deliberation. It seems the board members thought otherwise. Despite significant information calling into question the management oversight, and despite the ongoing unresolved issues at the second reactor located in the shadow of the Watts Bar dam, the board unanimously approved both the budget increase and the construction extension as though they were approving minutes from a past meeting.
After all, what’s another couple billion dollars between friends — especially when it’s coming out of someone else’s pocket?
Based on these recent decisions, estimates are that the new reactor will not likely be completed until December 2015, three years behind the last “updated” schedule and 37 years behind the first TVA schedule on the Watts Bar reactors. In fact, according to TVA’s presentation, the estimated completion schedule included a possible June 2016 date. Furthermore, approval of the $1.5 to $2 billion increase in construction costs has effectively doubled the 2007 budget estimate of this proposed reactor project. This is a typical pattern on nuclear power construction: the project is started with a low estimate, typically stated as too good not to act on. But then things get rolling, schedules slip, costs explode and proponents say, “Well, we can’t stop now that we’re so far into the project! All those overruns are just sunk cost.”
Sansom stated at the meeting, “We missed, I’m not sure how we thought we could do it for the $2.5 billion back in 2007.” I think it’s pretty easy to figure out how they missed it though. There are two major reasons, and neither are pretty. First, the Chairman and the other 2007 board members were intentionally misled with a low-ball estimate from TVA staff and a contractor with a serious conflict of interest. Second, the board members did not know enough to ask the right questions or seek a truly independent review of the estimates.
But TVA consumers are the real losers in this battle, the ones who will have to endure the costly consequences of these mistakes. Though Kilgore maintained during the Q&A after the board meeting that TVA doesn’t expect to raise rates significantly, Moody’s Investors Services analysis suggests otherwise. Moody’s April 9 report concluded that the substantial cost overruns will increase pressure on rates and may deplete the existing debt capacity under TVA’s federally mandated $30 billion debt ceiling. Moreover, it’s actually worth noting that $4.5 billion would not be the total price tag for this project: nearly $2 billion was previously invested back in the 1980s before TVA’s board voted to mothball the project. When you consider those older investments, if completed, reactor Unit 2 will come in closer to $6 billion.
It is particularly important to keep in mind that Watts Bar has been “in the works” since the early 1970s. Should reactor Unit 2 ever come online, it can hardly be considered “new.” Early testimony from a former TVA Manager of Power provides an overview of the agency’s immersion with all things nuclear, which sounds eerily familiar to present day. It’s very disconcerting now to read statements from the 1970′s such as this, “TVA is well qualified to finance the Watts Bar Nuclear Plant.” That was back when both nuclear reactors at Watts Bar were supposed to be operational by 1978 and were estimated to cost Tennessee Valley residents $685 million — literally over forty years ago. Since then, if you combine what was spent to complete Watts Bar reactor Unit 1, which cost over $6.4 billion, with what has been spent already and estimates on what it’ll take to complete reactor Unit 2, nearly $12 billion will have been committed to this troubled nuclear plant.
So even though it appeared that the board barely raised an eyebrow before approving such an incredible request, we as ratepayers need answers. Where’s the accountability for such colossal multi-billion dollar mistakes?
TVA has shown a lack of concern for this before and has, to date, avoided holding anyone accountable for the coal ash disaster in 2008. You can argue that many of the decisions that led to the Kingston Coal Ash Disaster predated both Kilgore and Sansom, even though it happened on their watch. But the same cannot be said about Watts Bar 2: all of the decisions regarding this resurrected project have been made and supported during their tenures. Kilgore and Sansom have been the biggest cheerleaders for Watts Bar 2 since the beginning: from the time they first authorized Bechtel Engineering — who were already caught overcharging TVA a few years earlier — to do a feasibility study on recovering the costs of Watts Bar 2; to approving Bechtel’s subsequently low-balled cost estimates to complete Watts Bar with no independent review; and all the way up to last week’s public admittance of these glaring mistakes, flippantly referred to as a “miss.”
Kilgore has already said that there will be no one held accountable for these mistakes, only “lessons learned.” What about addressing the lack of transparency? TVA staff said they were unaware of how bad the situation was at Watts Bar 2 until around October 2011, when they started a “review of the project.” With billions of dollars on the line, how is it possible they were working for nearly six years without realizing they had fallen so far behind and gone so over budget?
If you believe as I do that TVA leadership staff suffers from serious institutional biases in support of nuclear power, then you’ll agree that they are always open to hearing proposals for new nuclear projects. Thus it appears the strategy is to get new board members hooked on the next nuclear project as quickly as possible, before revealing how badly previous nuclear investments have screwed up. It’s awfully convenient that these major problems at Watts Bar didn’t come to light until two months after the TVA board approved the budget last August for completing reactor Unit 1 at the troubled Bellefonte nuclear site in Alabama, another 1970′s vintage TVA facility.
If the board had known at the time the full extent of the issues at Watts Bar, one would hope that the outcome of the Bellefonte decision might have been different. Former TVA Board member Mike Duncan did push through a requirement that construction not start at Bellefonte until the nuclear fuel was loaded at Watts Bar 2, an indication that he may have had at least some concerns and reservations. But the question remains: did the board have the necessary information needed to make a prudent decision on Bellefonte, given the serious management issues at Watts Bar of which they were wholly unaware?
Bringing some wisdom from TVA’s history, former TVA Board Chairman S. David Freeman spoke before the board and on a press conference we hosted last week. Chairman Freeman, who has successfully run a few utilities, spent 20 years of his professional career at TVA, as an engineer, as a lawyer and finally as a board member. As someone long-supportive of TVA’s efforts to improve the life and welfare of citizens in the Tennessee Valley, Freeman was truly saddened by what he saw as developing at TVA, and he said as much during the meeting.
Thirty years ago, Freeman personally voted to cancel eight of TVA’s 17 proposed nuclear reactors because of cost overruns, changing market dynamics and potential rate increases. Now, he says it’s like “having a bad dream” all over again, as if history is repeating itself. He compared his return to speak before the board to Rip van Winkle waking to an old world of TVA chasing nuclear power at the expense of citizens in the region.
There is no evidence that the TVA board is doing the kind of due diligence necessary for a multi-billion dollar decision such as this. As Freeman said during the board meeting, they “never asked any penetrating questions.” Their lack of oversight makes it look as though Kilgore and Sansom are drifting from one financial blunder into another. And now, they’re setting up the Bellefonte reactor as the next blunder in line, even though there are extremely serious questions about the project — including whether or not TVA even needs the power.
Last year, we commented that TVA did a good job of designing an Integrated Resource Plan (IRP) that involved the public. There were a few areas of disappointment, however, including overestimating the price of natural gas, their insistence on keeping the proposed “low cost” Bellefonte nuclear reactor and their lack of real goals for renewable energy.
But now several major changes have occurred in the energy field since TVA’s IRP was released just one year ago. On the generation side, natural gas prices have hit historic lows and are prompting utility planners to see natural gas as a more attractive option than new coal and nuclear projects. Wind is becoming a more viable option as well, and solar prices continue to drop and are forecasted to continue their steep decline. On the demand side, the region’s load growth has been significantly lower than originally projected due to a combination of the economic recession, lack of new home construction and other factors. Mild weather and increased investments in energy efficiency are also contributing to the decrease in power demand which, in turn, has lead to a decrease in the need for new power plants.
As Freeman reiterated during our press conference, “Nuclear power is not a religion, it’s a business decision.” Bill Sansom and Tom Kilgore have lead TVA to this point, but we have several new additions to the TVA board. These new board members have had enough time to start asking the tough questions about where the agency is going, given the changing market dynamics and misinformation. The board is not supposed to simply rubber stamp the staff and chairman’s wishes…right?
The Truth: Natural gas prices are game-changing. Renewable energy prices are falling. Regulations on coal-fired plants are going to require future retirements. The economic recovery is slower than projected. Energy efficiency is impacting load growth already and, if properly pursued, will greatly decrease power demand.
Given the misinformation on Watts Bar, Bellefonte’s last cost estimate MUST be reviewed. TVA should pull stakeholders together who participated in the IRP process to share updated model runs on these changing dynamics. Good decisions will stand up in full sunlight. The new TVA board members are being pulled further into the TVA nuclear power black hole, and we cannot let this happen. Good leadership requires a review of where TVA is being led. Billions of dollars and the well being of our region are at stake.
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