"The most profound effect on electric utilities through the year 2000 will probably be a completely new restructuring of the industry. Emerging will be a small number of super G&T [generating and transmission] organizations. Utilities as we know them today will be relegated to the distribution function." President Richard M. Nixon, 1972
The groundwork for the emergence of super-electric utilities as envisioned by President Nixon is being implemented as a strategy for an economically beleaguered nuclear industry to survive in an increasingly competitive market. Nuclear utilities operating aging and historically poor performing nuclear reactors, often outside of federal safety regulations, are the first candidates for this consolidation.Corporations are now emerging for a consolidation of mega-proportions under an international nuclear utility agenda. Congress and the Internal Revenue Service are looking at an industry proposal to amend current U.S. tax law to provide domestic and foreign utility interests with yet another nuclear power subsidy. This time it is a tax dodge where nuclear utilities are lobbying to exempt themselves from their fair share of tax responsibilities in order to unload uneconomical and dangerous nuclear power stations.
In order to meet the competition to generate electricity, nuclear utilities across the country are already receiving legislated bailouts to pass on to an essentially indentured consumer tens of billions of dollars in "stranded costs" boondoggled over decades of cost-plus nuclear power construction projects. With their cost recovery mechanisms guaranteed, utilities are now selling their nukes to newly emerging corporate entities through licensing transfers in what amounts to a corporate shell game with price tags a fraction of their original construction cost.
In one sale, Niagara Mohawk Power Corporation sold Nine Mile Point Unit 1 and 59% of Unit 2 to a USBritish consortium for $163.3 million. Nine Mile Point Unit 2 alone cost $6.3 billion to build. Pennsylvanias surviving Three Mile Island Unit 1 sold to the same US-British utility, Amergen, a merger of Philadelphia Electric and British Energy, for about $20 million less the cost of the nuclear fuel at the reactor. Boston Electric Company sold its Pilgrim nuclear power station to Entergy for the same price. Each of these reactors had book values between $500-$700 million dollars.
In industrys terms, to meet competitive markets through the conglomeration of more reactors under fewer owners, it is "essential" and "paramount" to change tax law to provide the corporate buyers and sellers of nuclear power stations relief from tax liabilities incurred during license transfers. Specifically, the utilities are looking to avoid tax liabilities associated with the transfer of large decommissioning funds set aside to clean up reactor sites after the reactors are permanently closed.
Since 1984, U.S. tax policy has provided tax-deductible status for contributions made into "qualified funds" allocated to clean up radioactively contaminated nuclear power station sites. Interest from the investment of these funds is taxed as income. These "qualified funds" are regulated through public utility commissions. If a nuclear power station is sold from one regulated public utility to another public utility, the tax status of the decommissioning fund is unaffected. But when the reactor is sold to a non-regulated utility, such as a corporate entity outside state jurisdictions or a foreign ownership, as in the case of Amergen, there is no longer a public utility commission to set electric rates or a cost of service amount. The decommissioning fund is thus transferred into a "non-qualified fund" which under current IRS law subjects the selling utilities to higher corporate capital gains tax.
Under federal regulations, all utility decommissioning funds must be segregated from company assets and outside the utility administrative control to ensure that the funds are available and directed towards actual decommissioning operations. The selling utilities would need to pay this tax from general revenue funds and this constitutes a disincentive to reactor sales. In selling Three Mile Island-1, General Public Utilities Nuclear has opted to remain the holder of decommissioning funds rather than pay tens of millions of dollars in taxes.
The nuclear industry and its promoters are now looking for a re-interpretation of tax law that essentially translates into subsidizing poor economic and safety performers. While the Nuclear Regulatory Commission recognizes that the current tax law would not diminish the amount in the decommissioning funds, a number of reactors under its oversight are currently so marginal to safe performance that any added tax burden might affect further safe operation. The agency, in arguing for a tax break, states that an exemption is needed to ensure that "negative tax treatment" of nuclear utilities does not result in situations where "opportunities to enhance plant performance and improve safety could be missed." But it would be better for the public living near reactors in such marginal condition to shut them down rather than provide them with new taxpayer subsidies.
Meanwhile Congress has drafted the Nuclear Decommissioning Restructuring Act (H.R. 2038) to amend the IRS tax code that deals with station decommissioning. The bill provides for the tax free transfer of decommissioning trust funds from the "regulated monopoly" that fostered a nuclear fiasco to an "unregulated monopoly" of nuclear power reactors guaranteed a stranded cost recovery which undermines a truly competitive market and binds consumers to nuclear utility payoffs regardless of their choice of electricity provider.
At issue is whether taxpayers should now pay to reward the nuclear industrys economically bad performers and safety violators with tax incentives to facilitate the sale of aging and deteriorating reactors at bargain basement prices. Paul Gunter, July 1999
For more information on how you can get involved contact: Nuclear Information and Resource Service, 1424 16th Street NW, #404, Washington, DC 20036. 301-270-6477; fax: 301-270-4291; www.nirs.org, nirs@nirs.org.