Tuesday, October 30, 2007

Baloney detection for nuclear new builds

You can't tell the players without a scorecard!

In 2001 Michael Shermer, a columnist for Scientific American, introduced the practice of baloney detection which is the fine art of detecting fraud in the scientific and engineering realms. Schermer asks five questions which are appropriate for assessing the legitimacy of a claim. In the case of nuclear energy, baloney detection is needed for news about new builds.

Here are Schermer's questions applied to nuclear new build announcements.

* How reliable is the source of the claim? When a company says they are going to build a new nuclear power plant, are they new at the game or does the firm have an industry track record?
Does this source often make similar claims? Is the firm issuing multiple press releases to pump up its stock? Are there other indications the firm is all hat and no cattle?

* Have the claims been verified by another source? Has the firm filed a permit application to build the plant with regulatory authorities? What happened next?

* How does the claim fit with what we know about the way the world works? Is the firm a "first mover" plants in the U.S. which will build at an existing reactor sites to gain competitive cost advantages using infrastructure already in place. "Greenfield" sites are exciting prospects but unlikely.

* Has anyone disproved the claim or only sought supporting evidence? Is anyone with industry credibility saying the emperor has no clothes? While you can't realistically expect suppliers and trade groups to do this, if someone, besides a knee-jerk anti-nuclear group, sounds off, it is time to pay attention.

Box Score - 1 home run, 3 strike outs

So lets look at four recent announcements of new builds for nuclear reactions.

* NRG in Texas
* AEHI in Idaho
* Energy Alberta in Canada
* Transition Power in Utah

NRG is a home run and clearly passes the baloney detection test. Here's why.

* Public identification of investors, markets, and suppliers
* Reactor design is already approved by the NRC
* Filed a complete COL application with the NRC
* Co-located with existing reactors to take advantage of existing infrastructure
* Construction firms and suppliers have track records building nuclear power plants
* Arrangements with manufacturers of large forgings to get them on time and within budget
* Deals to sell electricity on an existing grid to committed customers
* Experience in the nuclear energy industry running nuclear reactors

The other three new build announcements are strike outs although the pitch count is high.

Alternative Energy Holdings, Idaho -- AEHI has not identified its investors, not filed an application with the NRC, and is proposing a remote, rural, greenfield location in southwestern Idaho with no transportation infrastructure nor capacity in the regional power grid to get the electricity to market.

AEHI identified a firm to raise $3.5 billion, but said nothing else about its financing other than to buy back its penny stock at $0.30/share down from an earlier high of $0.95. The firm hired to raise the money has no experience with investors for nuclear or fossil fuel plants. Prior deals are for self-storage units, convenience stores, gas stations, bars, and motels.

AEHI said it will file a COL application with the NRC in partnership with Constellation Energy and AREVA. In September NRC Chairman Dale Klein, speaking at a nuclear fuel conference in Boise, ID, told the Idaho Statesman that "AEHI is not on the agency's radar screen."

Update: In December AEHI said it had a second investment banker which would raise $150 million in startup funds. Like the first "banker," it has no experience with energy projects.

Energy Alberta -- The firm proposes to develop two reactors in partnership with AECL in the Tar Sands region, and said it had a "secret customer" who would use 70% of the nuclear plant's electricity on tar sands oil plants. However, the oil firm said to be the customer promptly denied it had any intentions of buying a nuclear power plant. Other tar sands oil companies say the time needed to build the reactors and get them running in northern Alberta far exceeds their planning horizons.

For its part Energy Alberta has filed two applications with the Canadian nuclear regulatory agency. This bureaucracy set a new land speed record rejecting the first one in July calling it "a draft," and that's government talk for "baloney."

Update: In late November Bruce Power bought out Energy Alberta's long shot proposal for a new nuclear power plant in the tar sands regions and hitched its horse to AECL's new reactor design. Some of the power that would be generated in Alberta by a new reactor is expected to be wheeled to Montana.

Transition Power, Utah -- The firm announced a giant reactor project in October, but so far has refused to identify its investors, the proposed site for the plant, its potential customers, and except for consultants, including a former NRC commissioner, has no operational experience in the nuclear industry.

The private equity firm is not registered with the SEC nor listed on any stock exchange. Even more interesting, the firm says it plans to apply for an NRC COL license and then sell it to the highest bidder. The firm seems to be trying to establish a market in which there could not possibly be any buyers.

Public reaction has been mixed. Two state legislators have been raked over the coals on conflict of interest charges for promoting the reactor and also trying to shift the financial risk of building the plant from investors, whomever they are, to rate payers.

Environmental groups shifted gears from defending Bambi to creating alliances with consumer groups. Utah's governor said he supports nuclear power as long as no one tries to build a reactor in his state while he is in office. Transition Power's director told the governor spent fuel storage is "no problem" and will be taken care of with "on site reprocessing."

Despite these shortcomings, the firm is paying cash for access to water rights and says the plant won't be located in the district where the water rights are found. Instead, it plans a three bank pool shot involving a pipeline, using water from the already over allocated Colorado river, and a land swap. Did we mention these people are in business to make money? Why don't they just sell nutritional supplements on the Internet? It's a lot less trouble and much more likely to generate a profit. No matter how you slice it, Transition Power is right smack in the middle of the baloney bullseye.

Update: There hasn't been a public peep out of Transition Power for months, but the news media in Utah hasn't forgotten the conflict of interest controversy associated with the project. The jury is still out whether there is any there "there" for this reactor.

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So the next time someone announces plans for a nuclear power plant remember Schermer's baloney detection questions and this brief review. It will help you sleep better knowing how to separate fact from fiction.

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Joffan said...

An established nuclear plant operator is always going to have a lot more credibility than any start-up; but I think it's important that we can discriminate which start-ups are credible and which are just kite-flyers.

So, of the three start-ups, I guess I would rank them as follows:

Energy Alberta: More credible. Has engaged local communities, made agreement with national body, applied for initial permits; some gaps remain on finance, but the rumour game on the customer can continue until the plant opens.

AEHI: Less credible. Some land agreements, some senior people with track record, but less engagement locally and less progress on permitting.

Transition: Almost no credibility. Trying to open a middle market for permits which cannot exist.

Rod Adams said...

Interesting post. In a competitive, commodity business, it is often possible for very credible projects to engage in a lot of foundation work without a whole lot of public information releases.

I concur with Joffan's ranking of project credibility. I also find it a bit interesting that you did not place Amarillo Power on your list. In some ways they would fail your tests, but I think there is a real chance that they will beat NRG to initial criticality.

Ohadi Langis said...

To answer your question, Amarillo Power hasn't shown up on my radar screen since late last winter when they said they would switch reactors and use an EPR.

The three projects I targeted in my current blog piece are more than worthy of "baloney" awards. Most interestingly, in the case of Energy Alberta, the demand numbers for a new nuclear plant are actually very good. This has drawn the attention of a pipeline company and Areva, but everyone is still sniffing around.

What put them in the baloney bullseye was their failed first application to the Canadian nuclear authority which was rejected almost immediately as "a draft." That's government talk for "baloney."