I wouldn't subsidize a old facility. You are throwing money away. I would think about a smart subsidy for the new build.
A. EXECUTIVE SUMMARY:
Event Date: May 11, 2012
Executive Sponsor: W. Gary Gates
Summary of Events:
Fort Calhoun Station has a history of organizational effectiveness weaknesses as indicated by The Nuclear Regulatory Commission has identified organizational effectiveness issues in Problem Identification and Resolution (PI&R) inspections conducted in 2007, 2009 and 2011. A Pl&R Root Cause Analysis (CR2011~10135) identified that flawed mental models, misguided beliefs, and misplaced values have driven, influenced and permitted the misalignment of organizational behaviors. The station has shown an adverse regulatory trend of violations beginning in 2007, entering action matrix column 3 (95003) in October 2010, then action matrix column 4 in July 2011, to eventually Inspection Manual Chapter 0350 in December 2011.
A root cause analysis team was formed to evaluate the causes of this organizational ineffectiveness’. The team conducted a root cause analysis on organizational effectiveness related events that occurred from 2007 through May 2012. The team also reviewed the! I [Band Strategic Talent Solutions (STS) Executive Leadership Assessment summary to validate their findings.
Condition Report 20112-03986 was initiated when a team of station management personnel and external consultants determined that the Fort Calhoun Station’s organizational effectiveness is inadequate.
The team characterized the issue as follows:
"Senior leaders and managers are not providing the necessary leadership to improve organizational performance. Additionally, leadership has failed to be intrusive, set the right priorities, and holds personnel accountable and has not understood major processes or issues affecting morale. As a result, timeliness and thoroughness of resolution of important issues has been lacking and station performance has declined significantly."
The RCA team subsequently developed a problem statement that, "The Fort Calhoun Station (FCS) organization has been ineffective in meeting regulatory and industry standards, resulting in untimely and ineffective resolution of issues contributing to a significant decline in station performance."
This organizational effectiveness weakness has had a direct negative impact on nuclear, radiological, and industrial safety and other business aspects. Examples include organizational effectiveness issues identified in the Yellow external flooding finding, the MQ contractor failure White NRC identified finding, and the 184A Bus fire NRC Red finding. Industrial safety has been identified by :__-___::l as lacking sufficient organizational oversight and that station oversight did not perform adequate organizational challenging of radiological planning for outages.
The analysis identified that there has been inadequate direction, prioritization and oversight from the "board of directors” down to the station leaders. The team identified three root causes and three Contributing causes. Less than adequate corporate and station governance and oversight; leaders functioning more in a tactical rather than strategic manner and not valuing accountability; and lack of thorough policy implementation as root causes. Three policies were determined to be contributing causes base on the fact that both the policy was weak and needed improving, as well as proper implementation. Those three policies included the stations Nuclear Safety policy, Change Management policy, and Communications policy. All three of these policies were identified in theThe extent of condition was based on the problem statement, interviews conducted, documents reviewed and the analytical tools used to assess FCS performance in the area of Organizational Effectiveness. An extent of condition exists: The team concluded the organizational effectiveness deficiencies reviewed by this causal analysis extend to those programs, processes, and departments throughout the organization.There all liars and thieves!!!
Posted: Sunday, May 29, 2016 12:15 am | Updated: 8:56 am, Sun May 29, 2016.
By Cole Epley and Russell Hubbard / World-Herald staff writers
The Omaha World-Herald
Two months before Missouri River floodwaters in 2011 threatened the Omaha Public Power District’s Fort Calhoun nuclear power plant, executives at a similar-size nuclear plant in Wisconsin faced their own problem: what to do with a facility they said no longer made economic sense to operate. The leaders at Dominion Resources, which operated the Kewaunee Power Station, said in April 2011 they were throwing in the towel — that the plant outside of Green Bay would be put on the auction block. There were no takers. Dominion announced plans to permanently close Kewaunee in October 2012. “This decision was based purely on economics,” Dominion chief Thomas Farrell said then.
At the same time, OPPD leaders were sinking nearly $300 million into Fort Calhoun to reopen the plant in December 2013.
Now the Omaha utility says it has decided its nuclear plant is too expensive to operate compared with electricity fueled by natural gas and wind power. Leaders want it shut by the end of the year.
What did operators of the Wisconsin plant see in 2011, even as OPPD pushed full-steam ahead to keep the Fort Calhoun plant online?
A nationwide boom in natural gas, fueled by fracking, led to the decision in Wisconsin, its owners said. That boom would push down the price of power generated from natural gas — and even back in 2011, experts were saying prices for natural gas would only keep falling. They were nearly $15 a unit in 2005; Friday, they traded at $1.98.
The boom made nuclear — especially that generated at smaller plants, such as Kewaunee and Fort Calhoun — less attractive, with its relatively high-cost, labor-intensive safety standards. And it made coal — under fire for being dirty — less attractive, too.
Wind power, with the help of government subsidies, also was on the horizon in a big way; next door in Iowa, Berkshire Hathaway-owned MidAmerican Energy put 1,285 megawatts of wind-fueled electricity online between 2004 and 2010 with turbine farms across the state — nearly three times the power generated by Fort Calhoun.
Whatever was going on in the OPPD boardroom, it wasn’t in sync with mainstream thinking that was informing much of the U.S. energy market at the time.
Current and former OPPD executives said last week they made the right decision to resuscitate the nuclear plant outside Omaha. It went offline for a routine refueling in April 2011 but didn’t come back until December 2013 — knocked out by the flood and a subsequent fire and slew of federal safety violations.
Gary Gates, who was OPPD’s chief executive at the time of the Calhoun crisis, said the company and the board made the decision to keep the plant open based on regimented, objective analyses of the power market.
For example, natural gas prices in 2011 were double their current level, he said. And uncertainty surrounding federal environmental regulations meant emission-free nuclear was an important part of the OPPD energy mix, Gates said.
He said there wasn’t any way to know back then that energy generated from other sources — the natural gas from the fracking revolution and the wind from Mother Nature — would become so cheap when compared with nuclear.
“We always had healthy, vigorous discussions, but my sense was always that we had unanimous support for continued operations” among board members when it came to Fort Calhoun, he told The World-Herald last week.
The OPPD board of directors never voted on the question of whether to give up on the plant and power it down permanently during the period of 2011 through 2013.
OPPD did model a future without Fort Calhoun, its leaders said last week when questioned by The World-Herald. The utility commissioned a study by outside consulting firm Black & Veatch of Overland Park, Kansas. The World-Herald requested a copy of the study, which OPPD had not shared publicly, saying it was “held confidential due to competitive information, impacted contracts and personnel matters.”
On Friday, the utility gave the newspaper a PowerPoint summary of the report. The summary was dated Oct. 30, 2013, which is when an OPPD spokeswoman said it was presented to the utility’s board of directors.
The analysis said it would be cheaper to forgo restarting Calhoun and turn to other forms of energy. “All results indicate the replacement options are more economic than operating Fort Calhoun Station,” it said.
But on Oct. 29, 2013 — the day before the board was presented with the summary — Fort Calhoun’s reactor had been fired up, part of a warming-up period to prepare for coming fully online in December of that year.
The World-Herald over the past two weeks contacted the eight current and three former OPPD board members — everyone except for a former board member who has since died. All said they supported the restart of Calhoun and trusted the decisions of OPPD’s management, although two — Mike Cavanaugh and Lloyd Scheve — also said they had informally expressed misgivings.
There was some informal buzz around not restarting the plant, said Cavanaugh, who has been on the board for 22 years.
“I don’t recall exactly when it was, but there was discussion about it,” he said. He said he might have considered not restarting the plant, but discussions never happened in formal session.
In some ways, OPPD appeared determined to zig with respect to nuclear when many others in the energy industry were zagging.
A postmortem of OPPD’s decisions is instructive:
In the year between the disastrous flood of June 2011 and the flood’s one-year anniversary in June 2012, signs were abundant that natural gas was already cheap and destined to get far cheaper, just as a Dominion spokesman told an industry magazine as the publicly traded company closed the Wisconsin plant.
“Certainly” cheap natural gas was a factor in shutting the plant, Dominion spokesman Jim Norvelle told trade publication Natural Gas Intelligence in October of that year.
Now, OPPD executives say the coming of cheap natural gas — what it calls a nail in the coffin of expensive and small nuclear plants such as Fort Calhoun — was tough to forecast back at the time.
Yet signs were flashing all over the place that natural gas was falling and would keep doing so:
» In September 2011, three months after the flood, the U.S. Energy Department said in a report that natural gas was so cheap, record use of the fuel by utilities was likely as they responded to pressure to cut emissions. That meant those utilities likely would turn increasingly from coal to natural gas, the Energy Department said. Electric utilities, the top consumers of coal, were set to use unprecedented amounts of gas that year, the Energy Department report said.
» In November 2011, five months after the flood, an Environmental Protection Agency official put the kibosh on any hopes the OPPD board might have had of proceeding with mainly coal-fired generation. (About 70 percent of OPPD’s generation came from coal at the time — a share that has held steady.) With its nuclear plant out of commission, what was left other than natural gas?
Gina McCarthy, assistant administrator for the EPA’s Office of Air and Radiation, warned that coal-dependent utilities had better prepare to clean up their acts. She said that month at a conference sponsored by the Federal Energy Regulatory Commission that four proposed clean air and water rules aimed mainly at coal-fired power plants would not be derailed by those predicting dire economic consequences — a move-forward policy that any energy industry professional should have seen as having enormous implications for the price and supply of natural gas.
“Our analysis and past experience indicate that the recent warnings of dire economic consequences of moving forward with these important rules are at best exaggerated,” McCarthy said.
» In December 2011, six months after the flood, energy industry analysts began calling the replacement of coal by natural gas “the new normal.”
Energy industry analysts at Houston investment bank Simmons & Co. International said in a report that month that natural gas prices had dropped 17 percent that year — a sign of abundant supply as producers ramped up to meet demand.
The bank cited an Energy Department forecast that coal’s market share of electricity generation was expected to fall to 43.5 percent in 2012 from 44.9 percent in 2011. In other words, the Energy Department was calling the switch at the very same time OPPD now says it was unable to spot it.
“A reduced share for coal is quickly becoming the new normal,” Simmons & Co. wrote.
» There was another natural-gas trend booming its way around the energy industry in December 2011: shale production.
New technologies such as hydraulic fracturing, or fracking, allowed gas producers to tap reserves previously not economical to drill. The effect, predictably, sent natural gas prices down as supplies increased, making the blue flame a cheaper source for generation just as OPPD was in its sixth month of struggling with Fort Calhoun.
The Energy Department, however, didn’t miss the hints. It said in its Short-Term Energy Outlook in December 2011 that booming U.S. natural gas production from shale formations was likely to send natural gas prices falling for an unprecedented fifth year in 2012 — presumably a good thing for utilities seeking to replace generation from dirty coal plants or under-repair nuclear stations.
“Gas may tumble 8.2 percent from its 2011 average next year, as output rises 2.8 percent to a record 67.72 billion cubic feet a day, according to the Energy Department,” Bloomberg News reported at the time. “Demand will probably climb 1.7 percent, after a 1.8 percent increase this year.”
» In January 2012, as the Fort Calhoun debacle entered its second calendar year, the price of natural gas — the fuel that OPPD now says it didn’t see coming — reached a 10-year low.
» If OPPD was looking to the government for more clues about sentiment regarding the future of natural gas, it didn’t have to look too hard. Also in January 2012, the Interior Department put up for auction 32 onshore U.S. oil and natural gas leases.
» If OPPD didn’t see cheap natural gas coming back in 2012, the energy industry analysts at Bank of America and others did, citing strong prospects for prices below $2 per million British thermal units.
“We don’t believe there is a short-term floor for prices,” one of the analysts told Bloomberg News.
» January 2012 is also when President Barack Obama said in his State of the Union address that he expected domestic energy sources, cleaner ones including natural gas, to take to the forefront.
As OPPD was deciding to proceed or not with what became a nearly $300 million repair bill for an aging and tiny nuclear power station, the president said: “This country needs an all-out, all-of-the-above strategy that develops every available source of American energy. ... We have a supply of natural gas that can last America nearly 100 years.”
OPPD leaders argued at the time that hanging on to Fort Calhoun was indeed part of an all-of-the-above strategy, and a carbon-free one at that. But they now say it’s too expensive for smaller plants such as Calhoun to survive in the era of cheap natural gas: Larger nuclear plants with two and three times the generating capacity of Calhoun can spread costs over a greater base.
For instance, OPPD has paid about $57 per megawatt-hour to generate at Calhoun over the past three years, on average. The average cost nationally — at plants that are all bigger than Omaha’s — is $35.50 per megawatt-hour, according to the Nuclear Energy Institute.
» March 2012, natural gas reaches another 10-year low.
» April 2012, one year after the Fort Calhoun facility went cold, the chairman of Exelon — the Chicago company later hired by OPPD to run the troubled Fort Calhoun station — said cheap natural gas was the grim reaper for nuclear power.
Market conditions are “really not great for nuclear,” Mayo Shattuck said at a conference in Washington, D.C. The economic environment “raises very serious questions” about whether nuclear would be able to survive on its own without government subsidies.
OPPD didn’t get the message. A few months later, Exelon — despite its warning — was the recipient of a $400 million contract from OPPD to run Fort Calhoun.
» Finally, also in April 2012, what had been a trend was recognized as a new way of doing business.
Less than one year after Fort Calhoun went offline, the U.S. Energy Department formalized its 2012 outlook, saying it expected natural gas output to rise about 2 percent and prices to fall 21 percent — a seeming bonus for any utility poised to take advantage of the cheaper and cleaner fuel.
So OPPD faced a choice after the Missouri River flooding in 2011 and the serious fire at the Fort Calhoun nuclear plant put the facility on a federal regulator’s list of the nation’s most troubled: OPPD could shut down the plant or spend the money to get the plant back up to snuff.
The summary of the Black & Veatch study, which said a permanent shutdown was more economical, cited three arguments for restarting:
1) Nuclear is a carbon-free source of energy.
2) About 700 jobs were at stake.
3) Employee morale: “30+ months has been dedicated to restart efforts.”
Choosing to fix the plant cost OPPD $283.5 million, according to a World-Herald analysis of the utility’s books.
And OPPD wouldn’t fix the plant on its own: Even though it had run Fort Calhoun since it first generated power in 1973, OPPD said it lacked the expertise to handle its own nuclear operation. So it signed its $400 million, 20-year contract with Chicago-based Exelon — a large nuclear plant operator — to actually run Fort Calhoun. So far, OPPD has paid Exelon $86 million.
Lloyd Scheve was appointed to the OPPD board in February 2011 and was defeated in his subsequent election bid in late 2012. He said he remembered questions about the nuclear plant’s viability came up around the time the Exelon contract was inked in August 2012.
Scheve compared the plant’s troubles to working on an old house, saying that “every time we turned around there was another $100,000 worth of things that needed to be fixed.”
Still, the OPPD board at that time made a unanimous decision to turn over day-to-day control of Fort Calhoun to Exelon.
OPPD still has about 700 staff connected to the nuclear operation despite outside management by Exelon. Details of the contract with Exelon have never been released, but public records requests by The World-Herald show payments to the Chicago company have averaged about $2 million a month since September 2012. OPPD has repeatedly declined The World-Herald’s request to review the Exelon contract, citing what it says are confidentiality clauses.
(Exelon itself said earlier this month that it would close two of its Illinois nuclear plants if lawmakers don’t cough up money to help the financially troubled facilities. The imperiled Clinton and Quad Cities plants have lost $800 million since 2009, according to Exelon, which is publicly traded.)
All told, seven nuclear plants have either shut down or have been slated for decommissioning since 2013.
The money OPPD has paid to Exelon, the lost revenue from the 2011-2013 shutdown and the other costs associated with getting Fort Calhoun back online after the flood came on top of nearly $400 million the utility spent in 2006 to refurbish the plant, replacing some major components — measures that were required to keep the plant in operating condition through the end of its regulatory licensing in 2033.
Former CEO Gates, who retired last summer, said keeping the plant running was the prudent choice to make. Current Chief Executive Tim Burke, who announced the planned closing, said he agreed with Gates’ decision at the time.
The utility needed the reliability and diversity afforded by Fort Calhoun to protect against wide swings in the price of energy commodities like coal, for example, Gates said. Plus, the inherent carbon-free generation that distinguishes nuclear power from greenhouse gas-emitting fossil fuel plants made it an even more attractive asset in the face of potential regulatory crackdowns on such emissions.
The ripple effects of the nuclear plant’s woes soon hit ratepayers, with the OPPD board in December 2012 approving a rate hike that hit residential customers to the tune of $7.30 per month, or 7.7 percent.
Would a privately owned or publicly traded operator have plowed so much cash into a nuclear plant in the midst of the natural gas revolution?
No, said Travis Miller, a Wall Street analyst who covers Exelon and other nuclear operators for Morningstar. “I would imagine it would’ve closed” in the aftermath of the 2011 Missouri River flood, he said.
Because of the fading economic argument for nuclear, as many as 20 nuclear plants, or 20 percent of the U.S. fleet, are at risk of shutting down in the next five to 10 years, Nuclear Energy Institute President Marvin Fertel said earlier this month at a U.S. Department of Energy summit.
Paul Patterson, a Wall Street analyst with New York-based Glenrock Associates who covers Exelon competitor Entergy, said he also doubts Fort Calhoun would have survived in a competitive marketplace unlike the state-mandated monopoly enjoyed by OPPD.
While he said he’s careful about second-guessing the utility’s decisions, Patterson called the restart of Fort Calhoun “a little peculiar.”
“If only a few years ago they were spending that kind of money on a plant this size,” he said, “and now to believe it would be a better idea to shut it down and buy power than to keep running?
“That would suggest that it probably wasn’t the best decision.”