Revival of Nuclear Power
About 30 years ago, following the Three Mile Island partial nuclear meltdown in Pennsylvania, there were many Americans who wanted to throw out the baby with the bathwater and get rid of nuclear power completely. Using coal and oil to produce electricity was considered safer and more reliable by proponents of such action.
There is still fear today among some people who believe that the nuclear baby, which was never completely abandoned, is a danger to our way of life. That concern, mostly dormant for nearly three decades, has risen once again, and Texas is right in the center of it.
This week, NRG Energy, a New Jersey-based electric power company and partner in the South Texas Project (STP), filed with the Nuclear Regulatory Commission (NRC) a full application to construct two new nuclear reactors at its existing two-unit plant near Bay City. This is the first attempt to build such facilities in the US since the 1979 meltdown incident in Pennsylvania.
The idea of nuclear operations often brings to mind the billions of dollars spent in various states during the 1970s due to cost overruns, construction delays, burdensome federal regulations, and significant public opposition. Such handicaps are not expected now, primarily because of new technology, today’s regulatory climate, and the fact that nuclear plants can produce electricity significantly more economically than gas-fired turbines.
Cost is on the minds of many industrial leaders as well as the typical consumer. In 2005, the average cost of nuclear-produced electricity across the US was 1.72 cents per kilowatt-hour (kWh). Over the same time period, the cost of electricity from coal-fired plants per kWh was 2.21 cents and 7.51 cents from natural gas plants.
The NRC expects to soon see a revival in nuclear electricity production with perhaps as many as 32 construction applications coming its way. The rush by electricity generating companies is due to recent federal tax incentives, along with growing concern about greenhouse gas emissions from coal, oil, and natural gas plants. Of course, the profit potential is also a highly motivational force.
To facilitate the process, the government is providing insurance to protect companies against possible regulatory hurdles that could prevent or delay construction. The first few companies to apply would also receive additional benefits. Moreover, the NRC has streamlined the application process by combining the construction and operating licenses.
The NRG Energy plan calls for the new units to join the power plants near Bay City in 2015. Work on the first unit could begin as early as the end of 2010; total costs for the new project is likely to range from $5.40 billion to $6.75 billion. The reactors would have a capacity of about 2,700 megawatts, approximately equal to that currently being provided by the units at the STP power plant in the Bay City area, which were completed in 1988 and 1989. Our firm analyzed the potential economic impact of this facility to the local area, and it was enormous.
The STP nuclear power plant is one of 33 two-unit plants in the US. There are also 31 single-reactor sites and two plants with three units each scattered across the country, for a total 103 nuclear power facilities. The megawatts of electricity produced by the STP, which has led the nation in production for three consecutive years, powers some two million homes in Austin, Corpus Christi, Houston, San Antonio, and surrounding areas. The proposed new units will approximately double the plant’s electricity-producing capacity.
Texas was picked as the home of the new reactors because of the growing demand for electricity, estimated at a rate of up to 3% (equal to approximately 1,500 megawatts) per year. The Energy Information Agency predicts the overall US requirement will expand by about 42% by 2030.
The Lone Star State also won the nod from NRG Energy because of the amount of space available and the strong transmission system in Texas. Furthermore, the STP had the lowest production cost in 2006 among all US nuclear power plants, about 1.36 cents per kWh. We need a more diverse fuel mix in Texas in order to reduce our dependence on natural gas (about three times the national average) and to lower overall power costs. Realistically, nuclear energy must ultimately be a larger part of the power equation (although it cannot happen fast enough to resolve immediate needs).
The application, of course, is certainly not a sure thing and will likely face opposition from environmental groups because of their concerns related to the safety of nuclear waste storage, among other matters (somewhat ironic given the fact that many of the same groups are decrying emissions from coal and gas-fired plants). Challenges of this kind, of course, have the potential to delay the development of the nuclear reactors and escalate the costs. Hopefully, over time, such fears can be allayed or resolved and thereby enable Texas to play an even more dominant leadership role in the evolving energy sector of the future.
posted @ 08:10 AM CST [link]
Friday, September 21, 2007
Speak Up!!
As the mortgage markets continue to work through their difficulties and the Federal Reserve lowers interest rates more significantly than anticipated, Alan Greenspan has been on a book tour. His new tome offers readers a refreshingly candid and illuminating account of his years in the limelight. As he has ventured to the obligatory venues and endured the requisite interviews, he has been criticized for continuing to comment on economic matters. There have even been some who have suggested that there should be a period after leaving office that senior officials be prohibited from expressing opinions on the economy. All I can say to the folks who would try to silence the former Federal Reserve chairman is “Get a Life!!”
Putting aside the obvious fact that the First Amendment pretty much allows all of us to talk in most circumstances, there are compelling and socially beneficial reasons for Mr. Greenspan to voice his observations. Markets are driven by information; in fact, processing information efficiently is essentially what they do. The prices of stocks, bonds, commodities, and other assets reflect the collective assessment of future prospects and risks. While markets are not perfect in this regard, they are awfully good.
The stream of material that is out there to be evaluated at any given moment is almost endless. Data pours in from government agencies around the globe; companies provide a sea of press releases and financial reports; and news services bring any nuance on the weather, the legal system, political and military turmoil, and anything else that might be reasonably relevant. In the midst of this deluge, a lot of people are also talking—stock and industry analysts, corporate executives, government officials, and, yes, even economists. All of this information is out there for investors to consider in making decisions. Some will be given more weight than others.
Alan Greenspan has earned a reputation as a keen observer of and participant in the global business complex over a career that has spanned multiple decades. While he is certainly no longer in the midst of the fray as he was during his tenure at the Federal Reserve, he remains very active and has the benefit of a wealth of experience that few can match. When he has something to say, it can only benefit the financial markets to hear it. The fact that there has been some (at least temporary) movement in response to his recent comments is evidence that his opinions are valued.
To provide perspective, Mr. Greenspan’s statements about the probability of a recession caused only a modest stir. When he made his famous “irrational exuberance” remark at the height of his power, there was an immediate and international response of much greater magnitude. The difference has to do with his current role; he is highly (and justifiably) regarded, but he is no longer the master of the show.
Like anyone who tries to predict the vagaries of our complex economy, he will be right at times and wrong at times. His past record clearly reflects both (as he has acknowledged). If his observations remain a generally reliable guide for investor behavior, his impact will likely continue to be notable. If not, his influence will diminish rapidly and dramatically. In any case, it is highly likely that his sway over the markets will ebb at some point. That has certainly been the fate of his illustrious predecessors, many of whom were just as dominant in their eras at the helm.
The essential point is that investors can gain knowledge from Alan Greenspan and the thousands of others who routinely pontificate about the economy. They can also glean useful tidbits from the myriad other sources that are out there. Markets are perfectly capable of sorting it all out and attaching appropriate weights to it. The fact that there is a measurable response to his remarks has been cited as proof that he should not be talking. Quite the contrary! It is the ultimate proof that his views are meaningful to the market process. To suppress any source of potentially relevant information is counterproductive to the very nature of the sophisticated financial complex and systematically leads to inefficiency. To try to muzzle someone precisely because his opinions are respected and sought after is just plain silly.
posted @ 08:01 AM CST [link]
Friday, September 14, 2007
On Again, Off Again
It’s not like it sneaked up on us. For more than a decade, we knew it was coming. Now that it’s here (maybe), it’s the subject of talk practically everywhere. Pundits, politicians, and prognosticators are all in on the act, and their opinions represent a deep divide.
Some call it the wave of the future; others claim it’s the beginning of the end. So what’s going on? What has so many people so worked up?
Well, simply put, America’s highways are scheduled to be welcoming new occupants, and they are big rigs from south of the border which are gearing up to haul various kinds of materials throughout the nation. In fact, two Mexican tractor-trailers involved in a pilot program delivered steel construction materials this week to New York and South Carolina and are expected to return home with similar products from Arkansas and Alabama.
This unrestricted access to American roads was initially supposed to start in 1995 as a result of the North American Free Trade Agreement (NAFTA) approved in 1993. Out of concern for the safety conditions of Mexican trucks and the capabilities of their drivers (which led to lawsuits, protests, and environment and security conflicts, as well as lengthy negotiations with Mexican government officials and more than a little politics), the process was delayed.
Instead of free access to US roads and highways as intended in the North American Free Trade Agreement, Mexican trucking operations were confined to a 25-mile wide commercial zone in the border states that had been authorized in 1982.
In recent weeks, Congress passed measures requiring strict adherence by Mexican truckers to US safety standards. As a result, the implementation of the highway access plan was further delayed. When these hurdles were eventually navigated, Mexican trucks were authorized to roll northward (at least briefly).
The ability of Mexico-domiciled trucks to roam was just a pilot program. According to the provisions of this one-year endeavor, no more than 25 Mexican carriers could be granted permission to haul cargo north of the border during the first month. (Seventeen trucking firms were expected to secure access to the US market this month.)
Thereafter, the number of firms granted permission to use US highways was to be limited to 25 per month with a maximum of 100 firms and a total of 1,000 trucks for the first year. Each would have to undergo strict safety inspections and face a public comment period. In return, the Mexican government was to allow up to 100 US trucking companies to travel anywhere in Mexico.
During this pilot period, data pertaining to safety and performance of Mexican carriers would be collected and analyzed. Depending on the results of the information, the borders could eventually be fully opened outside of the commercial zone to any registered Mexico-domiciled carrier.
Although change inevitably brings about concerns regarding alteration of the status quo and in some cases is quite uncomfortable to various entities, the bottom line is that greater efficiency in delivering goods and services provides a catalyst for progress and economic expansion (just as reducing travel time and costs through infrastructure investment spurs measurable growth). Moreover, honoring international commitments avoids retaliation and allows us to fully capture the benefits of free trade.
Having been involved in the development of NAFTA in the early 1990s, I well remember the predictions that indicated the agreement would bankrupt the US and chase millions of jobs outside our borders. While certainly there were adjustments that had to be made by numerous companies, by and large, NAFTA has proven to be extremely positive for our nation and our state (as well as Mexico and Canada).
Since its implementation in June 1994, trade flow between the US, Canada, and Mexico has experienced substantial growth. Trilateral merchandise trade has doubled, reaching $958 billion in 2006. Texas has particularly benefited from NAFTA; exports to Mexico account for nearly 37% of all of the Lone Star State’s worldwide shipments.
The dominant mode of moving US-North American freight is trucks, which carried more than 62% of the total value last year. According to a recent report by the US Department of Transportation, Laredo was the top port for the value of trade transported by truck to and from Mexico in 2006.
With US exports to our southern neighbor accounting for about $134.17 billion Iast year and imports from Mexico amounting to $198.26 billion during that time, it is easy to see increasing traffic patterns through Texas.
In the aftermath of a recent mishap, it now appears as we go to press that Congress may suspend and delay the change yet again by cutting its funding from a transportation bill. This would please labor and environmental interests as the elections approach and represents a triumph of politics over economics and common sense. Such posturing seems to be inevitable and even popular in some circles, but it will come with a hefty price for US and (especially) Texas business activity.
posted @ 08:14 AM CST [link]
Friday, September 7, 2007
Later School Start Benefits Economy
Although summer does not officially end until later this month, for all practical purposes, you can stick a fork in it, because it’s done. And with the end of summer, that means school is back in session.
As amazing as it seems, Texas is only one of 10 states that have laws regarding the beginning of the school year. Tradition seems to be the guiding factor in most states. Over the past decade or so, many Texas school districts have been opening their doors even before the summer reached its zenith. A mid-August start had become commonplace.
Recently, the 80th Texas Legislature put an end to that practice by changing the education code whereby no public school in the state could begin before the fourth Monday in August. Although some exceptions could be granted as to the first day of classes, the normal 180-day school year for 2007-2008 started one to two weeks later than in the recent past. And that’s a good thing, particularly for the Texas economy.
Perhaps a little background might be helpful. During a special session of the Legislature in 1984, Texas lawmakers passed a bill that required all schools to open after September 1. An amendment in 1989 allowed schools to start classes any day of the week in which September 1 fell. Those measures were repealed in another special session in 1990.
In the 1990s, myriad government reports focused on various factors that could impact student achievement. The desire to improve performance, especially on high-stakes achievement tests, caused many districts to consider alternatives to enhance learning. Gradually, even though there was no credible research to support the idea that starting the school year earlier produced higher scores, the first day of school crept backward until the middle of August essentially became the norm.
A report from the Texas Comptroller’s office in 2000 indicated that the early school starting dates were shortening the summer tourist season (thereby reducing spending across the state) and causing many school districts to expend more for air conditioning. The report also noted that mid-August school starts were forcing migrant workers to lose millions of dollars in potential earnings and even causing migrant children to lose important days of instruction.
As a result, state lawmakers soon changed the education code and mandated that schools could not open their doors to students before the week in which August 21 fell. In many cases, that measure still allowed school districts to begin classes some two weeks before Labor Day.
It is now recognized that, for most school districts, a later starting date offers opportunities for lower energy expenditures without the high cooling costs of August. By beginning the school year after Labor Day, Texas taxpayers can save an estimated $85 million in school district costs.
In addition, the mid-August starting dates have probably cost Texas more than $392 million each year because it shortened the amount of time available for summer travel. Ironically, the taxes on such travel could have been used for funding public schools.
Of course, the recent Legislature’s actions still present challenges to school districts related to semester lengths, holidays, extra-curricular activities, etc. None of these are insurmountable, however, and in most cases require only minor adjustments. The benefits to the Texas economy and to the state’s overall education endeavors certainly make it worth the effort.
posted @ 08:05 AM CST [link]