For over 30 years, U.S. nuclear plants provided clean, safe and reliable electricity. Yet in the past 3 years, twelve reactors have been slated for early retirement and another dozen are at risk. Can nuclear plants be operated competitively in today’s market?
An evolving energy market, led by cheap natural gas and subsidized renewable generation, threatens the long-term financial viability of America’s remaining nuclear power plants. Since 2013, utility executives have announced the early retirement of twelve reactors and Wall Street estimates reveal another dozen to be at risk; raising the question: Can nuclear plants be operated competitively in today’s market?
Over the past three decades, the U.S. Nuclear Industry achieved unprecedented levels of safety and reliability; providing almost 20 percent of all domestic electricity and generating 63 percent of America’s carbon-free power. Unlike other clean energy sources, nuclear power is available during all weather conditions, offers price stability, and on-site long-term fuel supplies.
Competition from cheap natural gas and subsidized renewable generation combined with rising operations and maintenance costs stemming from a slew of new regulations and aging equipment challenge the long-term financial viability of nuclear power plants. In its recent news release, Exelon cited a combined loss of $800 million in the past seven years – an average of about $57 million per station per year – as the reason for shuttering its Clinton and Quad Cities nuclear plants.
In an effort to improve the financial viability of the remaining nuclear fleet, industry executives launched the Delivering the Nuclear Promise initiative; challenging employees and vendors to identify innovative ways to improve efficiency, reduce costs, and raise revenues while maintaining operational safety and reliability. Responding to this call, StrategyDriven Enterprises identified 29 near-term cost reduction opportunities potentially saving utilities $10+ million per station in annual operations and maintenance costs.
“Our team of seasoned nuclear executives sought out and adapted contemporary business practices for the nuclear environment,” explains Nathan Ives, StrategyDriven’s Chief Executive Officer. “The result is an initial set of organizational, process, and technology changes that preserve operational safety and reliability while at the same time dramatically reduce costs.”
StrategyDriven’s cost reduction initiatives and identification method are captured in Four Overlooked Controllable Costs that could save nuclear plants from early retirement. The document highlights 29 initiatives to reduce costs in the areas of Human Capital Management, Information Technology, Supply Chain / Inventory Management, and Oversight. StrategyDriven experience reveals many of these cost reductions to be implementable within 180 days and to possess similar payback periods.
U.S. Energy Secretary Ernest Moniz recently indicated that retiring nuclear power plants would make it more difficult for the U.S. to achieve its climate change goals.
“The idea is we are supposed to be adding zero-carbon sources, not subtracting or simply replacing by building to just kind of tread water,” Moniz said at a May symposium the department organized to discuss the industry’s economic prospects. “I think very few understand that nothing else comes close [to nuclear],” he added.
Four Overlooked Controllable Costs is being distributed to StrategyDriven’s clients, including some of the world’s largest nuclear utility operators. The white paper is available at: www.StrategyDriven.com/DNP.
https://www.strategydriven.com/wp-content/uploads/DeliveringTheNuclearPromise.jpg600900Nathan Iveshttps://www.strategydriven.com/wp-content/uploads/SDELogo5-300x70-300x70.pngNathan Ives2016-06-08 08:00:402016-06-06 21:01:31Nuclear Power is Clean, Safe, and Reliable… But Can It Be Competitive?
Recent government action ignited a new debate regarding the extent of Federal control over the marketplace. While some would collate the government’s degree of control to that of its spending, we believe this relationship to be inappropriate because purchasers exert indirect influence over an organization. Instead, we suggest the government’s direct control over an industry or organization stems from its majority ownership position or significant regulation of those groups. Therefore, we believe the Federal government controls approximately fifty-one percent of the nation’s economy as derived by its ownership and regulatory controls of:
U.S. Financial Industry – representing approximately 33 percent of the U.S. marketplace, the U.S. Government gained control through the Troubled Asset Relief Program (TARP) and separate bailouts of mortgage giants Fannie Mae and Freddie Mac.
U.S. Healthcare Industry – representing approximately 17 percent of the U.S. marketplace, the U.S. Government gained control through the passage of healthcare legislation in March 2010.
Other Major U.S. Businesses – representing approximately 1 percent of the U.S. marketplace, the U.S. Government gained control through bailout purchases of stock from companies such as General Motors and Chrysler.
“Now we have the federal government taking over ownership or control of 51 percent of the American economy.”
Michele Bachmann
U.S. Representative – Minnesota (R)
Why is all of this important?
The Federal Government has shown itself to be anything but a passive owner. After taking control of General Motors, the Federal Government expelled the CEO of that company.1 Similarly, the Federal Government has limited and in some cases reduced the compensation packages of the senior executives of those companies that have received financial bailouts.2, 3 Thus, the government and not the private marketplace is now dictating these business rewards.
Why should this be a concern for any business other than those directly involved?
Activist government participation in the marketplace suggests that politicians may take other actions to the benefit of those organizations the government owns. In fact, they already have. Aggressive attacks against a competing organization as was evident by the recent General Motors ad campaign specifically targeting its besieged competitor, Toyota, and the extensive public Congressional hearings involving Toyota executives over its cars’ sudden acceleration problem. None of Toyota’s other competitors waged ad campaigns specifically targeting the automaker nor was the government as publicly vocal when poor maintenance practices at one of its Tennessee Valley Authority coal plants created one of the worst environmental disasters in U.S. history on December 22, 2008.4
This past activism suggests politicians may be willing to aggressively seek to dictate terms to suppliers of its organizations; not only in the name of good business practice but for political reasons supporting those in government. Combined this with the fact that the Federal government exerts significant direct ownership and control over approximately fifty-one percent of the U.S. market and it becomes evident that government officials will influence a vast number of businesses within the United States.
StrategyDriven Recommended Practices
When at all possible, organizations should consider conducting their financial business with only those financial institutions not controlled by the U.S. Government, namely those organizations that have not received and do not appear to be at risk of receiving government bailout funds such that the government could the dictate the terms of their business operations. The goal is to minimize the organization’s exposure to government imposed stipulations associated with any borrowing that cannot be immediately paid back to avoid such stipulations.
Businesses should seek to diversify their portfolios such that they are not overly reliant on the sale of products and/or services to controlled organizations. The goal is to provide flexibility such that the organization could shift of cease business relationships with those government controlled organizations should unacceptable terms be demanded.
Businesses should factor in an additional risk if entering into the market of a government controlled organization. The goal is to account for the almost unlimited financial backing the Federal Government provides controlled organizations and its apparent willingness to use that funding to succeed in the marketplace.
Minimize consumption of government controlled organizational products. The goal is to minimize the risk exposure the organization faces should politicians seek to exert influence through the restriction of needed products or services. Additionally, this practice recognizes that government employees are typically better compensated than their private sector counterparts.5
In principle, these actions are not to suggest an organization not do business with the Federal Government, government controlled organizations or within government controlled industries. Rather, we suggest an organization not become overly reliant on the business transactions conducted with such entities in order to be able to resist government dictates over the organization’s business operations. Such standards, quantity, and pricing dictates do come from other large organizations such as Wal-Mart. Unlike these cases, however, politically motivated government officials are more likely to build in additional social program requirements as a part of their dictates thereby inflating a company’s overall costs and subsequently jeopardizing its ability to provide market competitive products and services to its other buyers. The only way to avoid such government intrusion is to ensure sufficient diversification exists in the organization’s financial support, supply chain, and customer base.
Final Notes…
StrategyDriven is aware that several reputable organizations such as FactCheck.org and CBS have refuted the notion that the Federal Government controls fifty-one percent of the U.S. economy.6, 7 All of these organizations base their position on the fact that annual government spending accounts for approximately twenty percent of GDP. We respectfully disagree.
A purchaser, even a major purchaser, of an organization’s products and services exerts an indirect influential control over an organization. The greater the percentage of an organization’s output that is purchased, the greater the force of indirect influence that can be exerted. While the Federal Government’s twenty percent of GDP purchasing power gives it significant marketplace influence, this is not the type of direct control referenced in the assertion that the governments owns or controls fifty-one percent of the U.S. economy.
Direct control is very different. With direct control, an individual or institutes gains the authority to dictate the actions of the controlled business. Direct control comes from one of two means, ownership or regulation. Through its bailout purchase of a majority share of corporate stock, the U.S. Government has gained control over numerous businesses such as General Motors. Through the recently passed healthcare regulation, the government has dictated the product and service offerings and prices of numerous companies as well as the purchasing habits of all U.S. citizens within this space.
The government’s direct control over numerous businesses, begotten through ownership and regulatory policy, is why StrategyDriven believes the U.S. Government has control over fifty-one percent of the U.S. economy. The firing of GM’s CEO and caps and reductions of CEO salaries as cited above further illustrate the government’s use of its direct control over businesses that were once part of the private sector.
As always, StrategyDriven is not taking a position as to whether or not this degree of ownership and control by the Federal Government is appropriate. Instead, we simply highlight the consequences of these actions, namely that political forces will now intermingle with market forces to dictate the course of business. Given the extent of the government’s control over the previously private marketplace, this introduction of political drivers will have significant ramifications and warrants consideration and responsive action by business executives and managers.
Final Request…
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Recent government action ignited a new debate regarding the extent of Federal control over the marketplace. While some would collate the government’s degree of control to that of its spending, we believe this relationship to be inappropriate because purchasers exert indirect influence over an organization. Instead, we suggest the government’s direct control over an industry or organization stems from its majority ownership position or significant regulation of those groups. Therefore, we believe the Federal government controls approximately fifty-one percent of the nation’s economy as derived by its ownership and regulatory controls of:
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