Warren Buffett's nuclear bet in Iowa
There’s no threat of a tsunami in the cornfields
Berkshire-Hathaway CEO and billionaire Warren Buffett (right) is rolling the dice for the third time on a potential investment in nuclear energy. His first two efforts did not produce any winnings. Now Buffett is looking at the possibility of building small modular reactors through MidAmerican Nuclear Energy.
William Fehrman, MidAmercan's CEO, is asking the Iowa state legislature to pass a bill that would allow the utility to recover the costs of building a new reactor while it was under construction. Critics have attacked the proposed legislation with renewed energy following the crisis in Fukushima Japan and on the grounds it would cost too much.
Iowa Gov. Terry Branstad said March 21 it “makes sense” for state lawmakers to move ahead with the legislation. Branstad said he did not have a problem with legislators taking up the nuclear power issue this session because the MidAmerican proposal is a long-term project that would take eight to nine years to complete
“We have a problem because of most of the power in Iowa is generated by coal and EPA rules now are really very restrictive on coal-fired plants,” the governor said during an Iowa Public Radio interview.
“So we’re either going to have to shut those plants down or do major expenses on retrofitting them or replace them with something that’s going to have the environmental problems that we have with coal.”
The bill has additional safeguards for ratepayers. It calls for the state's public utility commission to review costs every year over the life of the construction of the new reactor. It would allow the PUC to pull the pin on cost recovery if the project developed cost overruns.
Fehrman said the cost of a complex of multiple small modular reactors, when completely built out, could cost $1-2 billion. A 125 MW LWR type reactor from B&W, at $4,000/Kw, could cost $500 million.
Opponents of the bill want no part of any new construction of any nuclear reactors in Iowa. State Sen. Matt McCoy, a Democrat from Des Moines, told the news media he wants the bill tabled until more information is available from the Japanese crisis. Eight other democrats joined him.
Is the third time the charm?
This isn't the first time MidAmerican has attempted to place a bet on nuclear energy. In 2008 in a brief effort in Idaho, resulted in Buffett pulling out before any real money was put on the table. The second attempt, an effort to invest in Constellation Energy's Calvert Cliffs III nuclear reactor (right), did produce winnings of a sort. Buffett was out bid for a 49% share in the company by French state-owned utility giant Electricite de France (EDF). He sold his shares to EDF for a profit.
What's slightly jarring in the middle of the effort to win legislative support in Iowa is that Buffett was quoted by the CNBC TV network this week saying the events in Japan represent a setback for nuclear energy in the U.S.
B-H Chief Executive Officer Warren Buffett said 3/22 he’d be surprised if any nuclear facilities would be built in the U.S. in the wake of Japan’s earthquake and subsequent nuclear-reactor damage.
“I think it’s dead for a long, long time,” Buffett said in a CNBC television interview.
"Radiation terrifies people," Buffett told CNBC. "It's unseen, there's no way to quantify sort of the limits of what might happen from it so I would say that I would be very surprised if there's any nuclear facilities built in the United States for a long time."
Berkshire Hathaway owns 90% of MidAmerican Energy, a utility company. Most of MidAmerican's electricity generation is powered by coal-fired plants.
The United States was poised to move ahead with nuclear plants here, but events in Japan derailed that, according to Buffett.
"The public opinion was starting to shift in the in favor of nuclear, the administration favors it, I favor it," he said. "But it isn't going to happen because the psychology has changed."
Buffett seems to be hedging his bets. On one hand, a utility in which he has a major interest, is pursuing a new reactor, albeit, a small modular unit. On the other hand, you have to wonder whether Buffett, admittedly a very smart guy, is spending too much time reading the mainstream media and not enough making up his own mind.
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