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With nuclear reactors, you get what you pay for

Robert Reich, professor of public policy | March 16, 2011

Can we please agree that in the real world corporations exist for one purpose, and one purpose only — to make as much money as possible, which means cutting costs as much as possible?

The New York Times reports that G.E. marketed the Mark 1 boiling water reactors, used in TEPCO’s Fukushima Daiichi plant, as cheaper to build than other reactors because they used a comparatively smaller and less expensive containment structure.

Yet American safety officials have long thought the smaller design more vulnerable to explosion and rupture in emergencies than competing designs. (By the way, the same design is used in 23 American nuclear reactors at 16 plants.)

In the mid-1980s, Harold Denton, then an official with the Nuclear Regulatory Commission, said Mark 1 reactors had a 90 percent probability of bursting should the fuel rods overheat and melt in an accident. A follow-up report from a study group convened by the Commission concluded that “Mark 1 failure within the first few hours following core melt would appear rather likely.”

Sound familiar?

The National Commission appointed to investigate the giant oil spill in the Gulf of Mexico last April recently concluded that BP failed to adequately supervise Halliburton Company’s work on installing the well.

This was the case even though BP knew Halliburton lacked experience testing cement to prevent blowouts and hadn’t performed adequately before on a similar job. In short: Neither company bothered to spend the money to ensure adequate testing of the cement.

Nor did Massey Energy spend the money needed to ensure its mines were safe.

And so on.

Don’t get me wrong. No company can be expected to build a nuclear reactor, an oil well, a coal mine, or anything else that’s one hundred percent safe under all circumstances. The costs would be prohibitive. It’s unreasonable to expect corporations to totally guard against small chances of every potential accident.

Inevitably there’s a tradeoff. Reasonable precaution means spending as much on safety as the probability of a particular disaster occurring, multiplied by its likely harm to human beings and the environment if it does occur.

Here’s the problem. Profit-making corporations have every incentive to underestimate these probabilities and lowball the likely harms.

This is why it’s necessary to have such things as government regulators, why regulators must be independent of the industries they regulate, and why regulators need enough resources to enforce the regulations.

It’s also why the public in every nation is endangered if the political clout of its biggest corporations — BP, Halliburton, Massey, G.E., or TEPCO — grows too large.

Cross-posted from Robert Reich’s blog

Comments to “With nuclear reactors, you get what you pay for

  1. Agreed Dr. Reich, More than half of the power sold in California is sold via ‘Direct Access’ that let’s the customer pick the power vendor and contract directly. Even more would be if the Public Utility Commission got out of the way. Thanks for another example showing Prof. Reich’s absolutism & bias toward regulation to be too simplistic.

  2. I agree! They are in it for the money! They won’t spend what they don’t have to. They are playing a game of odds with our lives. They feel the odds are this won’t ever happen to us. I think the Japanese “execs” in charge of the plant in Japan thought the same thing and they were in trouble before for lying about safety. Why debate whether San Onofre is safe or isn’t safe? It’s a stall to put off spending money. As if they don’t make enough. They want more not less! Just go make San Onofre strong enough to withstand a 9.0 – Build a wall to stop a 50 foot wave. Make it safer now. It’s the same reason why the government won’t get ahead of the problem and start making more iodine pills. They will spend it on war, but not on the people. STILL THE DRUMS. Money! They don’t want to spend the money for iodine until we really need it another words until after we need it. I think they believe that if they announce they are ordering iodine pills that it will cause a panic. So, I guess you could say, that the government won’t be getting iodine pills right now…For our own good. 🙂

  3. Agreed Dr. Reich. Corporations exists to make money, and CEOs pledge to do everything in their power to maximize the value of the corporation. However, corporations also exist at the discretion of the US government and hence the people of the US. Thus corporations must abide by the laws and regulatory statutes that allow them to serve the people. Those laws and statutes will not work without an educated, informed, and engaged public, including our public officials, and failure to do so will mean we are doomed to failure to meet our best possible outcomes. We must all do our best to develop a rational energy strategy, including a sincere dialogue about how to include both existing and future nuclear power plants into our energy grid. Thank you Professor Reich for your continued efforts to educate the people, both on campus, and off campus.

  4. More than half of the power sold in California is sold via ‘Direct Access’ that let’s the customer pick the power vendor and contract directly. Even more would be if the Public Utility Comisdion got out of the way. Thanks for another example showing Prof. Reich’s absolutism & bias toward regulation to be too simplistic.

    And I agree that quality can be more expensive. That’s my original point. It’s more expensive, yet continues to exist even without Prof. Reich or his fellow regulators requiring it. How’s that happen if he’s right?

  5. What is that binds the university professors advocating more government ? Chernobyl was built by government, regulated by government and destroyed in worse terms by government that BP or Fukushima today. I know Berkeley produces great engineers but for their leftist lunacies – just keep it within Berkeley. Thank you for your wonderful analysis ! We don’t
    need any more of that Government garbage.

    From Madoff to BP to every other scam had government officials bribed. Do your home work or get back to reading your text book. Government cannot regulate anything.

  6. Correction to my previous post:
    Nuclear Regulatory Agency should be Nuclear Regulatory Commission (NRC)

  7. It appears that GE is specifically targeted as it is indeed a profit-seeking corporation, and makes an easy target. The power plants are usually owned and operated by utility companies, which are natural monopolies. My Economics 101 tells me that utilities are regulated to allow them only a “normal profit.” Utilities make the decision to use one reactor design vs. another, they hire the engineers who design the plants, and they are responsible for the safe operation of the plants. I would say, perhaps utilities should be included in this blame game; but then, the argument that “profit maximization” is the source of this disaster would not work.

    As someone who did structural analyses of Mark I suppression chambers for loss of coolant accidents, I can say that such analyses were carried out by the most competent engineers, using the state-of-the art technology of the times. The criteria for such analyses as well as criteria for all aspects of nuclear power plant design were set by the Nuclear Regulatory Agency, which was definitely not a subsidiary of GE.

    It is true that probabilities are sometimes not calculated accurately, because they are derived from experience and historical data, and they are refined as more experience and data are gathered. We can estimate probabilities with good accuracy only for events that occur large number of times. I personally do not know how to judge if the probabilities of rare events are underestimated or overestimated.

    I also cannot help but ask this question of the Professor, with all due respect: Would it matter if the power plants were owned by partnerships or individuals, rather than corporations?

  8. Thank you once again, Robert, for making the point so well. The world is complex, and so for-profit companies are not the efficient arbiters of risk we somehow expect them to be. We need offsetting power in Government to regulate the application of technology so that the public good is adequately represented. As Robert says, we can’t eliminate risk, but we can mitigate it. Biggest problem we have is remembering the past and incorporating lessons like this and other disasters, when deciding on methods and the resources needed to support adequate regulation. It’s very easy in the US for a few short-term focused politicians to gut government efforts to regulate, that must change.

  9. The crisis in Fukushima is no where near over and already Prof. Reich is casting blame on GE? Fukushima Dai-Ichi wasn’t built to withstand an 8.9, yet it did survive the quake and the reactors shut-down. When the grid failed, backup diesels came on, as planned. It was the massive tsunami that followed that annihilated the grid and took out the diesels that doomed Fukushima.

    This doesn’t sound like the primarily fault of GE greed. That assertion is without merit and without evidence (and I’m not normally a corporate defender). Furthermore, comparing it to the man-made BP disaster is also unfair.

    If anything the responsibility lies with the rule-maker, the Japanese government, for not demanding more margin on it’s own imperfect seismic and tsunami models. The government sets the rules and corporations must bid and play by them with integrity.

    But, as you implied, corporations can’t be relied upon to self-regulate. Government must be vigilant.

  10. Three Mile Island containment did not burst with a partial meltdown.
    Commissioner Denton’s point was that these particular reactors were far more susceptible to loss of containment than PWRs, or even later generation BWRs. Professor Reich’s point was that corporations will not choose an optimal tradeoff between cost and public safety unless they are carefully regulated.
    By the way, James R. might be encouraged to wonder why the electronic panels at Fukushima Daiichi were below plant (below ground level), and the spent fuels above, instead of in the ground as is U.S. practice. What might make sense at Oyster Creek made little sense along the tsunami-vulnerable coast of Japan.

  11. “which means cutting costs as much as possible?”, followed by an argument that only government regulation acts against this.

    Then how are we to understand that BMW cars are higher quality than others? How do we understand Google, which for years was more interested in market growth than in cost cutting? Or Verizon investing $B in cell phone infrastructure so it can advertise better service?

    The world is more complex than you admit.

    • How many of us get to choose the kind of power we consume? We certainly can decide to drive a BMW – but how many of us can afford to? There is a cost to higher quality cars. Same with browsers and cell phones.

    • The cars are built under government regulations; why do you think they have, for example, seat belts and controlled crush front ends? Furthermore, Google specifically, and the high-tech industries in general, would not exist without the government-academia-industrial triad. By its very nature, the triad is regulated and could not exist without government and regulations.

  12. In the “station blackout scenario” — which seems to be unfolding at several nuclear power plants in Japan — where both the backup and auxiliary backup power for the cooling system fails, could any containment vessel, even one engineered to the strictest impartial standards, withstand the resulting meltdown of the fuel rods? I don’t know, but I seriously doubt Robert Reich, a Professor of Something-Other-than-Nuclear-Engineering knows.

    The Fukushima Daiichi plant was not damaged by the 9.0 magnitude earthquake; this probably vindicates the strength of the (retrofitted) containment vessel.

    • How do you know the 9.0 quake didn’t damage the plant? Dr. Reich’s message is that we need to study, think, design, investigate, and regulate these all important, and possibly dangerous, power stations. Not just guess about and ignore these marvels of science and engineering. He’s not accusing, damning, or calling the corporations greedy; he simply says we need oversight within a capitalistic framework.

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