Will Areva's Finnish Fiasco Spook US Taxpayers?

You've got to wonder what went through Duke CEO Jim Rogers' mind yesterday when he saw the Areva announcement of more cost overruns and schedule delays for its new reactor construction project in Finland.

Areva reported that it would set aside another $787 million to cover anticipated losses on the Olkiluoto project, bringing the total of such charges against earnings to $3.3 billion on what was originally supposed to be a $4.3 billion turnkey project. That's a 77% overrun. Oh, and the plant is already three years behind schedule.

It was only 75 days ago that Rogers, aka "Duke Nuke ‘Em" to Wall Street Journal readers, was sharing the spotlight with Areva's telegenic CEO Anne Lauvergeon in Piketon, Ohio to announce plans to build a new 1,600 MW reactor. "I'm confident I can fund it," Rogers told the New York Times. A bit more restrained, Ms. Lauvergeon said that the financing was an issue for Areva's customers, not for Areva itself.

The romance between Areva and its first real customer, the Finnish utility TVO, has definitely cooled. Yesterday Areva said it "will only commence the final phases of the construction when TVO has agreed upon the proposals that have been made or issued contracts that provide for the requested modifications." These proposals and contract modifications, Areva said, were due to TVO's "inappropriate behavior in contract management" including conduct which "is not in line with standard industry practices."

As described in yesterday's Energy Daily (subscription required):

Delays at Olkiluoto have been unfortunate for the nuclear industry as a whole, which has watched the Finnish project with interest as the first new reactor to be built in a western country in years. It is also a high-profile project for Areva as the first commercial deployment of its EPR reactor, although France's national utility, EDF, has since begun to build another EPR in Flamanville, France.

Duke's earlier experiences with nuclear construction weren't altogether pleasant. It pulled the plug on two of its five planned projects, incurring some $600 million in cancellation costs but recovering about a third of that through rate increases. Still, Rogers is banking on a nuclear play to get the climate legislation through the US Senate. As he told Platts in an interview last week:

"We need to find a way for the four to nine Republican senators who are strongly pro-nuke to craft a nuke provision that would bring them in support of a bill," Rogers said, noting this would create centrist bipartisan support. Without naming the senators he saw in this group, he added that there has not been talk of such an amendment to his knowledge.

A nuclear amendment could have provisions to bring confidence in nuclear waste disposal, speed license approvals, or provide loan guarantees not to utilities but those providing the equipment for the new units as a local economic stimulus option, he said.

So the role to be played by Areva, which is 91% owned by the French government, in the US Nuclear Renaissance is still to be determined. But the role of the American taxpayer may be coming into focus.
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