We can think of one: decisions that failed to adequately account for the “tail” of the risk distribution where outcomes, albeit of low probability, carry high consequences. On this score checking in with Nick Taleb is always instructive. He observes “This idea that in order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can’t know) is the central idea of uncertainty.”**
- For Kewaunee the decision to purchase the plant with a power purchase agreement (PPA) that extended only for eight years;
- For CR3, the decision to undertake cutting the containment with in-house expertise;
- For SONGs the decision to purchase and install new design steam generators from a vendor working beyond its historical experience envelope.
Kewaunee
Many commentators at this point are writing off the Kewaunee retirement based on the miracle of low gas prices. Dominion cites gas prices and the inability to acquire additional nuclear units in the upper Midwest to achieve economies of scale. But there is a far greater misstep in the story. When Dominion purchased Kewaunee from Wisconsin Public Service in 2005, a PPA was included as part of the transaction. This is an expected and necessary part of the transaction as it established set prices for the sale of the plant’s output for a period of time. A key consideration in structuring deals such as this is not only the specific pricing terms for the asset and the PPA, but the duration of the PPA. In the case of Kewaunee the PPA ran for only 8 years, through December 2013. After 8 years Dominion would have to negotiate another PPA with the local utilities or others or sell into the market. The question is - when buying an asset with a useful life of 28 years (with grant of the 20 year license extension), why would Dominion be OK with just an 8 year PPA? Perhaps Dominion assumed that market prices would be higher in 8 years and wanted to capitalize on those higher prices. Opponents to the transaction believed this to be the case.*** The prevailing expectation at the time was that demand would continue along with appropriate pricing necessary to accommodate current and planned generating units. But the economic downturn capped demand and left a surplus of baseload. Local utilities faced with the option of negotiating a PPA for Kewaunee - or thinning the field and protecting their own assets - did what was in their interest.
The reality is that Dominion rolled the dice on future power prices. Interestingly, in the same time frame, 2007, the Point Beach units were purchased by NextEra Energy Resources (formerly FPL Energy). In this transaction PPAs were negotiated through the end of the extended license terms of the units, 2030 and 2033, providing the basis for a continuing and productive future.
Crystal River 3
In 2009 Progress Energy undertook a project to replace the steam generators in CR3. As with some other nuclear plants this necessitated cutting into the containment to allow removal of the old generators and placement of the new.
Apparently just two companies, Bechtel and SGT, had managed all the previous 34 steam generator replacement projects at U.S. nuclear power plants. Of those, at least 13 had involved cutting into the containment building. All 34 projects were successful.
For the management portion of the job, Progress got bids from both Bechtel and SGT. The lowest was from SGT but Progress opted to self-manage the project to save an estimated $15 million. During the containment cutting process delamination of concrete occurred in several places. Subsequently an outside engineering firm hired to do the failure analysis stated that cutting the steel tensioning bands in the sequence done by Progress Energy along with removing of the concrete had caused the containment building to crack. Progress Energy disagreed stating the cracks “could not have been predicted”. (See Taleb’s view on uncertainty above.)
“Last year, the PSC endorsed a settlement agreement that let Progress Energy refund $288 million to customers in exchange for ending a public investigation of how the utility broke the nuclear plant.”****
When it came time to assess how to fix the damage, Progress Energy took a far more conservative and comprehensive approach. They engaged multiple outside consultants and evaluated numerous possible repair options. After Duke Energy acquired Progress, Duke engaged an independent, third-party review of the engineering and construction plan developed by Progress. The independent review suggested that the cost was likely to be almost $1.5 billion. However, in the worst-case scenario, it could cost almost $3.5 billion and take eight years to complete. “...the [independent consultant] report concluded that the current repair plan ‘appears to be technically feasible, but significant risks and technical issues still need to be resolved, including the ultimate scope of any repair work.’"***** Ultimately consideration of the potentially huge cost and schedule consequences caused Duke to pull the plug. Taleb would approve.
San Onofre
Southern California Edison undertook a project to replace its steam generators almost 10 years ago. It decided to contract with Mitsubishi Heavy Industries (MHI) to design and construct the generators. This would be new territory for Mitsubishi in terms of the size of the generators and design complexity. Following installation and operation for a period of time, tube leakage occurred due to excessive vibrations. The NRC determined that the problems in the steam generators were associated with errors in MHI's computer modeling, which led to underestimation of thermal hydraulic conditions in the generators.
“Success in developing a new and larger steam generator design requires a full understanding of the risks inherent in this process and putting in place measures to manage these risks….Based upon these observations, I am concerned that there is the potential that design flaws could be inadvertently introduced into the steam generator design that will lead to unacceptable consequences (e.g., tube wear and eventually tube plugging). This would be a disastrous outcome for both of us and a result each of our companies desire to avoid. In evaluating this concern, it would appear that one way to avoid this outcome is to ensure that relevant experience in designing larger sized steam generators be utilized. It is my understanding the Mitsubishi Heavy Industries is considering the use of Westinghouse in several areas related to scaling up of your current steam generator design (as noted above). I applaud your effort in this regard and endorse your attempt to draw upon the expertise of other individuals and company's to improve the likelihood of a successful outcome for this project.”#
Unfortunately these concerns raised by SCE came after letting the contract to Mitsubishi. SCE placed (all of) its hopes on improving the likelihood of a successful outcome at the same time stating that a design flaw would be “disastrous”. They were right about the disaster part.
Take Away
These are cautionary tales on a significant scale. Delving into how such high risk (technical and financial) decisions were made and turned out so badly could provide useful lessons learned. That doesn’t appear likely given the interests of the parties and being inconsistent with the industry predicate of operational excellence.
With regard to our subject of interest, safety culture, the dynamics of safety decisions are subject to similar issues and bear directly on safety outcomes. Recall that in our recent posts on implementing safety culture policy, we proposed a scoring system for decisions that includes the safety significance and uncertainty associated with the issue under consideration. The analog to Taleb’s “central idea of uncertainty” is intentional and necessary. Taleb argues you can’t know the probability of consequences. We don’t disagree but as a “known unknown” we think it is useful for decision makers to recognize how uncertain the significance (consequences) may be and calibrate their decision accordingly.
* “Of course, it’s regrettable...Crystal River is closing, the reasons are easy to grasp, and they are unique to the plant. Even San Onofre, which has also been closed for technical reasons (steam generator problems there), is quite different in specifics and probable outcome. So – unfortunate, yes; a dire pox upon the industry, not so much.” SoCal Ed to retire San Onofre nuclear units, blames NRC delays," Platts (June 7, 2013). Retrieved June 17, 2013. And "NEI's Peterson discusses politics surrounding NRC confirmation, San Onofre closure," Environment & Energy Publishing OnPoint (June 17, 2013). Retrieved June 17, 2013. NEI Nuclear Notes (Feb. 7, 2013). Retrieved June 17, 2013. For the NEI/SCE perspective on regulatory foot-dragging and uncertainty, see W. Freebairn et al, "
** N. Taleb, The Black Swan (New York: Random House, 2007), p. 211. See also our post on Taleb dated Nov. 9, 2011.
*** The Customers First coalition that opposed the sale of the plant in 2004 argued: “Until 2013, a complex purchased-power agreement subject to federal jurisdiction will replace PSCW review. After 2013, the plant’s output will be sold at prices that are likely to substantially exceed cost.” Customers First!, "Statement of Position: Proposed Sale of the Kewaunee Nuclear Power Plant April 2004" (April, 2004). Retrieved June 17, 2013.
**** R. Trigaux, "Who's to blame for the early demise of Crystal River nuclear power plant?" Tampa Bay Times (Feb. 5, 2013). Retrieved Jun 17, 2013. We posted on CR3's blunder and unfolding financial mess on Nov. 11, 2011.
***** "Costly estimates for Crystal River repairs," World Nuclear News (Oct. 2, 2012). Retrieved June 17, 2013.
# D.E. Nunn (SCE) to A. Sawa (Mitsubishi), "Replacement Steam Generators San Onofre Nuclear Generating Station, Units 2 & 3" (Nov. 30, 2004). Copy retrieved June 17, 2013 from U.S. Senate Committee on Environment & Public Works, attachment to Sen. Boxer's May 28, 2013 press release.