EPSA Details Fatal Flaws in APPA Nuclear Report

June 13, 2007 //Published as a news service by IHS

In May 2007, the American Power Public Association (APPA) released a paper titled Nuclear Plant Performance: What does restructuring have to do with it?

The paper attempted to show that competitive market forces are not responsible for the substantial improvement in the operation of nuclear power plants in restructured states.

According to the Electric Power Supply Association (EPSA), the APPA report asked a good question, although one already answered in the affirmative by numerous comprehensive studies (see EPSA PowerFact, FactsShow Competition Improves Plant Performance).

Through incorrect data, incomplete designation of which power plants operated in restructured markets, and manipulation of the data by excluding the most improved plants, the APPA paper erroneously concluded that nuclear power plant performance did not improve as a result of restructuring, said the EPSA.

According to the EPSA, this is important at a time when the nation must urgently focus on how best to meet future electricity requirements in an environmentally responsible manner.

The operating improvements at nuclear and coal-fired power plants due to competition have put more power on the grid from existing sources, a significant consumer benefit.

The APPA's approach of looking at plant performance by reliability region is not the proper way to determine if plants were subject to restructuring's benefits since many reliability regions contain both states that restructured and states that did not, said the EPSA. Even with that flaw, the very data in the APPA paper shows better performance in reliability regions with more restructured states than those with fewer.

APPA Paper Has Fatal Methodological and Factual Flaws

According to the EPSA, the APPA paper has fatal methodological flaws and factual errors that resulted in the paper incorrectly concluding that restructuring did not have anything to do with improved nuclear power plant performance.

The paper bases its conclusions on an APPA analysis of nuclear power plant performance data as reported by the North American Electric Reliability Council (NERC) region. NERC regions are not created on the basis of restructuring or non-restructuring in the states comprising each region. Grouping power plants by reliability region does not correspond to organized markets operated by RTOs and ISOs or to the status of restructuring and regulatory systems in individual states, said the EPSA.

The comprehensive studies cited by the EPSA in the PowerFact, among others, and the EPSA's own analysis of the data actually group the power plants studied by what the analysis is trying to capture -- the relationship between restructuring and plant performance. According to the EPSA, if the plants are not examined on the basis of whether they were subject to restructuring or not, the analysis cannot correctly answer the question.

In addition, the APPA paper openly and brazenly disregards data from plants that do not support the preconceived conclusion that the paper was written to reach. In order to "prove" that most regions of the country achieved relatively high and stable capacity factors regardless of restructuring, the paper on its face admitted that it simply removed from its calculations the plants that did not show stability, said the EPSA.

According to the EPSA, the APPA paper purports to show that most plants that moved from a rate-regulated regime to a restructured market-driven system showed plant performance improvement two to three years before that change in status.

The paper, however, contains factual errors in specifying the year when the change in status occurred. This is true for seven of the 12 plants the APPA paper cited, said the EPSA. When the correct year is used, it is clear that the plant's improved performance was coincident with, and not a predecessor to, restructuring that introduced competitive incentives and market discipline.

Examples of the APPA Paper's Fatal Flaws, Factual Errors

Given that the data in APPA's own paper shows the causal correlation between electric industry restructuring and improved nuclear power plant performance, the question becomes how did the paper reach the opposite and wrong conclusion? According to the EPSA, the answer is in factual errors, data exclusion and torturing of the remaining data.

First, APPA erred in establishing the time period in which certain plants "transferred from regulated to non-regulated affiliates." Second, to support its claim that "for most plants, the sale to a non-regulated entity did not significantly affect capacity factors," the APPA paper looked only at single year capacity factors for single unit plants. Third, the APPA paper simply took out and ignored data from plants that did not fit the mold, thus creating an artificial self-selected subset of power plants to "prove" its conclusion.

Even With Flaws, APPA Data Shows Plant Performance Linked to Restructuring

While the APPA paper chart, "Average Capacity Factors for Nuclear Plants," is grouped by NERC reliability region and not by the nature of the regulatory structure under which the plants operated, it is appropriate to draw general conclusions about the relative restructuring in a given NERC region based on the states within the region, said the EPSA.

When viewed in this light, and without the subsequent "cherry picking" and exclusion of plants that didn't fit what APPA wanted to conclude, the unvarnished data is consistent with the EPSA's assertions and those of others that restructuring resulted in improved nuclear power plant performance.

EPSA: Correct Data, Proper Analysis Confirm the Benefits of Competition and Restructuring in Yielding Improved Nuclear Power Plant Performance

In a comparison of nuclear plants grouped as operating in organized markets compared to plants not in such markets, the clear advantage goes to those in organized markets, said the EPSA. Average capacity factors for plants in organized markets increased from about 70% in 1995 to 92% in 2006.

By contrast, other nuclear plants averaged 75% in 1995 and were 88% in 2006. In sum, as plants were operated in organized markets their performance improved at nearly twice the rate as others and achieved a higher overall capacity factor, said the EPSA.

When grouped by state regulatory structure the answer is the same. From 2000 to 2006, nuclear plants operating in rate-regulated cost-of-service states maintained a relatively flat capacity factor -- basically 88% in each year. By contrast, nuclear plants in restructured states improved from an average of 83% in 2000 to nearly 91% in 2006.

The same is true for other measures of safety and operational excellence, said the EPSA. For example, World Association of Nuclear Operators data show faster performance improvement and better absolute performance levels at plants in restructured states. According to the EPSA, the reason is clear -- economic incentives and competitive pressures have proven to be successful motivators.

The full text of EPSA Details Fatal Flaws in APPA Nuclear Report is available at the EPSA web site.

Source: Electric Power Supply Association (the EPSA)