Wednesday, January 23, 2013

Forbes Fumbles Nuclear Football Analogy

Author Peter Kelly-Detwiler published a post for Forbes yesterday making an illogical comparison of sunk costs from nuclear plants to Mark Sanchez (the New York Jets QB). Despite providing a definition of sunk costs, the author doesn’t seem to understand what sunk costs really are.

The article references several examples of new nuclear projects going over budget, but going over budget doesn’t mean the costs are sunk. According to the article, sunk costs are “unrecoverable past expenditures.” Nowhere in the piece does the author give an example of a nuclear plant that hasn’t been able to recover its past expenditures.When nuclear plants were built in the ‘70s and ‘80s in the US, state public utility commissions (PUCs) determined whether all or some of the costs of power plants could be recovered from ratepayers based on whether the costs were spent “prudently” or not. In some cases, the PUCs found that some costs were not prudent and therefore were not recoverable from ratepayers. Yet the Forbes article doesn’t even mention this.

Even if the article were to correctly apply the definition of sunk costs, though, the analogy to Mark Sanchez would still be incorrect with today’s operating nuclear plants. The article states that the Jets pay Sanchez $8.25M a year whether he plays or not and if he doesn’t play then that’s a sunk cost. Well, even if one of the 104 nuclear units have sunk costs, utilities still operate them. In fact, nuclear plants provide nearly 20 percent of the US’ electricity and run more frequently than any other power source. The operation of these plants provides additional benefits such as stable, predictable electricity prices and avoided CO2 emissions equivalent to the amount of emissions from nearly all US passenger cars each year.

Of course, nuclear plants aren’t the only type of power plants that have had sunk costs. Dare I mention Solyndra, Deepwater Horizon, or the many wind turbines, coal plants and gas plants that have been abandoned, bankrupt or shut down prematurely?If the author wanted to apply a correct metaphor for nuclear plants to NFL quarterbacks, a more accurate comparison would be to Tom Brady, Peyton Manning, Drew Brees or underrated QB Joe Flacco. Much like nuclear plants are to the electric grid, those QBs are highly productive valuable assets who are the backbones of the teams.
One more thing, Go Ravens!

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