Paying for a Nuclear Resurgence
If the United States is to see a nuclear power renaissance, rate increases in many states will kick in long before the plants are operational. For utility customers in Georgia, South Carolina and Florida they already have.
Georgia Power, part of Southern Co., announced a monthly increase of 57 cents for the average customer beginning January 2012 for financing two additional nuclear reactors at Plant Vogtle near Augusta. The first such increase, $3.73, took effect in January 2011.
In Florida, the Public Service Commission in October unanimously agreed that Florida Power & Light customers must pay $196 million in 2012. Starting Jan. 1, 2012, a typical 1,000-kilowatt-hour residential customer will pay $1.87 extra each month for improvements at the utility's existing St. Lucie Plant and planning and licensing costs for two new reactors at the Turkey Point plant.
Another rate increase later in 2012 is expected for South Carolina Electric & Gas Company and state-owned Santee Cooper. The joint project aims to build two new units at the Virgil C. Summer Nuclear Station and received a 1.1 percent rate increase in 2009 to start recovering financing costs.
None of these new projects has final regulatory approval. The Nuclear Regulatory Commission didi grant a license to the new Vogtle reactors this year, making it the first new U.S. nuclear to be given such approval in 30 years. The South Carolina one could come this year but the one in Florida is unknown. All are using mechanisms designed to spread the massive costs of such ventures over a longer period of time.
These new projects inch forward in a regulatory environment that incorporates some painful lessons from the past. Contracts for nuclear construction now attempt to segment some risks, such as a spike in the price of steel, that are truly unavoidable, while design work and site construction expenses are subject to better oversight mechanisms during the building phase, said Marc Chupka, a principal with the Brattle Group.
In Georgia, for example, Southern, the lead partner in the $14 billion project, makes monthly expense reports and submits to a state regulatory cost review every six months. Additionally, the company pays for an independent expert who monitors the project and reports to the commission.
"That's a big change," said Bill Edge, spokesman for the Georgia Public Utilities Commission. "We have independent monitoring so the commission has a handle on costs as we go along and are not surprised six years down the line."
Allowing utilities to recover costs for Construction Work in Progress, or CWIP, strikes a middle ground that allows up-front customer rate increases to mitigate the big rate shock that typically comes with a new nuclear plant in use, Chupka said. However, CWIP recovery does involve some degree of approval before the final costs are known, which some contend might limit the incentives to control costs.
"The goal of better risk sharing and CWIP in rate base is to avoid radically bad and surprising outcomes," he said. "It used to be that a utility could only recoup costs if a plant was in use and useful. CWIP is a departure."
And it's a departure with loud critics. Florida's state consumer advocate warned that the true costs of the Turkey Point reactors aren't known but recognized state regulators' hands were tied. If FPL decides not to build them, for example, no refund will be due to customers.
For states without such provisions in place before the Fukushima disaster, the climate for allowing pre-construction cost recovery has cooled. In June, the Iowa Legislature adjourned without passing a bill backed by MidAmerican Energy that would have allowed advance rate increases before construction -- even if the projects were not completed.
In April, just weeks after the meltdown in Japan, the Missouri Senate killed a bill that would have allowed a coalition of utility companies to charge customers $40 million for the cost of an early site permit for a second nuclear reactor at Ameren's Callaway County plant.
Duke Energy wanted total planning expenses for two new reactors at its $11 billion Lee plant in South Carolina of $459 million through the end of 2013. In August, The North Carolina Utility Commission slashed the company's request for pre-construction spending to be passed on to ratepayers to $120 million total for the next three years.
That’s the nature of rate negotiations. Utilities know that it’s a process of give-and-take and that all sides must feel like they have gotten something out of it.
Industry thought leaders will be discussing this topic and more at the upcoming EnergyBiz Leadership Forum, Harnessing Disruption, taking place in Washington D.C., March 19-21, 2012. Review full conference details by visiting www.energybizforum.com
This story first appeared in the January/February edition of EnergyBiz Magazine