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Circuit Court OKs Abandoned Plant Cost Recovery

Fortnightly Magazine - July 1 1996

The U.S. Court of Appeals for the District of Columbia Circuit has upheld a Federal Energy Regulatory Commission (FERC) ruling that permits Yankee Atomic Electric Co. to recover all costs associated with an abandoned nuclear plant.

In 1992, the utility decided to shut down its nuclear facility in Rowe, MA, after investigating safety concerns raised by the Nuclear Regulatory Commission. Having determined that closing the facility would cost less than restarting, Yankee then asked the FERC for full recovery of its unamortized investment in the plant, as well as construction-work-in-progress and decommissioning costs. The FERC overturned an "equitable sharing formula" adopted in an initial decision in the case, finding that denying full recovery of plant costs in such circumstances would give utilities "perverse incentives" to operate power plants until they recouped their investment, even though retiring the plant might be more cost-effective.

On review, the court rejected allegations that full recovery of plant costs would run counter to the long-held regulatory principle that ratepayers should pay only for plant that is "used and useful" in providing service. It said that strict rules against recovery of costs for plants not currently in service were designed for cases where the plant is abandoned prior to operation. The court pointed out that ratepayers had received service from the Rowe plant for over 30 years and would benefit from the closing in the form of lower rates. Town of Norwood, Massachusetts v. Federal Energy Regulatory Commission, No. 94-1710, Apr. 9, 1996 (D.C.Cir.).

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