With a shifting policy climate, equity financing for renewable energy projects is becoming more scarce. Real estate investment trusts (REIT) offer an alternative vehicle for bringing in capital...
S&Ls won damages when the feds reneged on promises. Utilities could do the same.
It's tough to be a utility CFO these days. For decades, electric utilities have served both as target and conscripted agent of government policy. Utilities pay disproportionately high taxes. Utility rate structures further distort market forces with subsidies flowing from business to residential. These policies actually defeat market forces. To large measure, many of these market failures arise from reconciling the hangover from uneconomic policy initiatives.
Nevertheless, electric utilities certainly are not the only companies routinely buffeted by capricious government policy. When financial markets boomed in the 1980s, savings and loan associations fell victim to government policies devised for a simpler time. Only when many S&Ls faced imminent demise did the Reagan Administration induce stronger S&Ls to harvest the weak in consideration for relaxing the constraints on entering new markets.
The S&L experience also demonstrated how public policy can sometimes play out like a contact sport. S&Ls who climbed out on the limb got caught in the cross-fire as Congress chopped off the Administration's deregulation changes without warning. Many thrifts plunged immediately into receivership (em victimized by doing a deal with the government. Taxpayers picked up some of the tab for this partisan "gamesmanship."
Commercial nuclear power has seen its share of policy swings over the years. Government induced many utilities to invest heavily in the technology, promising a stable regulatory environment, capital recovery, a reasonable rate of return and custodial services for the spent nuclear fuel.
As with the S&Ls, utilities, too, put their capital on the line, only to look on helplessly as the federal government often failed to deliver on its commitments. With each reneged promise, ever greater uncertainty chipped away at nuclear power plant valuation. With each new uncertainty, the tally for stranded investment rose, complicating the move to fully competitive power markets.
Vindication may be at hand, however, if not a substantial dowry. It may come from a recent U.S. Supreme Court decision, United States v. Winstar, which allowed S&Ls to sue the government for damages. If the Winstar doctrine means what it says, it could pave the way for electric utilities to seek damages from the Department of Energy for its refusal to deal responsibly with spent nuclear fuel.
DOE's Failed Responsibility
Custody of spent nuclear fuel marks perhaps the most significant uncertainty and unkept promise in the long history of utility regulation. This highly radioactive waste has been accumulating at nuclear reactors for decades at an annual rate of about 30 metric tons per reactor.
When the plants were built, spent fuel pools seemed an afterthought, a convenient temporary storage for those "few years" required for the federal government to develop a high-level nuclear waste program. Now, convenient storage is bursting at the seams. The lack of any additional on-site storage capacity threatens to shorten the useful lives of nuclear plants.
Congress thought it solved the problem in 1982 with the Nuclear Waste Policy Act. The act provided a standard contract for each utility. The U.S. DOE would collect a fee