WHY IS ELECTRICITY COMPETITION NOT WORKING? The principal reason is the failure of Order 888 to accommodate the economic and technological constraints of wholesale power markets.
that there may be cases where a satisfactory stranded cost recovery mechanism has not been put in place to cover decommissioning costs. The NRC's April 1996 Advance Notice of Proposed Rulemaking (see sidebar) noted the possible need for additional funding assurance for those costs where the licensee is no longer subject to the regulation at the federal or state level. The NRC has not chosen the path it will follow in such circumstances. In identifying that path, the NRC will have to weigh, on the one hand, the need to assure recovery of decommissioning costs.
One fact is certain: At shutdown, a costly decommissioning will be required because the health and safety repercussions of not doing so are unacceptable to society. Someone will have to pay. On the other hand, the NRC must also weigh the fact that any mechanism it puts in place must be workable in a competitive market. A funding requirement that is so onerous it cannot be achieved will simply mean the immediate shutdown of the nuclear facility, before sufficient funds for decommissioning are accumulated. At that point, the decommissioning costs must be addressed. The way in which the NRC will thread this needle remains to be seen. Undoubtedly, it will have to be solved before any nuclear asset transfer occurs to an entity that is not subject to rate regulation and which must accept the funding burden as a term of the transfer transaction.
Going forward, any NRC policy on asset transfers becomes somewhat academic if nuclear plants do not have a significant economic role in a competitive market at the generation level. This topic has been the subject of discussion and controversy in recent months.
A study published in February 1997 by the Washington International Energy Group, sponsored by the INGAA Foundation, concluded that some 40 percent of the nation's nuclear generating capacity faces the risk of shutdown due to adverse economic factors in a competitive market. That vulnerability was found to exist across the range of top performers, good performers and poor performers (as measured by O&M costs and capacity factors).
The nuclear industry has responded that the WIEG study is too pessimistic. Attacks have been made on its assumption as to future energy prices and the trend of O&M costs, as well as on the static moment-in-time aspect of WIEG's method.
It can be said with certainty that creation of a competitive market creates questions about the economic future of existing nuclear capacity. Nuclear capacity constitutes about 14 percent of total generating capacity and about 21 percent of actual energy output from that capacity. Regionally, nuclear can play a more important role, particularly in the Northeast and upper Midwest. Moreover, nuclear generation is regarded as environmentally desirable in regions facing serious air emissions problems.
It is by no means clear that public policy-makers will accept the loss of a significant part of this segment of the nation's generating capacity as a consequence of their interest in achieving the benefits of restructuring. The uncertainties about electric pricing trends and O&M cost trends do not yield