(March 2010) New Day for Prudence: I am sending this letter at the request of Robert Gruber, who is the executive director of the Public Staff-North Carolina Utilities Commission (...
The Need for Nuclear Now
States will play a significant role in the resurgence of nuclear power plants in America.
the electricity production fuel for the future than any other source.
Congress in 1992 completely overhauled the federal licensing process for new nuclear power plants, providing an opportunity to obtain all regulatory approvals before significant capital investment is made. As a result, that industry is confident that the new licensing process addresses the tribulations encountered during construction of today's nuclear plants-costly delays and design changes, long construction periods, and cost overruns.
Vision2020, a plan from the Nuclear Energy Institute (NEI), envisions meeting growing energy demand with new reactors early in the next decade. The industry continues to focus on bringing more certainty to capital costs for new reactor designs and on quantifying the business risks associated with new large power plants. NEI expects that the nuclear industry can start building the next generation of plants later this decade.
Regardless of capital cost reductions achieved by the industry, large coal and nuclear power plants share a common challenge. They are capital-intensive technologies with long lead times. Combined-cycle gas plants cost $600/kW to $700/kW and take two to three years to build. Coal and nuclear plants are expected to cost $1,200/kW to $1,400/kW and take four to five years to build. But in the long run, nuclear and clean coal plants are less expensive to operate than gas plants because they provide significant price stability.
The federal government must play a crucial role in providing financial incentives to stimulate investment in new baseload generating technology. But the industry and the federal government cannot rebuild our electricity infrastructure alone. State regulatory commissioners and other state energy officials must participate.
NARUC can help facilitate billions of dollars in private-sector investment by:
- Providing assurance of investment recovery for projects prudently managed and completed;
- Supporting the creditworthiness of well-managed projects by authorizing long-term power purchases that preserve the consumer's interest in stable prices; and
- Working with the private sector to define and develop innovative approaches to project structure-approaches that apportion risks and rewards equitably between companies and consumers.
Several states have developed innovative approaches that need to be recognized. Alabama, Mississippi, and Indiana permit various ways of recovering approved environmental costs. Iowa has legislation in place that permits pre-approval of recoverable construction costs. Wisconsin has enacted new legislation designed to balance the needs of the private sector and consumers, which may serve as a useful model.
Wisconsin Energy (WE) is proposing two new 615-MW, coal-fired power plants under its Power the Future program, backed by the investment protection afforded by the Wisconsin legislation and public service commission (PSC) orders. The new capacity is built and operated by a non-regulated subsidiary, and leased back to its utility affiliate, We Energies.
During construction, the unregulated company will receive a return on capital invested in the project equivalent to the weighted cost of capital, with lease payments recovered by We Energies through ratemaking. Once the Wisconsin PSC agrees to a lease payment, the payment cannot change for the life of the lease, and the lease payments are fully recoverable through customer rates. Further, because the PSC has responsibility for