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Five Nuclear Challenges

Building reactors requires new federal commitment.

Fortnightly Magazine - March 2009

of the power infrastructure. Accordingly, every incentive should be provided at both the federal and regional levels to maintain and improve our power-plant infrastructure as we seek energy independence and clean air.

Because the achievement of all three goals is critical to the nation’s economy and future well-being, public policy and public perception of the need for availability of energy supplies must be brought up to date.

Reducing Risks

A third initiative would establish state policies that provide rate-base treatment for utility base-load assets.

It’s in the public interest for utilities to operate a fleet of safe, economic, and reliable base-load power plants. By preventing utilities from incurring excessive profits and losses and allowing the public to harness the benefits of dedicated base-load plants, it makes sense to allow utilities to place new nuclear plant assets into the rate base. 27 By placing these assets in the rate base and at the same time eliminating CWIP restraints, the owning utilities would lower their risks, have better access to financing, and incur lower levelized costs. Furthermore, by adding these assets into the rate base as they are built, retail rates could be raised gradually to cover the levelized costs of the new infrastructure.

Of course, some may object to this initiative in the name of deregulation. In response, one could argue that a fleet of new base-load nuclear power plants is in the national interest, represents a natural monopoly, and therefore it’s appropriate for states to regulate the economic performance of such assets according to traditional public policy.

A fourth initiative would establish corporate policies that reduce the risks of new power construction. Utilities learned some difficult and costly lessons when they built the last round of nuclear power plants. Many of those lessons have been lost to the passage of time and the turnover of individuals that built these plants.

For example, the owner of the plant in construction has fiduciary responsibilities to shareholders and stakeholders, including state regulators. 28 Owners can’t subrogate management responsibilities to a contractor unless the contractor has the capacity, capability, and willingness to fully absorb the financial risks of cost overruns and schedule delays. 29

Additionally, the owner must gain full appreciation of all the risks of building, owning, and operating a new nuclear power plant. This includes determining the full scope of the nuclear construction project, including the details behind the balance-of-plant (BOP) requirements, as well as the details behind the construction schedule. Do not assume a simple replication of a “sister project.” The industry learned there is no such thing as a simple replication or a standard plant. 30,31 Insist on understanding the detailed plan that integrates the remaining engineering with the construction, startup, and with operations. Perform a levelized cost analysis on the full power project, including all the BOP and site work. 32

Companies shouldn’t begin construction until the majority of all engineering is completed. This includes site and BOP engineering. The industry learned that “just-in-time engineering” led to “too late construction” which in turn caused very expensive rework. It’s far cheaper to