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Nuclear Standoff - Nuclear Breach

Federal failure to fulfill spent-fuel obligations creates expensive risks.

Fortnightly Magazine - December 2009

costs are never done. Since there’s no reason to presume when, if ever, DOE will take custody of SNF, these costs will continue accumulating for 50 years or more. Thus, companies need to routinely bring their claims back to CoFC. The impacts on a utilities’ risk capital aren’t part of a cancelled check claim, and ratepayers and stockholders will continue to foot the risk premium bill for years to come. And, operating plants are worth less today than they would have been because of the SNF perpetual liability.

The second class of claims involves diminution of value. These claims were filed by companies who sold their plants to other nuclear operating companies some 10 years ago. Under a diminution claim, DOE’s breach is considered to have caused a loss in market value of the entire plant at the time of sale in addition to the money required to store SNF.

Utilities have pursued many of both types of cases and some decisions have been rendered. In a case filed by Xcel subsidiary Northern States Power (NSP), CoFC awarded more than $116 million for damages NSP incurred mitigating DOE’s breach at its operating reactors at the Prairie Island and Monticello sites. The company originally sought to recover more than $172 million in SNF mitigation costs. The company’s cost of capital was $54.5 million, or just under one-third of total costs, which the court excluded from the award in its decision. CoFC also made several other lesser adjustments in otherwise granting NSP’s claim for its operating and capital costs.

From the court’s perspective, cost of capital was merely interest expense, which is precluded. From the company’s perspective, cost of capital is tangible and reflects, in part, the risk the company faces with any capital project and the costs capital markets impose for assuming that risk. 

NSP’s stockholders also were denied interest on the damages while awaiting the trial and decision. At 12-percent interest compounded over 10 years, NSP’s award would have ballooned to a 2008 value of $435 million. Justice delayed  benefited the federal government by more than $300 million in financing, at the expense of NSP and its customers.

Next, a seller’s case. The first diminution case decision involves Boston Edison (now NStar). Approximately 10 years ago, the Commonwealth of Massachusetts enacted legislation restructuring the electric utility industry in response to FERC Order 888. Included in this legislation is the requirement that regulated companies, such as Boston Edison, divest or functionally separate electric generation from transmission and distribution services. Boston Edison elected to sell its power generation, and this process led to a competitive auction of the Pilgrim Station. The winning bidder was Entergy Nuclear, which now owns and operates the plant. 

As Pilgrim’s owner, Entergy is pursuing its own claim against the United States. But Boston Edison’s case and the information readily available in CoFC’s decision illustrates the magnitude of costs. When Pilgrim was sold, Boston Edison added funds to the plant’s decommissioning trust. The decommissioning trust is intended to return the site to greenfield status and store SNF until such time