Perspective
States will play a significant role in the resurgence of nuclear power plants in America.
At times, various conditions align and set the stage for achieving goals that may have appeared to be unreachable. Last summer, the Boston Red Sox were all but eliminated from contention, but then won an amazing stretch of baseball games that resulted in a World Series championship.
A similar scenario can be applied to the U.S. nuclear industry-producer of a steady, low-cost, environmentally important electricity source poised to thrive with the possibility of new plant construction in the not-so-distant future.
The National Association of Regulatory Utility Commissioners (NARUC) and state public utility commissions can play a significant role in facilitating the reality of new plant construction-the foundation for economic prosperity and an enhanced quality of life for their states and the nation.
Today, America stands at a crossroads akin to the energy crisis of the early 1970s, when the price of crude oil was at an all-time high and supplies of natural gas appeared to be running short because of price controls.
The country addressed these price and supply risks by investing in new technology and building significant new coal-fired and nuclear capacity. Consequently, nuclear's contributions to U.S. electricity supplies rose from 3 percent in 1973 to 20 percent today, while generation from oil-fueled plants flipped, dropping from 20 percent to 3 percent.
Same Situation, Different Decade
The energy landscape today is much the same. The price of crude oil is at, or near, an all-time high. We're placing pressure on natural gas supply and facing the prospect of sustained elevated prices, while meeting new demand through "demand destruction" among industries that use natural gas as a feedstock.
It is imperative that we address today's energy challenges just as we managed the crisis of 30 years ago-by investing in our electricity generation and transmission infrastructure.
The Department of Energy forecasts a 50 percent increase in electricity demand over the next 20 years, which portends a dramatic increase in capital investment in energy infrastructure, including advanced nuclear and coal-fired power plants that represent the backbone of the electricity supply system.
Nuclear and coal power plants represent approximately 70 percent of U.S. electricity supply, but investment in new nuclear and coal-fired power plants has virtually disappeared during the last 12 years. Since Congress enacted the Energy Policy Act of 1992, industry has built 271,000 MW of new gas-fired generating capacity. By contrast, only 4,300 MW of new nuclear capacity and 9,500 MW of new coal-fired capacity have come on line.
The nuclear energy industry is committed to building new nuclear plants, and is working on regulatory, legislative, and financial policy initiatives that permit investment in new reactors. Public support for nuclear energy is at an all-time high, according to an October 2004 nationwide survey of U.S. adults by Bisconti Research Inc. Eight out of 10 Americans believe nuclear energy plays an important role in our energy portfolio today, and more choose nuclear energy as 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.
State Support
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 reviewing capital costs, ratepayers are protected from cost overruns.
These state actions are evidence of how cooperative engagement by public officials on such vital public policy issues can serve the national interest. The NEI hopes other states can work with the industry to develop similar approaches suited to their particular needs.
Someone once wrote that "ill-fortune is the failure to anticipate." In too many circumstances throughout history, the failure to take responsibility for confronting serious issues when they're most manageable proves far more costly in the long run. As we look ahead to the next two decades, it's clear that America must take decisive action now to secure our energy future.
Essential Asset
Over the next two decades, it's going to take a concerted effort to make sure America has the electricity it needs from a diverse group of energy sources to support a growing economy and meet its environmental goals.
The nuclear energy sector has a strong foundation on which to build. Our 103 nuclear power plants supply electricity to one in every five U.S. homes and businesses. These plants are a strategic national asset because nuclear power is the only expandable, large-scale energy source that is emission-free and can meet the baseload electricity demands of our growing population and economy. Emission-free nuclear plants play a vital role in meeting our clean air goals and the president's commitment toward reducing the greenhouse gas intensity of the U.S. economy.
Nuclear plants are operating safely at extremely high levels of efficiency, with industry-wide annual capacity factors in the 90-percent range. Nuclear power plants are low-cost producers, running on average between $20/MWh and $25/MWh, and they contribute to the fuel and technology diversity that is the strength of the U.S. electric supply system.
Nuclear power plants are a strategic national asset that justifies a systematic, disciplined program to build new nuclear power plants in the years ahead. It would be impossible for the United States to have a coherent, forward-looking energy policy without nuclear energy, and state regulators have a vital role to play as the industry considers building new nuclear power plants.
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