Cost-recovery programs help make nuclear energy affordable
By Jim Sullivan
As a past president of the National Association of Regulatory Utility Commissioners and a former chairman of the Alabama Public Service Commission, I fully understand the challenge Iowa officials have in ensuring their residents have reliable supplies of clean electricity for decades to come, far beyond their terms of service.
When deliberating about proposed infrastructure development, public utility commissions conduct an extensive analysis of their state’s demand growth commonly known as a “determination of needs” that looks at all methods of generation to see which ones are most suitable. Commissioners are also obligated to make sure there is diversification in the state’s generating portfolio, balance economic and environmental concerns, and try to keep consumer costs down.
Nuclear energy is and should be an essential part of Iowa’s diverse electricity mix. Since 1975, Iowa’s only nuclear power plant, the Duane Arnold Energy Center at Palo, has provided the clean, safe, reliable and affordable energy Iowans appreciate, expect and deserve. And it’s been consistently affordable. In short, Iowa’s investment in nuclear energy has yielded decades of dividends for consumers.
In today’s challenging economic climate, there is no doubt that the impact of market forces, global politics and potential costly regulations introduce a number of “wild cards” into projected fuel costs and any public service commission’s decision-making process about new electric generation options. History also tells us that we must think long-term about energy decisions.
Because nuclear fuel is abundant and has not
experienced typical market fluctuations, we need to ensure that nuclear energy remains a key part of our electricity portfolio.
One thing I’ve learned in my 25 years of service is that nothing is cost-free. Balancing long-term investments against long-term needs requires a measured consideration of costs and benefits. Iowa’s current deliberations on House 561 are a case in point.
This legislation would allow cost recovery for a possible small reactor nuclear project in Iowa. This is commonly known as construction work in progress or (CWIP). CWIP allows a utility to recover financing costs and return on equity. By doing so, a utility avoids paying “interest on interest” that would occur if all costs are held until the plant goes into service. Opponents of this legislation refer to it as “corporate welfare,” but that simply is not the case. In Iowa, Mid-American Energy would still be responsible for paying for the project. But the overall cost would be reduced.
The costs of service are spread evenly in electricity rates based on usage while the cost of infrastructure is borne by all consumers in a service territory. Front-end capital costs for clean technology projects, whether they are new small nuclear reactors, clean coal or renewable projects, require extensive new transmission infrastructure.
In the coming decades, we will be challenged to simultaneously meet rising electricity demand and reduce emissions of greenhouse gases. And even though carbon legislation has stalled in Congress, it’s a relatively safe bet that either through legislative or regulatory mandates, carbon mitigation goals and penalties are coming.
Given the inability of Congress and the White House to establish a comprehensive and sustainable national policy, states must shoulder the responsibility for the development of technology-based, zero-carbon solutions such as nuclear energy, clean coal, solar and wind that can be implemented in the near term and are affordable for consumers.
Here in lies the value of CWIP and similar cost-recovery programs. They help making important projects achievable for the betterment of the state’s broader needs.Jim Sullivan former National Association of Regulatory Utility Commissioners and a former chairman of the Alabama Public Service Commission. Comments: firstname.lastname@example.org