Report: FL, SC and GA Ratepayers To Foot Bill For $20 Billion In Excess Costs If Nuclear Reactor Projects Are Not Stopped
Ratepayer-Unfriendly "Advance Cost Recovery" Financing Schemes Are Keeping "Uneconomical" Reactor Projects Alive; Warning Sounded for IA, UT, MO and Other States Toying With Advanced Cost Recovery Financing.
WASHINGTON, March 14, 2013 /PRNewswire-USNewswire/ -- Saddled with an "advance cost recovery" financing arrangement that allows the nuclear industry to make them pay in advance for the construction of new reactors, electricity ratepayers in South Carolina, Florida and Georgia, are faced with a stark choice today: Either "eat" roughly $6 billion already invested in costly new nuclear reactors or shell out even more when the region's increasingly "uneconomical" reactor projects pile up $20 billion or more in excess costs.
That is the main conclusion of "Public Risk, Private Profit, Ratepayer Cost, Utility Imprudence," a major new report by economic analyst Mark Cooper of the Vermont Law School Institute for Energy and the Environment. (The report is available online at http://220.127.116.11/vlsreport and http://www.vermontlaw.edu/Academics/Environmental_Law_Center/Institutes_and_Initiatives/News.htm.)
Cooper also concludes that the dire prospects ahead for ratepayers in the Southeast U.S. should send a clear warning to ratepayers and lawmakers in other states – including Iowa, Missouri and Utah – that have toyed with adopting "advance recovery financing" (sometimes called "construction work in progress" or CWIP financing) to erect traditional large-scale nuclear reactors and so-called "small modular reactors," which recently received the Golden Fleece Award from Taxpayers for Common Sense.
In the wake of rising cost overruns at the Vogtle nuclear reactor project in Georgia, skyrocketing cost estimates for the Levy reactors in Florida, and the shuttering of the problem-plagued Crystal River reactor site, the Cooper study scrutinizes the economics of two Southeast U.S. reactors -- the V.C. Summer project in South Carolina and the proposed Levy reactor project in Florida. In both cases, the ratepayers of the utilities building the reactors are at significant peril of footing the bill for tens of billions of dollars in excess costs if the reactor projects proceed.
Report author Mark Cooper said: "For ratepayers, this is a real pick-your-poison situation: Either pull the plug now and 'eat' an average cost per reactor of one or two billion dollars already sunk into each reactor … or let the reactors proceed and pay $10 billion or more per project in excess costs over the life of the reactors. In the face of escalating nuclear construction costs, cheap natural gas, rising competition from increasingly inexpensive wind and other renewables, falling consumer demand, and a heightened focus on energy efficiency, the economics of these new nuclear reactor projects could not be more abysmal for ratepayers. The fact that advance cost recovery for nuclear reactors shifts the risk of construction from stockholders to ratepayers is the one and only thing that is keeping these uneconomical reactor projects alive today."
Peter A. Bradford, adjunct professor at the Vermont Law School, a former member of the U.S. Nuclear Regulatory Commission (NRC), and a former utility commission chair in New York and Maine, said: "The claim that having customers pay for power plants years before they generate electricity somehow saves customers money is completely false. In most cases, customers lose money under these rate-setting policies, which might more accurately be called 'advanced cost enhancement' rather than 'advanced cost recovery.' Only in a best case scenario – which does not exist in the U.S. today – do customers have a chance of breaking even. They will never – absolutely never - come out ahead."
Key conclusions of the Cooper report include the following:
- "Advance cost recovery" financing is driving new reactors, not marketplace economics. "The critically important role of advanced cost recovery … in creating the new nuclear fiasco is demonstrated by the behavior of utilities. All of the projects for which engineering, production, and construction (EPC) have been signed involve guaranteed advanced cost recovery. Three-quarters of the states where advanced cost recovery existed quickly saw an EPC contract signed. Not one of the projects proposed in a state without advanced costs recovery has moved to the EPC phase."
- New nuclear reactors will impose tens of billions of dollars in excess costs on their ratepayers. "The exact amount (of the excess costs) will vary depending on the assumptions made about the construction costs, the discount rate (cost of capital), the projected cost of gas, and the cost and availability of other alternatives. The best estimate of the excess costs that will be borne by South Carolina ratepayers and the South Carolina economy is in the range of $10 billion. With future cost overruns and adjusting for the discount rate, the Levy reactors in Florida would have a similar level of impact. Other states implementing an advanced cost recovery statute today would likely face even larger excessive costs."
- The time to protect ratepayers is now. "Time is of the essence in conducting prudence review of these massive construction projects since the statutes guarantee cost recovery and costs mount quickly. Although the estimated costs for reactors in the Southeast are in the range of $60-$70 billion today, less than $6 billion has been spent to date. The excessive costs of completing the reactors far exceed the sunk costs at present, which means they should be cancelled. However, as more and more is spent, under the perverse logic and incentives of advanced cost recovery those sunk costs become a burden that ratepayers will have to shoulder for decades."
- New nuclear reactors are unable to deliver power at an economical price. "The facts on the ground that have created this economic fiasco for ratepayers include: nuclear cost overruns; declining natural gas prices; the falling cost of other alternatives like wind and solar; slowing demand growth; and climate change policy that is emphasizing targeted incentives and performance standards for low carbon resources, rather than hefty carbon costs.
- Advance cost recovery is an inherently anti-ratepayer approach. "Advance cost recovery destroys the consumer protection that lies at the heart of utility regulation, as a 2012 analysis prepared by the staff of the Iowa Utilities Board concluded. In a comprehensive assessment of a proposed advanced cost recovery statute in that state, which was ultimately rejected by legislators, the staff found several problems with the financing scheme, including the fact that advanced cost recovery alters the most fundamental principle of rate-setting by shifting the risk of construction so dramatically that the resulting scheme of cost recovery virtually eliminates stockholder risk in the investment."
SOURCE Vermont Law School, Institute for Energy and the Environment, South Royalton, VT