Indiana Senator withdraws bill that would have aided new nuclear builds

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In January, James Merritt, a Republican Senator from Indiana, drafted a new bill designed to promote construction of nuclear energy projects in Indiana, a state without any operating commercial nuclear facilities.  Merritt is an influential state senator, and worked hard to encourage nuclear power again in Indiana.

Senate Bill 302 would have opened the door for utilities to benefit from the construction work in progress program (CWIP), which would allow them to bill consumers higher rates to cover future costs of a project prior to its completion.

On Tuesday, Senator Merritt withdrew Senate Bill 302, and announced the bill would not be considered currently, largely because no utility showed interest in starting a new nuclear project in Indiana.

New nuclear reactors are for more expensive to build than other ways of providing electricity, and carry an exorbitant amount of risk during construction, operation, and decommissioning.  Normally, utilities would be prevented from collecting financial compensation from customers before the plant’s completion and passing a standard “used and useful” test.  Although it was once considered a far-fetched dream, inclusion of CWIP is becoming more and more accepted by regulatory commissions, with the blessing and support of utilities.

While the public has long been sold on the cheap, safe, clean marketing strategies of the nuclear industry, knowledgeable investors and lenders have always been more intimidated by the financial risks of cancellation and cost overruns, than motivated by the potential limited gains.

No one has been willing to make the investment alone, at least not without shifting the risk from investors to customers or taxpayers.  In the real world, this means that many potential licensees will not finance new reactors without an automatic recovery plan in place, which normally incorporates Federal subsidies and loan guarantees.  Which begs the question, if an investment is not a sound investment for shareholders, why would it be considered a fair investment for consumers?

The CWIP program has been the center of controversy in states which have allowed utilities to essentially transfer risk from the utility, investors, and lenders to the consumers.  Essentially, the CWIP program is a tax, where government power is used to extract money from citizens in a way that a free market would never allow, which allows utilities to take unnecessary risks they otherwise would not consider.

Consumers are forced to start paying higher rates years before a reactor generates any power.  In some cases, utilities are even assured full recovery of costs, even if the proposed plant is cancelled.  Instead, licensees are assured cost recovery through annual rate increases, as long as they can prove that money has been spent.

The CWIP program provides an incentive for utilities to build large nuclear power stations as opposed to purchasing power from other more efficient producers.  It does not reduce the cost of materials, like concrete and steel, it also does not reduce the costs of labor.  It merely reallocates risks without reducing them.

The CWIP provisions also undercut necessary regulatory oversight by various public services, by passing costs on automatically to customers without undergoing review in rate proceedings.

In Florida, Georgia, and South Carolina, the impacts of the CWIP program are more clear than ever.  Cost estimates for the Levy County project in Florida have tripled to $24 billion for two reactors.  Both the Vogtle and Summer nuclear construction projects have fallen behind schedule and exceeded projected costs.

Indiana’s ratepayers have been bitten by the CWIP bug before.  Duke Energy’s coal-gasification plant in Edwardsport is being constructed under a CWIP financing plan.  The project which was originally estimated to cost $1.9 billion has ballooned to over $3.3 billion.  But for the time being, Indiana has joined other states like Iowa and Missouri in declining to allow CWIP on nuclear projects, even if that means not expanding the nuclear market.

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