In a statement released today, Mark Cooper, a Senior Fellow for Economic analysis at the Vermont Law School’s Institute for Energy and the Environment argues that proposed amendments to the nuclear bill HF561/SF390 do not address fundamental flaws in the bill. Here is Cooper’s statement, in full:
In a recent analysis of proposed legislation to allow advanced recovery of costs associated with construction of nuclear reactor in Iowa (Nuclear Socialism Comes to the Heartland of America, Early Cost Recovery for New Nuclear Reactors in Iowa and the Return of Electricity Rate Shock, February 2012) I concluded that
The proposal for advanced cost recovery in Iowa alters the most fundamental principle of rate setting by shifting the risk of construction so dramatically that the resulting scheme of cost recovery can best be described as “nuclear socialism.
The recent amendments proposed in the Senate Commerce Committee do nothing to fix the underlying flaws in the legislation. Mid-American would still collects from ratepayers for years, or even decades before the reactor is used and useful at an excessive rate of return. And all of the risk of nuclear cost and cost overruns would fall on ratepayers. The harmful effects of these perverse incentives are still in place.
- By conferring a special advantage on nuclear, it threatens to distort the utility and regulatory decision making process and gives utilities an incentive to choose investments and make construction decisions that harm ratepayers.
- Beyond the initial choice of projects, shifting the risk of nuclear reactor construction onto the backs of ratepayers creates an ongoing problem because diminishes the incentive to drive a hard bargain with vendors that protects ratepayers or recover costs from joint owners.
- By excusing nuclear reactors from rigorous comparative analysis of alternatives, it all but guarantees less costly alternatives will be passed over.
- Because nuclear reactors are so risky and impossible to finance in normal capital market, the utilities are pushing for advanced and guaranteed recovery of all costs, but certainty denies regulators the flexibility that is needed in an uncertain and rapidly changing environment and ties the hands of the IUB in its efforts to balance the interest of ratepayers and utility shareholders.
- The need to accelerate cost recovery creates severe intergenerational inequities in cost recovery, violating the fundamental principle that those who consume the output of a plant should bear its costs.
- Having guaranteed utilities cost recovery on an annual basis, the IUB will be under greater pressure to approve “incremental” additions to cost even when those costs are the result of utility error.