by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor | John Locke Foundation
Corporate welfare for energy, whether it’s for renewables (nationally or statewide, directly or indirectly through "crucifixion") or nuclear, is at such a high pitch that choiceless electricity ratepayers would be excused for thinking our destiny is higher electricity prices just because.
As Duke Energy pulls the plug on the Crystal River nuclear plant in Florida, which it acquired when it Borg-ed Progress Energy and its captive ratepayers last year, Florida ratepayers are left with a hefty bill for nothing. Orlando Sentinel columnist Beth Kassab explains,
A failed attempt to upgrade that plant means you paid for power that will never be produced.
Nearly $100 million worth.
And Progress wants to collect $264 million more from customers for the now-defunct project.
Don’t expect a refund.
The Legislature decided back in 2006 that power companies should be able to charge customers for nuclear projects before the projects are completed. And — here’s the dumb part — if something goes wrong and the projects are never finished, the law doesn’t require customers to be reimbursed.
The situation owes to Florida’s adoption of Construction Work In Progress (CWIP) legislation, of which one legislative supporter has publicly expressed his regrets. Essentially, CWIP legislation allows utilities to recover costs of construction of power plants through rate hikes even if they never come on line. As this newsletter explained last year,
Who would support such a notion? Well, for example, South Carolina, Georgia, and Florida. All three have Construction Work In Progress (CWIP) legislation on the books. Utilities defend CWIP by saying it will keep ratepayers from being hit by large rate increases when fully constructed nuclear power plants come on line and that it will help them pay for the plants as they go rather than spend years and far more money paying interest. The argument assumes the plants will come on line, and that they will not be beset with huge cost overruns — assumptions that have been proven false in such places as … South Carolina, Georgia, and Florida. …
But there’s another shoe to drop. The Energy Policy Act of 2005 authorized federal loan guarantees for new nuclear plant construction of up to 80 percent. Nevertheless, the nuclear industry argues that the risks of construction are so great that such an extensive guarantee isn’t enough to get private investors to pitch in for the rest — and Wall Street investment banks agree. In 2007, Citigroup, Credit Suisse, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley wrote to the U.S. Department of Energy to state that anything less than a 100 percent unconditional guarantee would not be enough to jumpstart private investment. …
In other words, CWIP is that last bit of government guarantee needed to get utilities and investment banks to the magic 100 percent. Force ratepayers to cover the miniscule amount that taxpayers weren’t compelled to bear, and abracadabra, suddenly the whole gosh-darn enterprise makes business sense.
Progress and Duke express support for SB 3. Of course they do.
Not only don’t they incur costs, but they received a very important "goodie" in SB 3 that made the mandate worth it. There’s something called Construction Work in Progress (CWIP), and it is now allowed with nuclear power.
This means that utility companies can pass on the costs of building nuclear power plants as they incur those costs. If the plants never get finished, electricity customers still bear the costs of the plants.
The risk associated with building plants is shifted from utility company shareholders to electricity customers. The result is that utilities have little reason to be cost-efficient in constructing plants. This disincentive to be efficient will lead to:
1. Increased construction costs
2. Overbuilding of plants
3. Delays in plant construction
SB 3 also has provisions that make it very profitable for utility companies to run energy efficiency programs. They make more money from not generating electricity compared to generating electricity.
It used to be understood that low-cost energy was good for society, especially the poor. This newsletter recently, in discussing Gov. Pat McCrory’s support for offshore wind power, cited cost projections for new energy generating technologies for 2016 by the Energy Information Administration. Nuclear is also among the more expensive options. SB 3’s CWIP is a Duke "goodie" that North Carolina ratepayers could well do without
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