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Nuclear/CWIP

The debate over Construction Work in Progress (CWIP) has surfaced again in Missouri.

Overturning a ban on CWIP financing is a tactic sought by Ameren UE in order to finance construction of a second nuclear plant in Callaway County. Ameren tried unsuccessfully to overturn CWIP in the legislature in 2008, as a way to have ratepayers underwrite the full $6+ billion pricetag for the plant while it was being built. This year, with both SB 321 or SB 406, Ameren is trying to have ratepayers finance $45 million for an “early site permit.” MVC sees this as a classic “camel nose in the tent” technique — a prelude to a future full-blown plant financing effort.

Why is Ameren asking for funding for an early site permit?
The problem for Ameren UE is that its normal method of paying for construction doesn’t work.  Investors don’t want nuclear power anymore than you do. Without support from Jefferson City and ratepayers like you paying for Callaway two decades before it goes online, Ameren will be unable to finance its construction. Ameren has been very clear that if SB 321 or SB 406 passes, the next step will be building a $6 billion nuclear reactor at the Callaway site.

The history of CWIP

In 1976, Missouri voters by a 2–1 margin passed a ballot initiative banning CWIP financing. This initiative overturned the Missouri Public Service Commission’s (PSC) decision in December 1975 to allow CWIP. The No Construction Work In Progress (No-CWIP) law, in place for more than 30 years, is a consumer protection statute that prevents utilities from charging rate-payers for power plants before they are “fully operational and used for service.” It prevents utilities from building unnecessary or excessively expensive generating capacity at customer expense. MVC believes it’s hard to argue with that logic.

Why is CWIP unfair to ratepayers?
1. CWIP would allow electric utilities to charge current customers for future projects that are not yet providing any service.

2. CWIP shifts the risk of building power plants from the shareholders to the ratepayers. Essentially, CWIP gives the utility a no-bid, cost-plus contract to build whatever it likes. It requires that ratepayers pay for 100% of an investment for which they have no ownership stake, and if the project fails, ratepayers absorb 100% of the loss.

CWIP unfairly shifts the risk to ratepayers without adjusting the guaranteed rate of return a utility already receives for bearing the risk (See “Who should bear the risk” below). If utilities prefer to have ratepayers bear all of their big risks, then their guaranteed rate of return should be eliminated or reduced significantly.

When risk is shifted from the utility to the ratepayer, imprudent decisions generally follow. That’s because the same caution utilities exercise to protect their shareholders, they do not exercise for their captive customers: ratepayers. For example, AmerenUE has admitted publicly that the risk of building a huge new nuclear power plant is not prudent for the company’s shareholders “We just couldn’t do it. The risk would be too great. We don’t think people would lend us the money. We don’t think our board of directors would approve it. And we don’t think our stockholders would think it’s prudent.”

3. CWIP encourages overbuilding by offering an incentive for utilities to build more capacity than ratepayers need, which grows the ratebase for which a utility gets a fixed rate of return. In addition, the excess capacity that ratepayers finance can then be used to increase the utility’s sales on the open market.

4. CWIP passes on the risk and cost to ratepayers of high cost, high risk, large energy supply projects when ratepayers might benefit more from investments in lower cost, lower risk alternatives like energy efficiency and clean renewable energy. These low cost, low risk energy solutions can be implemented incrementally as needed, eliminating the risk of overbuilding.

5. CWIP removes the opportunity for scrutiny and oversight of utility decisions and expenses.  Under No-CWIP conditions, utility expenditures are carefully examined before an expense is added to the utility’s rate-base and there is opportunity for PSC staff, the public counsel and consumer groups to challenge the legitimacy of expenditures or the prudency of a planned investment. Under CWIP oversight happens after the expenditure, not before.

Why are nuclear power plants considered risky investments?
New nuclear power plants are among the most expensive energy options available. They are neither clean nor renewable and they have many externalized costs associated with the mining, transportation and storage of their radioactive fuel. Clean, renewable alternative energy technology is rapidly advancing that costs less, takes less time to deploy and has other public benefits like distributed energy and lower green house gas emissions associated with their lifecycle. Given nuclear power’s track record of marketplace failure, including massive cost overruns and serious construction problems resulting in long and expensive delays, it’s not surprising that Wall Street sees new nukes as unacceptably risky.

Past failures aren’t easily forgotten. In the 1970s and 1980s, more than 100 planned nuclear reactors were scuttled when demand projections didn’t materialize. Some were just on the drawing boards, but others were in various stages of construction, with hundreds of millions, or in some cases billions of dollars that had to be written off. Forbes Magazine, in 1985, called it “the largest managerial disaster in business history, a disaster on a monumental scale.”