Cooper:  Example of 4 Southern States Proves That “Robbing” Ratepayers Before Power is Produced Leads to More Expensive Reactors, Higher Than Necessary Rates for Consumers

DES MOINES, IA  – A leading U.S. expert on nuclear reactor financing is warning that a bill pending in the Iowa Senate to allow MidAmerican to charge in advance for the construction of new nuclear reactors could lead to significantly more expensive utility bills for state consumers, up to $70 higher a month  ($840 per year).

Analyst Mark Cooper shows how the examples of four Southeastern U.S. states – North Carolina, South Carolina, Florida and Georgia – have led to major harms to consumers when “early cost recovery” or “construction work in progress” (CWIP) is used to finance nuclear reactors.   If the Iowa Senate measure becomes law, Iowa would become only the fifth state in the U.S. to impose such confiscatory, anti-consumer special interest legislation at the request of the nuclear power industry.

Cooper’s analysis concurs with the Staff of the Iowa Utilities Board (IUB), which examined the controversial nuclear financing scheme before the state legislature (HF561), and concluded that it poses a serious threat to Iowa ratepayers. The Cooper report notes: “In addition to the dismal economics of nuclear power, the primary reason that the practice is limited to a very few states is that advanced cost recovery is fundamentally flawed, placing ratepayers at extraordinary risk for an excessive and unnecessary cost burden that runs into the billions of dollars. The staff of the IUB has raised a number of concerns about the advanced cost recovery legislation now stalled in the Senate that reflect the long-standing and well-documented concerns of ratepayer and consumer advocates.”

Mark Cooper is senior fellow for economic analysis, Institute for Energy and the Environment, Vermont Law School, and author of “Policy Challenges of Nuclear Reactor Construction, Cost Escalation and Crowding Out Alternatives” (2009).

Commenting on his report, Cooper said: “Past experience and current developments in the few Southeastern U.S. states that have allowed advanced cost recovery for nuclear reactors indicate that removing consumer protections will impose significant costs on Iowa ratepayers and expose them to extraordinarily dangerous risks. The push for early cost recovery for construction of nuclear reactors in Iowa and elsewhere is driven by one basic truth about new nuclear reactors: They are totally uneconomic. The markets won’t touch these projects so the industry’s only alternative is to enlist state lawmakers to leave consumers holding the bag.”

Steven Falck, senior policy advocate, Environmental Law & Policy Center (Des Moines, IA), said: “If this bill passes, Iowans would see massive rate hikes while being stripped of key protections that have served us well. As the IUB staff pointed out, ‘HF 561 would shift nearly all of the construction, licensing, and permitting risk associated with one or more nuclear plants from the company to its customers.’ The ratepayers would be stuck paying for the most expensive power generation and would assume 100 percent of the risk associated with unproven, uncertified, modular nuclear technology.”

The Cooper report notes: “In the four states in the Southeast where funds are being collected from ratepayers under new advanced cost recovery for nuclear reactor construction in the Southeast, each individual nuclear reactor project costs $15 to $20 billion. Over $4 billion has already been approved for advanced cost recovery, yet it appears increasingly unlikely that the most of reactors will ever be built. Ratepayers will have paid billions but received nothing for their money. If reactor construction moves forward as proposed, almost $85 billion of construction costs will move into the utility rate-base causing rapid increases in typical consumer bills within a decade. Less costly, more consumer and environment friendly alternatives will be crowded out of the resource mix.”

The Cooper report also points out:

• New nuclear reactors cannot compete with a large number of alternatives resources that are widely available to meet consumer needs for electricity.
• They are so risky, they cannot raise capital in normal financial markets.
• In order to build new nuclear reactors, the utilities are demanding the suspension of the regulatory rules and financial market mechanisms that protect ratepayers and balance the interests of consumers and utility shareholders.

A massive $1 billion proposal for transmission lines that would run through Northern Wisconsin and Michigan’s Upper Peninsula should not be allowed to continue on a special, fast-tracked “out-of-cycle” approval process, according to the Environmental Law & Policy Center (ELPC) and Citizens Utility Board of Wisconsin (CUB)

American Transmission Company’s (ATC) proposed “Northern Plan” transmission proposal is being reviewed on a rapidly accelerated schedule by the Midwest Independent Transmission System Operator (MISO), a regional organization that manages access to the electricity grid. MISO granted the faster, out-of-cycle review process because of WE Energies’ statements that it might shut down the Presque Isle coal plant in the Upper Peninsula, Marquette, Michigan. Recently, WE Energies and Wolverine Power Cooperative announced a joint venture to explore retrofitting the coal plant with modern pollution control equipment and continuing to run the plant.

“Consumers should not be asked to pay for $1 billion of new transmission lines running through Wisconsin’s Northwoods, without a full and fair review of alternatives that might save money and prevent the disruption of key habitats and natural areas,” said Howard Learner, Executive Director of the Environmental Law & Policy Center.

According to the groups, a more thorough, normal review process should include a consideration of the cost impacts of siting, as well as a detailed consideration of alternative transmission routes. The proposed high-voltage transmission lines would run through the Northwoods in Wisconsin and the Upper Peninsula of Michigan.

“Should we spend many years and consumer dollars to analyze the technical details of a plan that might not even happen because of the significant natural resources and other concerns it already raises,” asked Charlie Higley, Executive Director of Citizens Utility Board of Wisconsin. “Should we build transmission lines through one state to primarily serve another state? These are questions MISO should ask – and answer – after careful review.”

Although the MISO review process is closed to the public, MISO agreed to allow ELPC and CUB to submit expert comments for its consideration. Read them here.

###

The Environmental Law & Policy Center is the Midwest’s leading environmental legal advocacy and eco-business innovation organization. www.ELPC.org

“Wind energy creates good jobs and business growth across Iowa and across different sectors,” said Howard Learner, Executive Director of the Environmental Law & Policy Center. “Smart policies can bring more wind businesses to Iowa – that’s good for both economic growth and better environmental quality.”

The report states that a commitment to business development combined with tax incentives, a skilled workforce and a central location have helped make Iowa a leader in the wind industry.

The report highlights supply chain companies across the state, from locally owned small businesses to seven international manufacturing companies. In addition to the 80 existing supply chain companies, the study identified more than 30 additional Iowa companies that could supply the wind industry if demand increased.

The report notes that strong regulatory and tax policies are key to growing any industry, and the wind industry is no exception. The proposed strong federal renewable energy standard would help grow Iowa’s economy by increasing Iowa’s export opportunities for both wind power and manufactured wind turbine components and professional services.

To download a copy of the report, visit www.elpc.org/iowawind.

New transmission lines could expand the market for the vast wind resources in the Midwest, but getting transmission in place will require cooperation between many different states, utilities and industries. As ELPC Senior Attorney John Moore told the Des Moines Register, “The easy stuff has already been done on wind. Now come the more difficult details.” ELPC is working to continue the growth of clean energy in the Midwest.

Read the article in the Des Moines Register

Join ELPC for “Transmission Week” starting with a Webinar: “Using Regional Energy Markets to Reduce Energy Demand and Costs” on September 28 and a “Transmission 102″ Training on September 30 to learn more about achieving a cleaner, more efficient and environmentally protective electric transmission grid.

Interconnection is the process of linking clean distributed wind power and solar energy sources of electric generation to the grid. The new standards create a clear process for Iowa citizens and utilities to bring their clean energy sources online with standard forms, affordable fees and reasonable insurance requirements.  Iowa previously had loose interconnection guidelines that resulted in a complicated patchwork of rules.

The new Iowa standards are built on a model by ELPC in Illinois and South Dakota. The goal is to “facilitate the addition of distributed generation” to the electric distribution system.  The rules minimize burdensome insurance requirements and application fees for small systems, and they include standard forms and contracts to streamline and provide transparency to the process.

The Iowa Utilities Board’s Final Order which includes the final interconnection rules, forms and standard agreements is available here: https://efs.iowa.gov/efiling/groups/external/documents/docket/041781.pdf

The Iowa Utilities Board Staff Memo describes the process: https://efs.iowa.gov/efiling/groups/external/documents/docket/041952.pdf

The importance of new transmission capacity to support wind power development is relatively clear. There is a less obvious and equally important goal of relating transmission advocacy to spur the retirement of old, highly-polluting coal plants in the Midwest/Great Plains states. There is a very important set of strategic leverage points because of the structure of the Midwest/Great Plains power market in 2010 – 2020.

ELPC hosted a Midwest Transmission Strategy meeting in Chicago in April 2010.  The meeting brought together Midwest environmental, clean energy and consumer leaders to develop strategies to address delivery capacity issues for wind power and other renewables as well as important cost-allocation issues for new transmission. Below are links to some of the resources shared at that conference.

Midwest Transmission Strategy Meeting
Presentations and Materials (April 2010)

Other Resources

Using Regional Energy Markets to Reduce Energy Demand and Costs
Webinar and Materials (September 28, 2010)

Transmission 102 Training (September 30, 2010)