By Henry Robertson
AmerenUE recently announced plans to build a second unit at its Callaway nuclear power plant. It’s not a done deal, they caution. They had to get in line for federal tax credits that are now available only to the first few new nukes. A final decision won’t be made for some time.
Still, Ameren shows every sign of being serious. On July 28 they filed an 8,000-page combined construction and operating license application with the Nuclear Regulatory Commission.
Actually, we’ve been here before. In the 1970s Union Electric, as AmerenUE then was, planned Callaway as a 2-unit plant. The second unit got canceled, a semi-victory for citizens opposed to nuclear power. Those citizens went for the Achilles heel of nuclear power — its cost. UE wanted to finance the plant using CWIP.
CWIP stands for “construction work in progress,” which means a utility has the right to bill its customers for the cost of a plant while it’s being built. Ordinarily the capital costs of a plant can only be recovered in rates after it starts generating power — after it becomes “used and useful,” in utility jargon.
Public utilities are public-private hybrids. They are regulated monopolies. AmerenUE has the exclusive franchise to provide electrical service in its defined service territory. In exchange for that privilege, it submits to heavy regulation by the Missouri Public Service Commission (PSC). At the same time, it is a for-profit company answerable to shareholders who expect it to pay steady dividends. Like stockholders in any other company, investors entrust their capital to management knowing that there’s risk involved.
CWIP shifts the risk of building power plants from the shareholders to the ratepayers. The utility is saying, in effect, the risk is too great for the company and its shareholders; we’ll put it on the customers.
In 1976 Missouri voters by a 2–1 margin passed a ballot initiative banning CWIP financing. Now Ameren wants to overturn that law in next year’s legislative session. We don’t intend to let that happen.
AmerenUE initially thought Callaway 2, version 2, would cost $6 billion, equivalent to the company’s entire worth. It’s far more likely to cost at least $9 billion. Estimates for the cost of new nuclear plants are running as high as $12 billion. Ameren has publicly said that unless the no-CWIP law is repealed, it will not be able to build Callaway 2.
You may wonder why Ameren chose to go nuclear. Coal is still relatively cheap, even though the global demand for new plants has driven up the costs of materials and labor, and of coal itself.
The answer is carbon risk. Congress is expected to pass a cap-and-trade law. Carbon-dioxide-emitting companies (and none emit more than coal-burning utilities) would have to buy allowances at auction, giving them permission to keep producing greenhouse gases at a price per ton, with prices subsequently being controlled by the market. Those industries that are capable of reducing their greenhouse gas emissions would have the incentive to do so; they could sell their unneeded allowances for a nice profit. Companies that remained carbon-intensive would have to buy.
The mere expectation of carbon regulation has utilities rushing into energy efficiency programs, renewable energy — and nuclear power.
Pros and cons
Even without CWIP, don’t customers still end up paying for new plants? Yes, but if the risk is on us, Ameren could be less concerned about cost overruns and about holding down costs generally. With CWIP, we could end up paying even if construction starts but is later abandoned.
Even with CWIP, the PSC would still review utility expenditures and allow them to go into the rate base only if they were “prudent.” But audits after the fact tend to be less exacting, and it’s hard to unbuild something once it’s built.
There’s a debate over nuclear power within the environmental movement. Nuclear is undeniably more benign for the climate than fossil fuels. Maybe we should drop our longstanding opposition. The risks of climate change are even greater than the unresolved risks of nuclear waste, accidents, weapons proliferation and terrorist attack.
I sympathize with this argument, but I agree with Amory Lovins of the Rocky Mountain Institute: nuclear buys less solution per dollar than any other alternative to fossil fuels. $9 billion will buy a lot of wind turbines, solar panels, and energy efficiency improvements.
Over to you
Ameren has begun rolling out a modest set of energy efficiency programs. They will advance money to customers by bearing the initial costs to improve their energy efficiency. The costs will be paid off in rates, of course, but if we save energy we’ll still come out ahead.
But Ameren argues that they’ll still need to build Callaway 2. It’s not their business, nor is it in their power, to change people’s behavior. Ameren expects demand for electricity to grow inexorably despite these efficiency programs, and they’re legally obligated to supply all the power their customers may require.
Good points, but we’ll see. With energy prices rising across the board, people may be more receptive than before to conserving energy through greater efficiency.
It comes down to you. Prove that we don’t need Callaway 2. Conserve energy.