February 15, 2007
Duke Energy Continues Push to Shift New Plant Risks to Ratepayers
Customers were burned by utilities’ mistakes in the 1980s;
“CWIP” should remain abolished
STATEMENT FROM EXECUTIVE DIRECTOR JIM WARREN:
The NC Utilities Commission received legal briefs this week on a request by Duke Energy that would open the door to making customers assume the financial risks for new coal and nuclear plants, any one of which might never produce a watt of electricity. With both Duke and Progress Energy planning over $20 billion worth of plants, the Commission – and the legislature – should reject this corporate money grab.
In the so-called CWIP docket (Construction Work in Process), Duke seeks Commission approval to recover millions this year in vaguely defined development costs for new nuclear plants in South Carolina. The cost to build nuclear plants is a matter of great uncertainty. At a January hearing on CWIP, a Duke lawyer pointed out that “this technology has not been built – or even tested – in 20 years.” Then, in pushing the Commission to approve two coal-fired plants at the company’s Cliffside site, Duke Energy CEO Jim Rogers said last month that nuclear plants would cost at least 40% more than current estimates by Westinghouse and other vendors.
But Rogers also told the Commission he wants “early recovery” for the Cliffside coal plants if the commissioners approve their construction. That project has suffered two increases since September, pushing an estimated $2 billion price tag toward $4 billion including finance costs. In addition, Duke told the Commission the company doesn’t have firm bids for 75% of the project costs, raising the likelihood of more increases even before construction could begin.
Rogers also made clear that Duke will press for CWIP at the legislature (Progress Energy surely will too). CWIP would make customers pay up-front for new plant construction costs – and a mark-up for the utilities – even if the plants are never completed. CWIP was abolished in the 1980s after those two companies cancelled nine nuclear plants between them, leaving over a billion dollars in stranded costs, most of it paid by ratepayers.
NC WARN attorney John Runkle, in a brief filed this week on behalf of a group of public advocacy organizations, noted: “What continues to be troublesome is that the costs associated with these activities were vague and unsupported to start with, and now in the proposed language by both Duke Energy and the Public Staff, there is no cap on the amount Duke Energy can spend.”
While CWIP would save the utilities billions in finance costs for new plants, the ratepayers would bear them in the form of higher electric rates, along with the risk that the plants are never completed.
The People of North Carolina confer on the power companies a guaranteed rate of return of up to 12% on their capital costs, largely to allow for business risks. CWIP would fundamentally realign the balance of risk. Therefore, if the utilities succeed in making customers pay for plants that are not yet “used and useful,” (which is now required by state law), the State should reduce the guaranteed rate of return.