Changes to Utility Financing Regulations Necessary for Cleaner, More Efficient Energy

In his State of the State address, Gov. Jay Nixon suggested that all systems are go for work to begin on the new nuclear reactor in Callaway County. That would be excellent news, but plenty of hurdles remain before this complex proposal gets going, and it will be years before it starts benefiting Missourians. Changes to utility financing regulations that have been proposed during this legislative session are a crucial part of allowing this project to move ahead.

The state of Missouri, like many governments around the world, has decided that utilities are to be treated differently than other industries. For the most part, Missouri long ago granted monopoly powers to utilities, along with price regulations. Private, investor-owned utilities are granted monopoly jurisdiction within certain areas of the state, and their prices and fiscal structure are subject to strict regulation by state law and the Public Service Commission (PSC). This system works fine in some capacities, but current regulations are preventing the development of increased nuclear capacity — something that could greatly benefit the citizens and economy of Missouri. It is time for the General Assembly to relax the restrictions on utility financing that prevent a second nuclear reactor from being constructed in Callaway.

Ideally, we would have less regulation, more competition, and more choice in all aspects of utility provision in Missouri, but it is necessary to deal with current realities. The state’s laws and regulations make it prohibitively difficult for Ameren to construct an expanded nuclear power facility. The primary obstacle is the construction-work-in-progress (CWIP) law that prohibits utilities from charging current energy customers for expenses incurred during a construction phase. Even if such construction would bring more electrical power, environmentally cleaner power, and potentially lower rates over the long run, the law prevents the project from moving forward unless Ameren can fund the entire project itself without passing on any charges to customers until after the operation is completed and running. This requirement is so restrictive that it has succeeded in preventing any nuclear power expansion in Missouri since it was passed in 1976 — which is exactly what its backers intended.

Thankfully, utilities do experience some degree of competition. Regulated gas, cable, and water companies still compete with propane, satellite television, and well or septic systems. But consider the regulatory obstacles that face one of these monopolies when it plans to begin a major capital project. Companies that compete in a free market, on the other hand, have the option of raising their prices to help pay for such projects. That type of funding strategy may or may not be a smart move, depending on numerous factors, but at least they have the option. Ameren does not, because the interests of anti-nuclear activists in the 1970s still dominate our discussions in 2011.

The citizens of Missouri now know a great deal more about the risks of nuclear power in Missouri then they did when CWIP was passed. Nationwide, support for the increased use of nuclear power is strong. A March 2010 Gallop poll found that 62 percent of Americans favored the use of nuclear power, with only 33 percent opposed.

If completed, an expanded nuclear power plant in Callaway County would benefit all of Missouri, not only Ameren customers or shareholders. Because of the way the electrical grid is maintained, the increased baseload power generated at Callaway would be put to safe, efficient, and clean usage throughout the state and country. For that reason, it is fair that other regulated power utilities participate in financing the plant and that their customers pay a portion of the costs.

A pending bill, S.B. 50, would exempt the second Callaway plant from some of the CWIP regulations, and has received early bipartisan support. Unlike the failed proposal to amend CWIP two years ago, this bill addresses the use of CWIP only for nuclear power plant expansion. The bill’s sponsors deserve credit for that. Support for or opposition to this bill should now be based on the merits of nuclear power, rather than on tangential issues.

Nuclear power still has significant shortcomings that need to be settled, such as long-term waste storage. France has demonstrated that reprocessing of nuclear waste can work, and that might be one answer for the United States. A few powerful federal politicians have been able to prevent the installation of one workable storage idea: Yucca Mountain. But even though technological solutions are being temporarily held hostage to narrow political interests, that is hardly a reason for Missouri to halt the power expansion it requires for economic growth. History has shown that technological progress will win out in the end, to the benefit of its pioneers.

Missouri needs increased generation of environmentally friendly energy, and nuclear power is currently the most effective way to provide it. Removing CWIP restrictions from this project is a necessary maneuver. It’s important to remember that end-consumers of energy will pay the final costs either way, whether by financing construction or by purchasing less-efficient energy. A second Callaway plant is one instance in which the benefits of an increased supply of clean, efficient energy in the future are worth the costs of higher consumer prices in the present.

David Stokes is a policy analyst for the Show-Me Institute, an independent think tank promoting free-market solutions for Missouri public policy.