Senate Bill 4 (SB 4) is a massive, 133-page omnibus bill that flew through the Missouri Legislature and has now been signed into law by the governor. One key policy SB 4 addresses is amending the Construction Works in Progress Law (CWIP), which was approved by voters in 1976.
SB 4 allows utilities to recover construction costs gradually during the construction phase, rather than waiting until the project is complete and operational. This will only be explicitly allowed for natural gas projects, although there is potentially a pathway available for nuclear and other resources through the Missouri Public Service Commission (MPSC). This alternative financing strategy should be useful for future capital-intensive projects, as it would reduce financial risk for utilities and possibly lower total project costs by allowing firms to rely more on revenue instead of loans, which accrue interest.
CWIP offers benefits for needed power plant construction, but the interest of ratepayers is still vital. A blank check for a monopoly utility could lead to cost overruns and cancellations (which are issues partly tied to the monopoly system itself).
Further Ratepayer Protections and Compensation
The MPSC will still oversee utility rates, and it should continue to weigh potential safeguards to protect Missouri ratepayers. SB 4 already includes two key provisions—cost caps (limited by the estimated cost and completion date) and a refund mechanism—if the plant is not put into operation.
The State of Virginia also recently passed CWIP reform, and it instituted additional safeguards that should be considered for future projects. These include:
- A limit on the number of eligible projects;
- Excluding 20% of development costs from early recovery;
- Mandatory evaluation of federal funding opportunities from the Department of Energy; and
- Establishing a cap on residential monthly bill increases ($1.40 per 1000 kWh).
Additionally, the MPSC should evaluate how ratepayers could be compensated appropriately for early contributions and their role in risk-sharing, such as treating CWIP financing more like a bond system.
This could involve limiting or disallowing pre-operation profits or aligning profits with the operation and provision of power. Another approach might be reducing total cost recovery for utilities after the plant is put into operation, since it is a riskier investment that relies on ratepayers earlier. Potential mechanisms include offering credits for reduced rates post-operation (that could function like a principal in a bond) or shortening the depreciation period post-operation to account for profits earned during the pre-operation phase. If this strategy leads to cost savings for a project, ratepayers should receive a portion of those savings.
These provisions could help strike a balance between protecting ratepayers and facilitating needed power plant construction. Utility companies argue that CWIP is required to build more energy generation in Missouri. If that’s the case, adequate safeguards for state ratepayers are needed.
