The Florida state senate passed a new energy roadmap with some provisions that may encourage electric power utilities in the state to speed up their development of new nuclear power plants. The bill passed through the senate on a 39-0 vote after having been approved by the House on Wednesday, 3 May on a vote of 119-1.
There are a lot of factors that play into the complex decision for building large, capital intensive projects. Two factors that have discouraged utilities from getting back into the nuclear power game is something called “prudency” and interest costs incurred during construction.
There are people in the nuclear industry that have unpleasant memories of “prudency” hearings conducted during the 1980s and early 1990s. During these exhaustive hearings, public utility commissions questioned whether or not utilities had prudently invested their money while building new power plants – which at the time were largely nuclear plants – and often disallowed some expenses under the assumption that the utility could have made better choices. This era of prudency review was followed by the implementation of rules that required “least cost” planning by the utility before the plants were ever constructed.
One of the problems with least cost planning is that the answers all depend on the assumptions used. In the 1990s, natural gas fired combined cycle plants almost always won, but they have not turned out to be very low cost plants once in operation. The problem is that the cost of fuel in a natural gas fired power plant is often 90% of the total cost of operating the plant and the fuel price assumptions used in the 1990s were wildly incorrect and did not account for the fact that when lot of large customers enter the market for a commodity with a limited supply, the price of the commodity will almost certainly increase. Often that increase is rather dramatic.
The new Florida law exempts nuclear power plants from “least cost” planning provisions. I think that is a reasonable exemption because of their proven low and predictable fuel costs. Many consumers are now making different investment choices in automobiles based on 15-30% better fuel milage. It certainly make sense to me that utility plant investment decisions should be swayed by increases in fuel economy of several hundred percent; that is the current difference between commercial nuclear fuel at about 0.4 cents per kilowatt hour and natural gas at more than 5 cents per kilowatt hour.
The new Florida law also allows utilities to include the cost of nuclear plant construction in their rate base while the plant is being built. This provision can save tens to hundreds of millions of dollars in interest costs during construction and is a winner for both ratepayers and utilities over the long term. Banks and bond holders, on the other hand, do not fare quite as well since they will not be able to sell as many loans as they otherwise would have.
Here is a link to the marked up bill – Senate Bill 888 of the 2006 session: