| Independently Powered Energy News

Editor’s Note: Some are pushing nuclear power as a “clean” energy solution to curb greenhouse gas emissions from the power industry. However, although greenhouse gas emissions from nuclear plants are less than from traditional power plants, they come with another set of technical issues, including who will build these costly plants. In California’s “hybrid” electricity market, many entities could build a nuclear power plant. At first glance, the large investor-owned utilities appear the most likely candidates, as they have nuclear experience and could recover their investment through guaranteed rates of return. But in spite of that, they probably won’t want to build new nuclear plants. First, the California Public Utilities Commission is likely to require a reasonableness review of any nuclear power plant built by an investor-owned utility. It would be difficult for the CPUC to abdicate such a post-hoc review, given the high costs involved and the rather embarrassing history of nuclear development in California, which includes the “mirror-image error,” where the plans for Diablo Canyon got flipped, and the “hole in the head,” the abortive attempt to build a reactor on Bodega Head north of San Francisco (and directly on the San Andreas Fault). This type of regulatory oversight would not appear to be much of a barrier, as after-the-fact reasonableness reviews are a traditional utility regulatory tool. In recent years, however, California’s investor-owned utilities have been reluctant to submit themselves to reasonableness reviews. In the wake of California’s 1996 industry restructuring, the utilities refused to sign long-term electric supply contracts unless the CPUC exempted those contracts from reasonableness reviews. When the CPUC maintained its right to after-the-fact reasonableness reviews, the utilities chose to purchase electricity almost exclusively on the spot market. Given the utilities’ reluctance to subject themselves to reasonableness reviews for relatively uncontroversial and inexpensive contracts, it seems unlikely they would want to take on the risk of a reasonableness review for a politically contentious and very expensive nuclear plant. If the investor-owned utilities will not build new nuclear plants, the other possibilities are the municipally-owned utilities and independent generators. The Sacramento Municipal Utility District, which shut down its Rancho Seco nuclear plant in 1989 due to high costs and chronically poor performance, probably won’t go down that road again. The Los Angeles Department of Water & Power, which is likely the only other muni in California big enough to build a nuclear plant, might be thinking about it, as its heavily coal-based supply portfolio is looking problematic in a carbon-constrained future. Given its currently somewhat strained relationship with Los Angeles city government, including questions regarding maintenance of its infrastructure, building a new nuclear plant may be a bigger bite than LADWP wants to try to chew in the near term. That leaves the independent developers. In fact, a facility proposed for Fresno is by a local group, not a utility. The risks, though, may be higher than investors want. The cost of a new nuclear plant is high, and the construction process is lengthy and much more complicated than building a gas-fired plant. It will take a long time (and a lot of money) until the plant is up and running, generating both electricity and revenue. In addition, the developer will need to find a buyer (presumably under a long-term contract) for significant amounts of baseload power, although the possible return of direct access (currently under consideration by the CPUC) could make that task easier. --Peter Allen and Richard Shapiro, attorneys with Thelen Reid Brown Raysman & Steiner

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