I worked throughout the 1980s at a large national accounting firm, where three of my clients produced electric energy, two through nuclear facilities. With that background, I want to chime in on the decision by SCANA and Santee Cooper to abandon work on the two new nuclear plants in Jenkinsville.
For most businesses and families, interest is an expense when it is paid. Power companies have traditionally been different, because they were required by regulators to add interest paid to the cost of a plant, much like concrete.
Since those expenses couldn’t automatically be passed on to ratepayers until the project was complete, the utilities couldn’t charge ratepayers for the interest (or the concrete) until the plant was placed into service. The technical accounting term for this was Allowance for Funds Used During Construction or AFUDC. So when the plant came online and into the base for which rates are set, there were two major piles of costs to charge customers: the construction costs and the AFUDC.
During the 1980s, it became evident that nuclear power opponents could markedly increase the ultimate cost of a nuclear station by forcing it to pile up AFUDC. If they could find a sympathetic judge to order yet another impact study for some fish, animal or bird, construction would be stalled but, crucially, the AFUDC would keep piling up. This made the station so expensive that even if it was completed, it would not be economical to operate.
As a result, some stations were never able to provide energy at the rates initially envisioned. Nuclear power opponents would high five and take victory laps to celebrate.
The opponents never acknowledged or else chose to ignore how they negatively affected their fellow citizens. For some stations, rates paid by customers for electricity were simply higher than they otherwise would be. Where the plants never opened, customers paid for the power they didn’t receive for years — as could happen here in South Carolina.
As it turned out, nuclear power went into a dark age, for many reasons: the expense, Hollywood’s “China Syndrome” fears, operator mistakes such as Three Mile Island.
But a renaissance would occur, and the power companies had to be ready. If a company was going to make a $9 billion bet, some things had to be done differently, such as the licensing process. Additionally, power companies had to eliminate the risk of opponents piling up AFUDC as was done earlier.
If the nuclear power opponents had not had such a large effect on earlier construction, there would have been no need for a base load law for the new construction.
Enter the S.C. Base Load Review Act, and similar legislation elsewhere. If customers were charged for the interest during construction (and construction delays), then opponent activities to stall or stretch out construction would have less financial impact on the project. While South Carolina’s law also promised that the final cost of the completed plant would be less as the result of this law (and that would have been true if the V.C. Summer plants had been completed), the root reason power companies wanted the law was to mitigate AFUDC risk. If the activities of nuclear power opponents had not had such a large effect on earlier construction, there would have been no need for a base load law for the new construction.
So when you’re sending out thank you notes to the Public Service Commission, SCANA and the Legislature for their roles in forcing you to pay the construction interest on these now-abandoned nuclear plants, be sure to include one to your favorite nuclear power opponents. They won’t like it, but they do need to hear from you.
Mr. Holloway is a retired accountant in Columbia who worked for Coopers & Lybrand, where his clients included Tennessee Valley Authority, Santee Cooper and Nantahala Power and Light; contact him at JimHoll@aol.com.