Nuclear Reactions
Kewaunee’s sale: What will it mean?
Depending on whom you ask, the
recently approved sale of the Kewaunee Nuclear Power Plant to
a Virginia-based utility holding company may be characterized
as a calamity in the making, the thin edge of radical deregulation
prying apart ratepayer protections, or a positive benefit for
Wisconsin energy consumers. One thing that won’t be disputed
is that it’s an event of considerable historical interest.
The sale of a base load power
plant—the kind that runs 24 hours a day, 365 days a year
except during scheduled maintenance or when something breaks—is
not an everyday occurrence. And no Wisconsin base load plant
has previously been converted into a wholesale merchant plant,
free to sell power at unregulated prices on the open market.
The Kewaunee transaction exemplifies a small but recognizable
trend in the electric power industry: While not that many utilities
want to be in the nuclear energy business, some want to be in
it more deeply than ever.
Nuclear Fleets
The 1979 malfunction at Pennsylvania’s
Three Mile Island (TMI) nuclear plant delivered two messages.
One has been taken to heart; the other has been overlooked.
The overlooked message is that
redundant safety systems worked. A 20-year follow-up on medical
records of more than 32,000 people by the Pennsylvania Department
of Health and University of Pittsburgh found no increased incidence
of cancer deaths among those living within five miles of the
plant at the time of the accident, compared with those living
farther away.
The message that’s been
taken to heart is that building new nuclear generation is politically
impossible.
It’s also impossible for
our society to function without nuclear power. More than a hundred
base load units would have to be replaced. That will happen
inevitably as plants age, but factor in a decade for regulatory
review, activist litigation, and finally construction before
a large power plant comes on line.
Existing U.S. nuclear units are
old enough to be paid for. Kewaunee demonstrates what this means
by producing the lowest-cost base load power in Wisconsin. Moreover,
nuclear plants discharge no air emissions. All this makes them
attractive to a limited number of specialized companies.
Three of those are Chicago-based
Exelon, New Orleans’ Entergy Corp., and Dominion Resources
of Richmond, Virginia, major players that believe nuclear energy
has a future and are actively making it a bigger part of theirs.
They have added nuclear plants once owned by other utilities
to their generation fleets. Dominion and Exelon have advised
federal regulators of their interest in building new nuclear
units in Virginia and Illinois.
Opportunity Knocks
Dominion Resources owns nuclear
units in Virginia and Connecticut. Word that it intended to
add Kewaunee to its nuclear portfolio came in a November 2003
announcement that the present owners, Green Bay’s Wisconsin
Public Service Corp. and Madison-based Alliant Energy, had agreed
to sell.
The Wisconsin utilities also agreed
to purchase Kewaunee’s output in equivalent amounts and
at similar cost to the power they now produce there, through
2013. That’s when the plant’s original 40-year operating
license expires.
What happens then is yet to be
determined. Paying $220 million for the facility, Dominion is
expected to ask federal regulators for a 20-year license renewal.
The lengthy, extensive regulatory review that it will involve
suggests Dominion could be expected to take some steps relatively
soon.
But none of that will have any
bearing on the most immediate effects of the transaction.
Wisconsin Electric Cooperative
Association (WECA) Statewide Manager David Jenkins testified
at a Public Service Commission hearing last summer that those
effects will include the transfer of risk to out-of-state shareholders
and the return of several hundred million dollars to Wisconsin
ratepayers.
Almost 60,000 Wisconsin electric
co-op members are served with power supplied to their cooperatives
by Wisconsin Public Service and Alliant. If expensive repairs
or upgrades are needed at Kewaunee at any time following the
sale, Dominion’s shareholders, not those Wisconsin consumers,
will bear the costs, Jenkins explained.
Moreover, part of the decommissioning
funds earmarked to cover Kewaunee’s eventual shutdown
expenses will be returned to ratepayers in the form of rate
increases minimized or avoided by the two Wisconsin utilities.
About $200 million is to be returned.
The transaction “can and
will be of significant benefit to ratepayers,” Jenkins
said.
Skeptics Weigh In
Enthusiasm has not been universal.
Immediately upon the initial sale announcement, Dennis Dums
of the Citizens Utility Board told a Madison newspaper “We
plan to fight this every step of the way,” a statement
on which CUB has made good.
In May 2004, CUB filed testimony
with the Public Service Commission claiming the sale would end
PSC jurisdiction over the plant and its operations and maintenance,
compromising safety and leading to higher costs for ratepayers.
“Dominion could use the
site to store waste from other nuclear reactors [and] could
even sell the plant to a foreign corporation, all without oversight
by the PSC and the Wisconsin public,” CUB Executive Director
Charlie Higley said.
The Customers First! Coalition,
with WECA dissenting, called the sale a step toward “piecemeal
deregulation that could send Wisconsin down the same path that
California chose.”
When the power-purchase agreement
with the present owners expires after 2013, the coalition claimed,
“the plant’s output will be sold at prices that
are likely to substantially exceed cost.”
Seeing it Both Ways
Initially, the PSC sided with
opponents of the sale, voting 2–1 last December 16 to
disallow it. Four days later, Dominion was back with a petition
for rehearing and a dozen new conditions it proposed attaching
to the deal. In mid-January, the commission voted unanimously
to listen to the modified proposal, and on March 17 it reversed
itself, finding the transaction “will provide substantial
economic benefits for ratepayers.” It underlined that
stance with a unanimous vote.
Then-PSC Chair Burnie Bridge (who
departed in April for another government post) said Dominion’s
new conditions mean “Wisconsin will continue to have a
voice in the future of the facility as it impacts our overall
economy, health, and safety.”
Among the conditions are an agreement
that future owners won’t use the site for storing spent
fuel generated elsewhere and a right of first refusal for the
present owners in the event Dominion should ever offer the plant
for sale.
Customers First! stood by its
arguments. Executive Director Dave Benforado said the PSC “should
have stuck to its guns.” CUB’s Higley issued a statement
saying his organization “condemns” the PSC action
in that it “threatens the health, safety, and pocketbooks
of Wisconsin ratepayers.”
Jenkins, however, says ratepayers
are protected against excessive power costs in at least two
ways, first by the power-purchase agreement through 2013 and
later by the PSC’s unchanged authority to order the two
Wisconsin utilities to obtain power elsewhere if Kewaunee’s
prices become exorbitant.
Geography and the extreme difficulty
of building new transmission lines also provide some insurance
against drastic changes in the mutually beneficial relationship
between Wisconsin consumers and the Kewaunee plant.
Eastern Wisconsin is among the
nation’s tightest spots when it comes to importing or
exporting large volumes of electricity, and that’s unlikely
to change soon, even if the will to change it exists. For the
foreseeable future, the counties surrounding Kewaunee might
easily remain the best possible market for its power, merchant
plant or not.
Given strong and conflicting views
on nuclear power, controversy over the decision was notably
restrained. No protest signs or picket lines were seen at the
PSC.
Assembly Majority Leader Mike
Huebsch (R–West Salem) seemed unsurprised. The author
of legislation to lift Wisconsin’s 1982 ban on new nuclear
plants, Huebsch called nuclear energy “an idea whose time
has come.” Both expanding and diversifying energy sources
is essential to Wisconsin’s long-term energy needs, he
said.
Wisconsin Public Service Corp.,
for its part, portrays the ownership change as preserving what’s
favorable in the status quo. “As the owner of only one
small nuclear generating unit,” the utility said, it “cannot
provide the experience and focus that Dominion, which operates
several generating units across the country, has,” adding,
“we believe that having an experienced owner and operator
like Dominion is the best way to ensure that Kewaunee continues
to provide low cost power to [Public Service] customers.”—Dave
Hoopman
