The state agency charged with advocating for utility customers is suggesting a way for AmerenUE to pay for a potential second nuclear reactor in Callaway County that would minimize the profits of the reactor and the cost to customers.
The new analysis, conducted by the Missouri Office of Public Counsel, shows a way to cut the profits of the reactor, called Callaway 2, by $5 billion. It shows that the cheapest way to pay for the reactor would mean about $19.5 billion in profit for the utility throughout the reactor's expected 60-year period of usage.
AmerenUE generates profits from customers' monthly electric bills, which reflect the utility's expenditures, said Lewis Mills of the Office of Public Counsel. The costs of Callaway 2, he said, are "going to show up in customers' bills."
AmerenUE supports the rewriting of a 1976 Missouri law that prevents charging customers for the utility's construction costs before beginning to provide a service. Charging customers for construction before it begins providing a service to customers would result in the utility profiting about $25.2 billion, according to the analysis.
Mills said AmerenUE favors charging for construction in progress "because they get more profits over the life of the plant." The Office of Public Counsel represents consumer interests before the state Public Service Commission in matters involving AmerenUE and other public utilities.
AmerenUE spokesman Mike Cleary said it would be financially difficult to build the reactor if the 1976 voter-approved referendum isn't rewritten to allow AmerenUE to charge its customers for some of the reactor's construction costs before it generates electricity.
According to AmerenUE's Web site, Missouri's energy needs are expected to increase by 30 percent within the next 20 years. A second nuclear reactor would be able to produce 1,600 megawatts of electricity every year for more than 1 million Missouri customers. Approximately 3,700 AmerenUE electric customers reside in Boone County.
On Oct. 6, Mills sent a report to the Public Service Commission, which sets AmerenUE's customers' rates, saying the counsel had found a way for the utility to pay for Callaway 2 without "either suffering financial meltdown or charging ratepayers usurious rates of return."
In the counsel's report, Mills asked the commission to "investigate some of the many issues created by the prospect of a huge investment in a new nuclear generating unit."
In response to the counsel's analysis, AmerenUE sent a letter to the commission on Oct. 15, saying the utility had not made a decision on whether or not to build Callaway 2.
The letters to the commission shed light on a disagreement between the counsel and AmerenUE about whether the commission should investigate different funding procedures.
Mills' letter to the commission was supposed to provide a "broader framework" for the utility, the counsel's office and the commission in order to help address "basic disagreements" regarding the purpose of AmerenUE's Integrated Resource Plan. The plan is designed to analyze the many ways in which customers can be provided the best prices while allowing the utility to operate profitably.
"AmerenUE conducted no analysis of the cost of financing Callaway 2," Mills wrote. Or, he added, if research has been conducted by the utility, "it has refused to provide it to Public Counsel."
The utility’s letter said the counsel was pushing its favored payment method on AmerenUE before all funding options were available. The utility wants to wait until late 2009 to decide on the way to pay for Callaway 2. In this scenario, the utility argues, the cost estimate for the reactor could be judged more accurately because less time would be expected to elapse before beginning construction.
“We feel the kind of analysis the public counsel is requesting at this point is premature,” Cleary said.
Also, the letter said the Public Service Commission should not dictate to the utility how to pay for the reactor.
Cleary said AmerenUE has not committed to constructing Callaway 2. Mills, however, noted in the letter that the utility has filed for an operating license with the U.S. Nuclear Regulatory Commission. Also, Mills wrote that the utility's "entire leadership team is eager to construct more nuclear facilities."
Cleary said filing the application with the Nuclear Regulatory Commission is necessary because the action anticipates the length of time it could take to be approved, which the utility estimates could be three years.
If construction begins in 2012, the reactor could be online between 2018 and 2020, Cleary said.
The "cash metrics regulation" approach to financing favored by the public counsel would help customers pay less, Mills said, because it would allow stockholders to be paid during the reactor's construction in a way that convinces lending institutions to grant the utility favorable borrowing rates. Because interest-rate expenditures are passed to customers in their bills, customers would pay less if the utility borrowed at cheaper rates.
Mills said cash metrics regulation has been used by Kansas City Power & Light, a public utility regulated by the commission.
The construction-work-in-progress method wouldn’t provide stockholders adequate returns on the utility’s stock, so lending institutions would grant AmerenUE less favorable lending rates, Mills said.
Mills said cash metrics regulation helps decrease a utility's profits during the construction period, which is why the method isn't used for all regulated utilities' construction projects.
The counsel's analysis didn't try to include all possible funding models for Callaway 2, Mills said.
Kevin Kelly, the public information administrator with the Missouri Public Service Commission, said the regulatory body decided not to act on the public counsel's motion to investigate proper funding methods for Callaway 2 at its Oct. 30 meeting.
"This doesn't mean the case is closed or it's been opened up," Kelly said.
"This isn't unusual," said Wess Henderson, executive director of the commission, "especially with the ramifications of this case."