|
Server : Apache/2.4.62 System : FreeBSD fbsdweb2.web.rcn.net 14.1-RELEASE FreeBSD 14.1-RELEASE releng/14.1-n267679-10e31f0946d8 GENERIC amd64 User : www ( 80) PHP Version : 8.3.8 Disable Function : NONE Directory : /domains/enrgy/feldman/ |
Upload File : |
<html>
<head>
<title>Power Poker: Nuclear Flush vs. Dereg Straight</title>
</head>
<body style="font-family: Arial" vlink="#808080">
<div align="center"><center>
<table border="0" cellpadding="8" cellspacing="0" width="98%" bgcolor="#000000">
<tr>
<td width="100%" valign="middle"><a name="top"></a><img src="../images/pmamagsm.gif" alt="PMA Online Magazine" border="0" align="right" WIDTH="229" HEIGHT="100"></td>
</tr>
</table>
</center></div><div align="center"><center>
<table border="0" cellpadding="8" width="98%">
<tr>
<td width="25%" valign="top" align="center">
<!--webbot bot="Include" U-Include="wv_sidebar.htm" TAG="BODY" startspan -->
<table border="0" cellpadding="8" width="98%" id="table1">
<tr>
<td width="25%" valign="top" align="center"><map name="FPMap0_I1">
<area href="http://www.powermarketers.com/adrates.html" shape="rect" coords="14, 297, 97, 322">
<area href="http://www.powermarketers.com/pmajobs.htm" shape="rect" coords="11, 230, 95, 257">
<area href="http://www.powermarketers.com/main.htm" target="_parent" shape="rect" coords="12, 163, 96, 189">
<area href="http://www.powermarketers.com/power2.htm" target="_blank" shape="rect" coords="12, 95, 96, 121">
<area href="../pmamag.htm" shape="rect" coords="11, 29, 96, 54"></map>
<img rectangle="(12,163) (96,189) http://www.powermarketers.com/main.htm##_parent" rectangle="(12,95) (96,121) http://www.powermarketers.com/power2.htm##_blank" rectangle="(11,29) (96,54) ../pmamag.htm" src="../images/magmenu.gif" alt="PMA OnLine Magazine Menu" border="0" align="center" usemap="#FPMap0_I1" width="110" height="350"><p>
<a href="../searchpma.htm">
<img src="../images/archives.gif" alt="Archives Search" border="0" align="center" WIDTH="70" HEIGHT="40"></a></p>
<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
<p class="BodyText05DS" align="left" style="text-align:left"> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></td>
</tr>
</table>
<!--webbot bot="Include" i-checksum="19883" endspan --></td>
<td width="75%" valign="top"><img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" WIDTH="375" HEIGHT="75"><p><b><u>September 1999</u><br>
</b></p>
<b><font FACE="Palatino" SIZE="5"><p></font><font face="Arial" size="6">POWER POKER:
NUCLEAR FLUSH VS. DEREG STRAIGHT</font></b></p>
<p><strong>by Roger Feldman -- Bingham, Dana L.L.P.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
10/99</em>)</font></p>
<p><font FACE="Palatino" SIZE="2"> </p>
<p ALIGN="JUSTIFY"></font><font face="Arial">The U.S. is going through deregulation of the
electric industry now because the nuclear power revolution launched in vertically
integrated, monopoly franchised utilities failed. Federal legislation may be stalled
partly because allocation of the costs of transition away from nuclear power are
intertwined with the introduction of market economics into electric power supply.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Three nuclear-related developments arising out of
deregulation must be dealt with: the sale and write down of nuclear facilities; the costs
of decommissioning nuclear facilities; and disposition of low level nuclear waste which
continues to be produced by operating facilities.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The nuclear aspects of the existing electric power
industry strategy with respect to deregulation clearly now is coming into focus. The
landscape is as follows:</font></p>
<ul>
<li><p ALIGN="JUSTIFY"><font face="Arial">A handful of buyers, notably Entergy and AmerGen
(PECO and British Energy).</font></p>
</li>
<li><p ALIGN="JUSTIFY"><font face="Arial">An increasing number of nuclear plant sellers,
whether under State deregulation divestiture orders, e.g. Northeast Utilities, or under
the pressure of state deregulation legislation necessitating the strategic disencumbrance
of high capital cost assets.</font></p>
</li>
<li><p ALIGN="JUSTIFY"><font face="Arial">The possibility that if the nuclear plants are
sold cheap, can have their decommissioning costs covered, and can sell energy, they can be
profitable competitors for the rest of their lives.</font></p>
</li>
<li><p ALIGN="JUSTIFY"><font face="Arial">The even more colorful possibility that existing
decommissioning funds (in place, or sustained at current levels) will be more than is
required: an added asset bonus to purchasers.</font></p>
</li>
</ul>
<p ALIGN="JUSTIFY"><font face="Arial">The realization of this strategy by utility buyers
and sellers is now coming under scrutiny on Capitol Hill, both in the electric
deregulation context and outside of it.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Special legislation (H.R. 2038) was introduced to
allow nuclear plant owners to continue to deduct contributions to nuclear plant
decommissioning funds and to increase the amount eligible for that tax break. In the
current regulated cost-of-service environment, the tax exempt status of such funds has
been clear. As that regulatory environment now gives way to a market-based environment,
and as utilities have begun selling nuclear plants, IRS officials have questioned the
eligibility of decommissioning funds for tax deductions. At immediate issue is whether
nuclear plant operators will be allowed to deduct full decommissioning costs allowed by
the IRS, without reference to whether a state has deregulated. A related key question at
stake is how much tax must an acquiring utility pay when it assumes a nuclear
decommissioning fund as part of its purchase of a plant?</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The bill – which is not part of the proposed
federal deregulation act - would increase the deductible amount of fund contributions if
state regulators allowed higher decommissioning charges or required accelerated payment
because of ownership changes. It would limit such tax deductible contributions to a
taxpayer’s current or former interest in the nuclear plant to which the funds relate.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">In evaluating the legislation, Congress will have to
take into account several competing policy considerations. Unfunded decommissioning
liability, estimated at $25 – 30 billion, is a significant portion of nuclear
utilities stranded costs. If a utility doesn’t sell a unit, but closes it
prematurely, it must negotiate a deal with state regulators to assure adequate
decommissioning funding.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Conversely, however, an article in <u>Nucleonics
Week</u> raises the real possibility that at the purchase pattern set to date, profitable
early shutdown may be possible. The decommissioning trust fund included in the purchase
package could be sufficient, by itself, to decommission the plant when the time comes. In
the deals to date, state regulators have been willing to let new owners keep any money
left over in decommissioning trust, as long as the owner agrees to shoulder any cost
overrun. And, low level waste ("LLW") disposal costs (roughly 30% of
decommissioning costs) are now potentially coming down through the use of outsourcing to
LLW waste vendors. In effect, some nuclear plant buyers (and the cognizant state
ratemaking regulators) may view the purchase/decommissioning package as a "reverse
turnkey" in which the buyer takes the risk and keeps the profit.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">The larger energy/environment policy backdrop for
the debate over who the nuclear plant winners and losers will be as a result of the
transition from a regulated to a deregulated environment focuses on the extent to which
provision will be made for decommissioning and/or nuclear waste disposal. Several very
troubling facts have surfaced in that regard:</font></p>
<ul>
<li><p ALIGN="JUSTIFY"><font face="Arial">A recent GAO study (May 1999) found that 36 of 76
nuclear plant licensees had not accumulated enough funds as of 1997 to cover future
decommissioning expenses under the current regulatory system. It suggested that future
competition in the paper industry could affect future availability of funds for that
purpose. It criticized the NRC for not establishing acceptable levels of financial
assurance to be maintained by utilities.</font></p>
</li>
</ul>
<ul>
<li><p ALIGN="JUSTIFY"><font face="Arial">Meanwhile, the debate continues as to a long run
solution for utility off site disposal for spent fuel nuclear waste storage. Several
utilities are suing the Federal Government over the unavailability of the Yucca Mountain
above ground interim storage facility. At issue in proposed legislation, among other
matters, is whether the U.S. Government will take title "on site" to the waste;
the future source of funding of the future waste repository; and the extent of U.S.
Government liability to utility suits?</font></p>
</li>
</ul>
<p ALIGN="JUSTIFY"><font face="Arial">The environmental movement has become increasingly
cognizant of the implications of the crossing vectors of deregulation, decommissioning and
the failure of waste disposal issues to be resolved. For example, in the context of the
decision of Southern California Edison to speed up plans to dismantle the mothballed
reactor at the San Onofre nuclear complex, a spokesman of the Union of Concerned
Scientists pointed out: "If they wait to decommission their plants, there’s a
concern they won’t have anyplace to send the radioactive materials."</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">Overall then, the nuclear decommissioning issue is
taking a more central place in the deregulation debate than one would gather looking at
the legislation designed to establish it. For its own reasons, the American Public Power
Association is now throwing the issue on the fire, seeking to sweep in more favorable
consideration of its "private use" tax issues at the same time as investor-owned
utility tax issues are in the fire.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">There is a nuclear glow around the edges of the
electric deregulation issue now. Don’t bet against its half life – there’s
too much financially and environmentally at stake. A nuclear flush can hold up a
deregulation straight.<br>
</font> </p>
<!--webbot bot="Include" U-Include="wv_bottom.htm" TAG="BODY" startspan -->
<hr color="#FFFF00">
<p class="MsoBodyText" align="left" style="margin-bottom:0in;margin-bottom:.0001pt;
text-align:left"><font face="Arial" size="2">
<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
<!--webbot bot="Include" i-checksum="63395" endspan --></td>
</tr>
</table>
</center></div>
<p align="center"><a href="9909flmn.htm#top"><img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></p>
</body>
</html>