Written by: Dan Besse
6/22/2007

They are asking the General Assembly to approve an old utility financing gimmick called "construction work in progress" (or CWIP for short). In its worst form, CWIP essentially guarantees that any dollar spent on building new plants gets added to our electric bills—even before the plant goes online. In fact, we pay for the plant even if it is cancelled during construction and NEVER gets used!

North Carolina used to have this most extreme form of blank check CWIP, up to 25 years ago. At that point, the General Assembly made a smart call: CWIP would no longer be automatic. Instead, the requesting utility would have to persuade the state Utilities Commission that each requested use of this advance financing technique was in the public's best interests.

Now, the utilities say that new plant construction (especially the incredibly expensive new nuclear plants they want to build) is too risky for their stockholders. Instead, the public ratepayers (residential, commercial, and industrial) should take on all that risk, they say.

Smart legislators will say: Forget it. If it's too risky for the power company stockholders to share in the risk, then it's certainly too risky for the public to take on the entire risk burden of bad utility planning decisions. In fact, for the power companies to get the blank check of guaranteed CWIP financing for their proposed new coal and nuclear plants would represent an economic and environmental disaster in the making.

The reason is simple: If the utilities are guaranteed that ratepayers/consumers will pay for whatever plants they build, they will build more than we need--regardless of what is invested in renewable energy and energy efficiency. Utility profits are based primarily on the interplay between the size of their rate base and their rate of return. Therefore, the bigger their rate base (the value of their plants and other facilities), the more potential they have for high profits to their stockholders.

Transferring the entire risk of new construction from their stockholders to the public ratepayers, via CWIP financing, skews their entire planning process. New baseload (coal and nuclear) construction becomes a vastly more attractive proposition, with little or no downside risk to the corporation.

I remember dealing with this debate in 1982, when I was already working on this issue on behalf of consumer and conservation groups. The General Assembly's repeal of automatic CWIP had a dramatic impact on new plant construction planning in North Carolina. That action was critical in pulling the final plug on several unneeded nuclear units that were holding on in the utility planning process, purely on the artificial life support of guaranteed consumer financing. Now is NOT the time to undo the wise move of that year's legislature.

I have weighed in on this issue publicly, and I hope that other concerned advocates around the state will send the same message to their legislators. For the sake of our environment and our pocketbooks, our representatives must insist that the CWIP "blank check" provisions be stripped from any bill that moves forward in this session.

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