Panel Questions Cost Of Nuclear Shutdown
Wednesday, February 27, 2008
Constellation Energy Group will likely receive a $1.4 billion windfall because the company is charging customers more than it will eventually need to decommission the Calvert Cliffs nuclear plant, Maryland utility regulators said yesterday.
The overpayment estimate came as Public Service Commission members grilled attorneys for the Baltimore-based energy giant on the terms of the 1999 deal to open Maryland's regulated electricity market to competition. Residential electric bills have soared since rate caps began to come off four years ago. The commission and lawmakers are searching for relief for customers.
Attorneys for Constellation said at yesterday's hearing in Baltimore that it is too early to determine how inflation and investment returns will affect the cost of dismantling Calvert Cliffs. But they said electricity customers gambled when the deregulation deal was signed that the money they would pay would cover the costs, exceed them or fall short.
"It could be a windfall, but that's how a hedge works," said Michael Naeve, a Constellation attorney.
The deregulation law now under review allowed Pepco and Baltimore Gas and Electric to sell their power plants to unregulated companies. In BGE's case, the plants, including Calvert Cliffs in Lusby, went to the utility's parent company, Constellation. BGE is Maryland's largest utility, serving 1.1 million electric customers in the Baltimore area, Prince George's, Howard, Anne Arundel and Montgomery counties.
Constellation took over the nuclear plant, but did not assume the federally mandated costs to dismantle it -- an expensive, lengthy process scheduled for one reactor in 2034 and the other in 2036. State regulators are raising questions now about how much is appropriate for customers to pay and whether the agreed-upon sum, which comes to about $18 million a year, will be enough to get the job done or put too much in the company's pocket.
"I assume you didn't intend to profit from this aspect of the  settlement," Commission Chairman Steven B. Larsen told lawyers for Constellation at the hearing. If customers continue to contribute decommissioning payments in their monthly bills, "It appears they will be potentially hugely overpaying by $1.4 billion," Larsen said. "There's potentially a vast difference between the actual ratepayer liability and the costs that may be incurred by Calvert Cliffs."
Larsen said after the hearing that the commission will recommend to the General Assembly whether some of the money can be recovered.
Constellation executives declined to appear at a similar hearing on decommissioning costs three weeks ago, and regulators were unable to get many of the answers they were seeking from attorneys for BGE, which remains a regulated company. But Constellation agreed to appear yesterday, quieting a war of rhetoric that had erupted between the company and Gov. Martin O'Malley (D) over disputed terms of the deregulation deal.
The company has accused the commission of creating a hostile regulatory climate by trying to undo parts of the deal.
Much of yesterday's hearing focused on how Constellation is calculating the costs to dismantle Calvert Cliffs, a process that will require the cleanup of radioactively contaminated plants and equipment and the removal of radioactive fuel.
Constellation has scaled down the estimated costs in reports to the Nuclear Regulatory Commission since 2003. Naeve told commissioners that last year the difference from previous calculations came to about 4 percent. "Time will bear out" the real price, he said.
But Larsen said customers were on the hook for more payments when the company received permission from federal regulators in 2000 to extend the life of the plant, which originally was scheduled to close sometime between 2014 and 2016. "They signed onto a potentially never-ending liability," he said.
Regulators also said yesterday that about $160 million of the money customers already have paid for decommissioning is being held by an unregulated affiliate of Constellation, and questioned whether it is being put aside for the nuclear plant.
Naeve said the money is being used for "general corporate purposes" but would be allocated for decommissioning when it is needed.