Expanding nuclear power is again a hot topic at the Iowa statehouse. It’s not clear whether Iowa Senate Commerce Committee Chair Matt McCoy can find the votes he needs to advance House File 561. McCoy announced last week that new language in the bill would protect consumers and satisfy a majority of his committee members. However, opponents say the changes address only one of many problems in a bill that would primarily benefit MidAmerican Energy at the expense of its ratepayers. McCoy was forced to delay consideration of House File 561 on March 8, but he is expected to bring up the bill before his committee sometime this week–if he has the votes.
Follow me after the jump for analysis on the prospects for passing House File 561 and the merits of the bill.
Political problems for House File 561
McCoy is under pressure to move this bill quickly, because March 16 is the second “funnel” deadline of the legislative session. After that date, most non-appropriations bills that have not passed one chamber of the legislature and at least one committee in the other chamber will be considered dead for the session. Leadership can make exceptions to this rule, but Iowa Senate Majority Leader Mike Gronstal has said he’s unsure whether Senate Democrats will want to pass the pro-nuclear bill. MidAmerican is a big employer in Gronstal’s district, and he personally supports the legislation if consumers can be protected.
The Iowa House approved House File 561 last year, but the bill stalled in the Iowa Senate, partly because of the nuclear disaster in Fukushima and partly because of a strong lobbying effort by the American Association for Retired Persons. The AARP has made stopping this “raw deal for Iowa consumers” one of its legislative priorities for 2012.
McCoy became chair of the Senate Commerce Committee after Swati Dandekar stepped down to take a job on the Iowa Utilities Board. Nine Democrats and six Republicans now serve on the committee. The Democrats are McCoy, Tom Rielly, Daryl Beall, Joe Bolkcom, Tom Courtney, Brian Schoenjahn, Mary Jo Wilhelm, and Liz Mathis (who won the special election to replace Dandekar). The Republicans are Bill Anderson, Rick Bertrand, Randy Feenstra, Steve Kettering, Pat Ward, and Brad Zaun.
McCoy delayed one committee vote on House file 561 in late January after the AARP mobilized approximately 1,500 phone calls to the Senate switchboard opposing the bill. Many Iowa environmental organizations have also urged members to contact their lawmakers, but there’s no doubt that the AARP has generated far more contacts to grab the senators’ attention.
On March 6, McCoy announced that he had the votes to move House File 561, thanks to “a consumer-friendly amendment.”
The compromise would require that MidAmerican, Iowa’s largest utility, have financing in place before beginning construction of a nuclear power plant. Once state regulators approve a new plant, the utility would have to carry out construction.
Some legislators had worried earlier versions of the measure would allow the utility to raise rates to pay for the plant, without being committed to actually building the facility. They said consumers could end up with higher rates and no new power plant to show for it.
McCoy scheduled a Commerce Committee meeting to consider the bill on March 8. But he had to postpone that meeting when two members could’t be there. He told the Des Moines Register that he expected his bill to clear the committee “by a razor thin margin” of a vote or two.
Let’s back up for a moment to March 2011, when the Iowa Senate Commerce Committee approved Senate File 390, a bill very similar to House File 561, by 13 votes to 2 (pdf). Only Bolkcom and Wilhelm voted no. Eleven members who voted for the pro-nuclear legislation last year still serve on the Commerce Committee (Mathis has replaced Dandekar, and Bertrand has replaced Jerry Behn).
Why is McCoy having so much trouble finding the eighth vote he needs to move House File 561 now? Apparently he can no longer count on help from the Republicans on his committee.
The Des Moines rumor mill has been saying for weeks that Iowa Senate Republicans are backing away from the nuclear bill. The supposed thinking is, why help Democrats pass something a powerful corporation wants this year? Republicans may win a Senate majority this November, pass something similar to House File 561 next year, and take the political credit for themselves.
The latest statewide poll for the Des Moines Register found 77 of respondents opposed “rules allowing a utility to charge its customers up front for the costs to plan and build a nuclear power plant.” Only 18 percent of the Iowans surveyed supported the idea. This poll gives Republicans another good reason not to associate themselves with House File 561 during an election year.
Incidentally, I can’t recall any GOP state senators criticizing this legislation during 2011. Only two of the 60 Iowa House Republicans voted against House File 561.
If my analysis is correct and Republicans won’t help McCoy move House File 561 through his committee, then he can’t afford to lose more than one of the nine committee Democrats. Joe Bolkcom remains solidly opposed to this legislation; he was part of a group calling on Democratic Senate colleagues to shelve the bill last March.
My guess is that the weakest links for McCoy are Wilhelm, Mathis, and Schoenjahn. Wilhelm already voted against this concept in committee last year, and she is facing a tough re-election battle in Iowa Senate district 26.
Schoenjahn is up for re-election this year in Iowa Senate district 32. I got a kick out of this photo of him late last week holding 97 requests from AARP members wanting to meet regarding House File 561. Each slip of paper corresponds to someone who came to the state capitol in person. I can only imagine how many phone messages Schoenjahn received from AARP members last week.
Mathis is in a tough spot, because Iowa’s only existing nuclear power plant is a major employer in her district. Blog for Iowa posted an excerpt from her recent newsletter, which discussed House File 561.
“Please know this: I’m doing my homework on this topic, asking a lot of questions, and paying attention to what you are saying. There are multiple facets to this bill and the arguments surrounding nuclear power and how it should be funded. I have a nuclear power plant in my district that employs 600 people and works with the REC’s [rural electric cooperatives] to provide power to our residents. HF 561 has generated many phone calls and emails. I have seen several of you here at the State Capitol.”
My money is on Mathis supporting the bill because of local interests, but we may never find out if McCoy never brings it up for a committee vote.
The AARP had “a full contingent of members” at the capitol on March 8, waiting for the Commerce Committee meeting McCoy canceled. They’ll be back if the bill comes up this week. Environmental groups are also sending out action alerts to members regarding House file 561, and Friends of the Earth is running this television commercial against the bill in the Des Moines, Cedar Rapids and Sioux City markets.
Last note on political prospects: moving House File 561 through the Commerce Committee before the funnel deadline does not guarantee final passage of the bill. Similar legislation cleared that committee in 2011 but never came up for a floor vote. As I mentioned above, nine Democratic senators are on record opposing this bill, not counting Wilhelm, who voted against similar legislation in committee a year ago. House File 561 would need substantial support from Republicans to reach 26 votes on the floor.
Substantive problems with House File 561
McCoy’s “consumer-friendly” amendment addresses only one of many concerns for Iowa consumers: the possibility that MidAmerican could keep extra money charged to ratepayers even if the company didn’t pursue construction of a nuclear reactor. Anthony Carroll, AARP Iowa Associate State Director for Advocacy, responded in this press release on March 7:
While it is being reported that a “deal” has been reached to improve House File 561 to better protect consumers from higher utility rates to pay upfront for new nuclear power, Iowans need to know that even with proposed changes, this legislation is still a bad deal for Iowa consumers.
AARP welcomes Senate interest in adopting true consumer protections, but our analysis of new provisions touted as bill “improvements” finds this legislation still neglects to address basic safeguards for protecting consumers from runaway costs and risk shifting. In the amended version, there are still no caps on costs to consumers, and the utility company can still recover all accumulated costs even if a potential plant is not completed.
This is the third time it’s been promised that consumers would be protected by this legislation. The Iowa Utility Board staff analysis warned of the lack of consumer protections in the proposal after the first two versions of “consumer protections.” With the exception of giving the Iowa Utility Board more time to staff up, this new amended bill fails to address the many red flags raised by Iowa Utility Board staff memo analysis, such as decreased ability to protect ratepayers from a higher return structure of financing between the parent company (Berkshire Hathaway) and the subsidiary (MidAmerican).
AARP remains opposed to HF 561 as the amended version continues to shift the high costs and cancellation risks for new nuclear power onto ratepayers rather than the utility companies and their shareholders.
The Iowa Utilities Board is neutral on House File 561, but Carroll is correct to point out that the seven-page analysis IUB staff prepared in December 2011 raised many possible concerns about the impact of this legislation on ratepayers. You can read that memo here (pdf).
Mark Cooper of Vermont Law School’s Institute for Energy and the Environment also commented on March 7 that McCoy’s proposed improvements “do nothing to fix the underlying flaws in the legislation.”
The recent amendments proposed in the Senate Commerce Committee do nothing to fix the underlying flaws in the legislation. Mid-American would still collects from ratepayers for years, or even decades before the reactor is used and useful at an excessive rate of return. And all of the risk of nuclear cost and cost overruns would fall on ratepayers. The harmful effects of these perverse incentives are still in place.
• By conferring a special advantage on nuclear, it threatens to distort the utility and regulatory decision making process and gives utilities an incentive to choose investments and make construction decisions that harm ratepayers.
• Beyond the initial choice of projects, shifting the risk of nuclear reactor construction onto the backs of ratepayers creates an ongoing problem because diminishes the incentive to drive a hard bargain with vendors that protects ratepayers or recover costs from joint owners.
• By excusing nuclear reactors from rigorous comparative analysis of alternatives, it all but guarantees less costly alternatives will be passed over.
• Because nuclear reactors are so risky and impossible to finance in normal capital market, the utilities are pushing for advanced and guaranteed recovery of all costs, but certainty denies regulators the flexibility that is needed in an uncertain and rapidly changing environment and ties the hands of the IUB in its efforts to balance the interest of ratepayers and utility shareholders.
• The need to accelerate cost recovery creates severe intergenerational inequities in cost recovery, violating the fundamental principle that those who consume the output of a plant should bear its costs.
• Having guaranteed utilities cost recovery on an annual basis, the IUB will be under greater pressure to approve “incremental” additions to cost even when those costs are the result of utility error.
Last year, Cooper wrote a lengthy report about House File 561, highlighting many problems with the advanced cost recovery model.
The bills moving through the Iowa legislature are among the most aggressive in removing consumer protection as any in the nation.
• The rolling review applies to all costs associated with development and construction,
• with annual true ups that appear to escape prudence review.
• The return on equity cannot be adjusted for the shifting of risk to ratepayers.
• There is guaranteed recovery of all costs of an abandoned plant and stranded costs for facilities displaced by the nuclear reactor at a full rate of return.
• All advanced costs recovered from ratepayers are excluded from the possibility of refunds that might result from a court case.
• It excuses the utility from showing that it “has considered other source for long-term electricity supply,” of that the nuclear reactor is “reasonable when compared to other feasible alternative sources of supply,” While it applies such language to all other feasible alternative sources of supply.
• Language that would have allowed alternatives other than nuclear to be selected on the basis of competitive bidding was stricken from the Senate versions.
Nuclear reactors would be excused from the used and useful standard and the least cost principle, while prudence reviews will be rolling and partial at best because they are based on rolling, forward looking analysis and preclude or discourage backward looking examination of actual utility behavior. The approach is an open invitation to cost overruns and the utility is on record as opposing mechanisms that would protect ratepayers from overruns.
Between the relaxed regulation of nuclear costs, the guaranteed recovery of abandonment and stranded costs, and the disadvantage at which alternative resources are placed, ratepayers in Iowa are certain to have higher electricity bills as a result of this legislation that they would have if it is not enacted.
The Florida legislature passed a similar law in 2006, and now some analysts worry that the electricity rate hikes may hurt economic growth. Florida Republican State Senator Mike Fasano published an op-ed in the Iowa City Press Citizen on February 14 urging Iowa lawmakers not to repeat Florida’s mistake.
In 2006, the Florida Legislature passed a bill that included a provision allowing investor-owned utilities to charge ratepayers for construction costs for new nuclear reactors – even before the reactors are built and delivering power. We thought this was a good way to spur new electricity generation in our state.
I voted for the legislation based on the information and analysis of costs provided at that time. But the cost estimates we were provided weren’t accurate, and costs have escalated three to four times. The reactors still aren’t built, and just this week we learned that the utility that pledged to build them is canceling its construction contract. That means Floridians are left footing the bill – an increase of as much as $50 per month or more per family – for reactors that may never exist. […]
As I have seen the Florida law’s consequences to our state’s families and businesses, I’ve changed my mind about the wisdom of such a policy. It is bad for consumers and bad for our state. That is why I am now sponsoring a bill that would prevent advanced cost recovery for nuclear reactors.
The consumer protection problems alone are grounds to scrap House File 561. There are also solid environmental reasons to oppose this bill. The Iowa Environmental Council pointed out last week that even as amended, House File 561 “gives nuclear power in Iowa special advantages that will make developing wind, solar, and other renewables more difficult for years to come.”
It’s also worth remembering that part of Iowa lies in an active seismic zone. The last major earthquake in the Midwest was two hundred years ago, but something on a similar scale could happen again. On March 11, the first anniversary of last year’s disaster at Japan’s Fukushima nuclear power plant, Dr. Arjun Makhijani spoke in Des Moines and Iowa City about the dangers of nuclear power. Makhijani is president of the Institute for Energy and Environmental Research in Maryland. He described nuclear reactors as “risky and expensive” and “expressed a strong opinion that the United States is not putting enough emphasis on testing our own reactors against similar situations.” The environmental groups Friends of the Earth, Physicians for Social Responsibility, and Sierra Club Iowa Chapter supported Makhijani’s Iowa visit and presentations.
On March 9, organic farmer and former Secretary of Agriculture candidate Francis Thicke published an op-ed in the Des Moines Register and Iowa City Press-Citizen about the risks nuclear power poses to Iowa farmers. Excerpt:
Fukushima was one of the primary agricultural areas in Japan. After radiation spread from the failed nuclear reactors to surrounding land, sales collapsed for beef, rice, fruit and other agricultural products from the area. Since the disaster began, the Japanese government has banned the sale of milk and produce from a large region including Fukushima and three other prefectures.
Unable to sell their contaminated products on the market, farmers dumped millions of gallons of milk into rivers and tons of vegetables into pits. Twenty thousand cattle farmers were asked to stop grazing their cattle, costing them $600 million in feed silage. The total costs to Japanese farmers from the Fukushima disaster will not be known for years, but they almost certainly will be in the billions of dollars. […]
The Fukushima disaster covered an area equivalent to 20 percent of Iowa with radiation. Were that to happen in Iowa, it would be disastrous for our people and our agriculture. […]
Rather than giving preferential treatment to MidAmerican so that it can build nuclear reactors that put us all in danger, our government should support polices to develop a wide array of energy solutions that will help farmers become more energy self-sufficient with wind, solar and other safe and truly renewable energy systems. This would give us distributed electricity production and the wealth created would stay in local communities.
MidAmerican CEO Bill Fehrman said last month that if the Iowa legislature doesn’t approve something like House File 561, his company will move toward building a new natural gas-fired power plant to replace some of the electricity generated by aging coal-fired plants. That sounds like a good plan to me. Renewables International magazine discussed Germany’s shift away from nuclear power toward natural gas and renewable energy here.
Before I open the floor for comments, here’s the television commercial Friends of the Earth launched last week in Des Moines, Cedar Rapids and Sioux City.
Bill Fehrman, MidAmerican Energy CEO, said the legislation was needed to help MidAmerican Energy continue to investigate nuclear power as a possible source of electricity generation in Iowa. What he fails to mention is there is nothing stopping his company from doing this without HF 561. What MidAmerican needs and does not have is enough investor support to enable a new nuclear reactor to be built without the concessions and financial protections for investors inherent in the bill. For example, HF 561 would enable MidAmerican Energy’s parent company, Berkshire Hathaway to collect the full rate of return on investment, something they are restricted from doing under current Iowa law. There is a reason MidAmerican needs the bill, and it is to shift financial risks to rate payers.
The other fallacy in the video pertains to advanced cost recovery. Fehrman says “there are no pre-payments” and that is simply inaccurate. He explained that MidAmerican would develop a financial plan before beginning construction and that once construction began, rate payers would start the payment process. What is disingenuous about this is that without HF 561, any new power plant would not be eligible for billing customers until it came on line and started generating electricity. While there is a case to be made that this process would save rate payers interest charges, MidAmerican is not making that argument, but is using deception to persuade viewers of the video of something that is not true.
Any relevant comments are welcome in this thread.
P.S.- No matter what happens with House File 561, Matt McCoy has damaged his chances of winning a Democratic primary if ever he runs for higher office in the future.
UPDATE: The Center for Investigative Reporting recently produced a report on potential dangers with aging nuclear reactors in the U.S. Many nuclear reactors, including the one in Iowa, were originally built to last for 40 years but have been relicensed for an additional 20 years.