April 2004

The Customers First! Coalition opposes the sale of the Kewaunee Nuclear Power Plant and its conversion to a deregulated merchant plant. Kewaunee has been a low-cost resource for Wisconsin and has been paid for by Wisconsin customers in rates for many years. If the sale is approved, Wisconsin will lose jurisdiction over the plant and, if the plant is relicensed, Wisconsin customers will lose their right to low-cost power from Kewaunee after 2013. Dominion will sell the power at whatever the market will bear. The profits will flow to Virginia and no longer help keep Wisconsin rates down.

The Facts

In December 2003, two public utilities, Wisconsin Public Service Corporation and Wisconsin Power & Light, announced their intention to sell the Kewaunee Nuclear Power Plant to Virginia-based Dominion Energy, a private, non-utility company not subject to state regulation. If the Public Service Commission of Wisconsin (PSCW) approves this sale, Dominion will own and control Kewaunee and the Wisconsin utilities will purchase power from the plant through 2013, when Kewaunee’s current nuclear license will expire. Dominion intends to relicense the plant and operate it as a deregulated merchant facility.

The Customers First! Coalition opposes this sale because, the sale will harm Wisconsin consumers. The result will be to deregulate a large, low-cost power plant.

Kewaunee will no longer operate under the jurisdiction of the PSCW. The state will lose its authority to set electric rates for Kewaunee’s output, rule on the reasonableness of expenses, review major construction requests and enforce certain plant maintenance standards.

Kewaunee has been a low-cost source of energy for Wisconsin customers for many years. Today, Wisconsin customers pay for Kewaunee based on actual costs plus a reasonable return. If Kewaunee is sold to Dominion, prices for power will be set until 2013 by a contract under federal jurisdiction, and after 2013, at whatever the market will bear.

This sale would constitute piecemeal deregulation that could send Wisconsin down the same path that California chose three years ago. The California debacle occurred because the state gave up regulatory control and placed electric prices into the hands of merchant producers and traders, including Enron. California’s commission lost the ability to regulate costs and set rates. The parallels to this proposal are unmistakable. The sale of Kewaunee to an out-of-state company will set a bad precedent for the future deregulation of utility plants in the state, plants that Wisconsin ratepayers have paid for over the years. California’s experiment with deregulation was disastrous for state consumers; Wisconsin cannot afford to make the same mistake.

Specific areas in which Wisconsin will lose authority over Kewaunee if it is sold to Dominion include:

• Rate-making Authority: The PSCW will lose its rate-making authority for the facility. The Commission will no longer be able to determine appropriate costs for the plant, review depreciation rates and financial returns or audit the facility’s finances. Additionally, the PSCW will lose control over the collection and use of decommissioning funds, which have been carefully scrutinized by the Commission in past proceedings. Until 2013, a complex purchased-power agreement subject to federal jurisdiction will replace PSCW review. After 2013, the plant’s output will be sold at prices that are likely to substantially exceed cost.

• Construction Approval and Maintenance Standards: The PSCW’s authority to approve construction costs such as major repairs or replacements will also be lost. Dominion will not be required to demonstrate need, justify costs and/or review alternatives like Wisconsin utilities must. Additionally, Dominion will also be exempt from several service and plant maintenance standards that apply to regulated utilities in the state.

• Rate Off-Sets: In addition to losing cost-based rates, loss of state jurisdiction will also eliminate consumers’ ability to receive credits in rates from sales of power from Kewaunee to other utilities. Currently, customers get revenue credits based on the profits from the short-term opportunity sales of energy from Kewaunee to other utilities. Dominion will not be required to credit customers with any of these revenues, before or after 2013. All profits from such sales will remain with Dominion. Profits from such sales are expected to increase dramatically in the future as the state depends more on natural gas-fired generation. The profits from Kewaunee will benefit Wisconsin customers if the sale is rejected. They will go to a private Virginia company if it is approved.

• Prudency Review: The PSCW will lose its ability to rule on the reasonableness of Kewaunee’s expenses that can be charged back to retail customers through 2013. The state will no longer be able to disallow unnecessary costs such as occurred in a 1998 decision involving the Point Beach nuclear facility. In that decision, the PSCW ruled that over $73 million had been imprudently incurred during an unexpected outage at Point Beach, and the PSCW declined to pass these costs on to Wisconsin customers.

• Financial Integrity: As an out-of-state holding company, Dominion is not subject to Wisconsin’s Public Utility Holding Company Act. The federal courts recently found that this Act protects Wisconsin. Should Dominion, or any of its affiliates, get into financial trouble that impacts the operation of Kewaunee, the state will have no ability to maintain the financial integrity of the owner of the facility.

• Subsequent Ownership: If Dominion becomes the owner of Kewaunee, it will be able to sell the plant to anyone it chooses in the future without the approval of the PSCW. The state will have no authority to determine if such a sale is in the public interest. Given the meltdown of companies like Enron, this will be very risky for Wisconsin.

• Relicensing: Currently, the PSCW has authority to determine whether or not relicensing Kewaunee from 2013 to 2033 makes sense. If Kewaunee is sold to Dominion, the PSCW will have no such authority. Nor will Wisconsin ratepayers have a right to the plant output after 2013, if it is relicensed.