the nuclear fiasco

Regulated utilities such as Dominion and SC Electric & Gas make a return on invested capital. That means they constantly seek ways to borrow more money in what in the regulatory world is called their rate base.

Costly nuclear plants are the most dramatic example. 40 years ago, in the last round of nuclear construction, there were disallowances for cost overruns. The utility industry compensated for that by getting state legislatures to allow pre-payment and financial recovery for failed projects.

Now the industry faces flat demand and its rate base is declining. Now we hear of the need to spend more on transmission system resiliency, expansion of utility owned property beyond the customer meter and expensive emission controls.

Then there are cost over runs on projects, excess amounts of reserve margins and the overestimation of future demand. The root cause of the over-capitalization problem is the rate-of-return on capital doctrine of regulation. They make money by borrowing.

Jim Clarkson of Resoure Management Supply is an expert on competition, energy and regulation.