House File 561 - Introduced HOUSE FILE 561 BY COMMITTEE ON COMMERCE (SUCCESSOR TO HSB 124) A BILL FOR An Act relating to the permitting, licensing, construction, and 1 operation of nuclear generation facilities. 2 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 3 TLSB 2351HV (3) 84 rn/nh
H.F. 561 Section 1. Section 476.6, subsection 22, Code 2011, is 1 amended by adding the following new paragraph: 2 NEW PARAGRAPH . d. A rate-regulated electric utility that 3 was subject to a revenue sharing settlement agreement with 4 regard to its electric base rates as of January 1, 2010, shall 5 file an application for ratemaking principles applicable to the 6 construction of a nuclear generating facility with the board. 7 The application shall comply with the provisions of section 8 476.53. 9 Sec. 2. Section 476.53, Code 2011, is amended to read as 10 follows: 11 476.53 Electric generating and transmission facilities. 12 1. It is the intent of the general assembly to attract 13 the development of electric power generating and transmission 14 facilities within the state in sufficient quantity to ensure 15 reliable electric service to Iowa consumers and provide 16 economic benefits to the state. It is also the intent of the 17 general assembly to encourage rate-regulated public utilities 18 to consider altering existing electric generating facilities, 19 where reasonable, to manage carbon emission intensity in 20 order to facilitate the transition to a carbon-constrained 21 environment. 22 2. a. The general assembly’s intent with regard to the 23 development of electric power generating and transmission 24 facilities, or the significant alteration of an existing 25 generating facility, as provided in this subsection 1 , shall be 26 implemented in a manner that is cost-effective and compatible 27 with the environmental policies of the state, as expressed in 28 Title XI . 29 b. The general assembly’s intent with regard to the 30 reliability of electric service to Iowa consumers, as provided 31 in this subsection 1 , shall be implemented by considering the 32 diversity of the types of fuel used to generate electricity, 33 the availability and reliability of fuel supplies, and the 34 impact of the volatility of fuel costs. 35 -1- LSB 2351HV (3) 84 rn/nh 1/ 14
H.F. 561 2. It is also the intent of the general assembly to 1 encourage the prudent development of baseload nuclear 2 electric power generation. Nuclear generation has a long-term 3 proven record of providing a safe, reliable, and secure 4 source of electricity in the United States and offers the 5 potential for significant job creation, substantial economic 6 development benefits, and the production of electricity at 7 significantly reduced levels of regulated air emissions when 8 compared to output from other thermal generation sources. 9 Further, the general assembly recognizes that meeting 10 stringent environmental permit requirements is expensive and 11 creates significant cost burdens on customers and employers 12 attributable to the imposition of additional comprehensive 13 and costly regulations by the United States environmental 14 protection agency that dramatically increase costs to 15 customers. Finally, the general assembly recognizes that 16 development of nuclear electric power generation requires 17 significant capital investment and a substantial period of 18 time for successful nuclear generation development, siting, 19 permitting, licensing, and deployment. 20 3. a. The board shall specify in advance, by order 21 issued after a contested case proceeding, the ratemaking 22 principles that will apply when the costs of the electric power 23 generating facility or alternate energy production facility 24 are included in regulated electric rates , whether collected 25 through base rates or through a rider approved under paragraph 26 “b” , subparagraph (2), subparagraph division (a), whenever a 27 rate-regulated public utility does any of the following: 28 (1) Files an application pursuant to section 476A.3 to 29 construct do any of the following in Iowa a : 30 (a) Construct a baseload electric power generating facility 31 with a nameplate generating capacity equal to or greater than 32 three hundred megawatts or a . 33 (b) Construct a combined-cycle electric power generating 34 facility , or an . 35 -2- LSB 2351HV (3) 84 rn/nh 2/ 14
H.F. 561 (c) Construct an alternate energy production facility as 1 defined in section 476.42 , or to significantly . 2 (d) Significantly alter an existing generating facility. 3 (i) For purposes of this subparagraph division (d) , a 4 significant alteration of an existing generating facility must, 5 in order to qualify for establishment of ratemaking principles, 6 fall into one of the following categories: 7 (a) (A) Conversion of a coal fueled facility into a gas 8 fueled facility. 9 (b) (B) Addition of carbon capture and storage facilities 10 at a coal fueled facility. 11 (c) (C) Addition of gas fueled capability to a coal fueled 12 facility, in order to convert the facility to one that will 13 rely primarily on gas for future generation. 14 (d) (D) Addition of a biomass fueled capability to a coal 15 fueled facility. 16 (ii) With respect to a significant alteration of an existing 17 generating facility, an original facility shall not be required 18 to be either a baseload or a combined-cycle facility. Only 19 the incremental investment undertaken by a utility under 20 subparagraph divisions (a), (b), (c), or (d) subdivision (i), 21 subparagraph part (A), (B), (C), or (D) shall be eligible to 22 apply the ratemaking principles established by the order issued 23 pursuant to paragraph “e” . Facilities for which advanced 24 ratemaking principles are obtained pursuant to this section 25 shall not be subject to a subsequent board review pursuant to 26 section 476.6, subsection 21 to the extent that the investment 27 has been considered by the board under this section . To the 28 extent an eligible utility has been authorized to make capital 29 investments subject to section 476.6, subsection 21 , such 30 investments shall not be eligible for ratemaking principles 31 pursuant to this section . 32 (2) Expresses its intent, upon completion of analyses 33 authorized pursuant to section 476.6, subsection 22, for a 34 rate-regulated utility that was subject to a revenue-sharing 35 -3- LSB 2351HV (3) 84 rn/nh 3/ 14
H.F. 561 settlement agreement with regard to its electric base rates as 1 of January 1, 2010, to file an application pursuant to section 2 476A.3 to build a nuclear generating facility including but not 3 limited to small modular reactor technology, or expresses its 4 intent to seek authority pursuant to a combined construction 5 and operating license or an early site permit from the United 6 States nuclear regulatory commission. 7 (2) (3) Leases or owns in Iowa, in whole or in part, a any 8 of the following: 9 (a) A new baseload electric power generating facility with 10 a nameplate generating capacity equal to or greater than three 11 hundred megawatts or a . 12 (b) A combined-cycle electric power generating facility , 13 or a . 14 (c) A new alternate energy production facility as defined 15 in section 476.42 . 16 (d) A new nuclear generating facility including but not 17 limited to small modular reactor technology. 18 b. In determining the applicable ratemaking principles, the 19 board shall not be limited to traditional ratemaking principles 20 or traditional cost recovery mechanisms. 21 (1) Among the principles and mechanisms the board may 22 consider, the board has the authority to approve ratemaking 23 principles proposed by a rate-regulated public utility that 24 provide for reasonable restrictions upon the ability of 25 the public utility to seek a general increase in electric 26 rates under section 476.6 for at least three years after the 27 generating facility begins providing service to Iowa customers. 28 (2) In determining the applicable ratemaking principles for 29 a nuclear generating facility or for a license or permit from 30 the United States nuclear regulatory commission, a ratemaking 31 principles order issued by the board shall incorporate all of 32 the following: 33 (a) Enable the utility to recover upon issuance of the 34 order, through a rider pursuant to a tariff filing, a return 35 -4- LSB 2351HV (3) 84 rn/nh 4/ 14
H.F. 561 on and a return of all prudent capitalized costs and a return 1 of all prudent noncapitalized costs associated with the 2 permitting, licensing, and construction of a nuclear generating 3 facility. The amount of such cost recovery from utility 4 customers shall be reduced by the amount of any funding of 5 such costs borne by the United States department of energy 6 or any other governmental entity, and costs recovered from 7 any joint owners of the nuclear generating facility. A 8 determination of all prudent costs recoverable pursuant to 9 this subparagraph division shall be made and the level and 10 rate of the recovery of such charges reset annually to reflect 11 the level of reasonable costs related to pursuit of a United 12 States nuclear regulatory commission permit or license or 13 construction costs expected to be incurred in the next twelve 14 months. A determination shall also be made of any adjustment 15 required to balance the preceding period’s actual expenditures 16 and financing costs with what had been projected and included 17 in costs recoverable for the preceding period. If applicable, 18 the utility shall report to the board annually the budgeted 19 and actual costs as compared to the estimated total in-service 20 cost of the nuclear generating facility that was presented 21 in the last annual filing, as projected through the expected 22 in-service date of the nuclear generating facility. Following 23 issuance of the board’s ratemaking principles order, the 24 utility shall file an application with the board on an annual 25 basis providing such information, with the understanding 26 that some cost components may be higher than estimated and 27 other cost components may be lower. Each annual proceeding 28 shall be completed by the board within ninety days from the 29 date of filing the application. The complete methodology 30 for determination of prudent costs shall be addressed as a 31 ratemaking principle. All United States nuclear regulatory 32 commission permitting or licensing costs are to be recovered 33 over a period not to exceed the estimated construction period 34 for a nuclear generating facility as determined by the board. 35 -5- LSB 2351HV (3) 84 rn/nh 5/ 14
H.F. 561 All nuclear generating facility construction costs are to be 1 recovered over a period not to exceed the sum of the estimated 2 construction period for a nuclear unit, plus its useful life 3 as determined by the board. A utility’s commencement of 4 cost collection shall begin promptly after completion of the 5 ratemaking principles proceeding, allowing for such additional 6 time as may be needed by the board to review a compliance rider 7 tariff filing. 8 (b) Enable the utility to recover in rates all prudently 9 incurred expenses and costs, including but not limited to 10 ongoing operations and maintenance costs, decommissioning 11 funding and site restoration costs, and taxes for such a new 12 nuclear generating facility. 13 (c) Base the allowed debt, preferred stock, and equity 14 percentages on a capital structure calculated using the 15 average of the utility’s actual thirteen-month balances for 16 long-term debt, preferred stock, and common equity. The 17 long-term debt and preferred stock thirteen-month balances 18 shall include adjustments for thirteen-month balances of 19 unamortized discount, premium, expense, and any gain or loss 20 on reacquired securities. The costs of long-term debt and 21 preferred stock shall reflect the actual embedded interest and 22 dividend rate for each issue as well as any annual amortization 23 of unamortized discount, premium, expense, and any gain or loss 24 on reacquired securities. The costs of common equity shall 25 reflect the following: 26 (1) The risks to which the investor’s capital is exposed and 27 not the investor’s source of funds. 28 (2) The investor-required cost of capital of the 29 rate-regulated utility. 30 (3) Neither directly or indirectly include additional debt 31 of the rate-regulated utility’s parent or other affiliates 32 in the rate-regulated utility’s capital structure or cost of 33 service. 34 (d) Allow the utility to recover return on and a return of 35 -6- LSB 2351HV (3) 84 rn/nh 6/ 14
H.F. 561 all prudent preconstruction and construction costs incurred 1 if the utility elects not to complete or is precluded from 2 completing construction of the nuclear generating facility. 3 Costs determined to be prudent in prior annual review 4 proceedings shall not subsequently be redetermined to be 5 imprudent. The utility shall recover such costs over a period 6 not to exceed the sum of the estimated construction period for 7 a nuclear unit plus its useful life as determined by the board. 8 (e) Allow the utility to recover the net book value of 9 any generating facility that the utility commits to retire 10 in anticipation of the operation of a new nuclear generating 11 facility, and that the board determines to be prudent. The 12 board shall allow for the recovery of a return on, and a return 13 of the book value of, the retired generating facility over 14 a period not greater than the remaining useful life of the 15 facility prior to a determination to retire the facility. 16 c. In determining the applicable ratemaking principles, the 17 board shall make the following findings: 18 (1) The rate-regulated public utility has in effect a 19 board-approved energy efficiency plan as required under section 20 476.6, subsection 16 . 21 (2) The Except for an application for ratemaking principles 22 subject to paragraph “a” , subparagraph (2), the rate-regulated 23 public utility has demonstrated to the board that the public 24 utility has considered other sources for long-term electric 25 supply and that the facility or lease is reasonable when 26 compared to other feasible alternative sources of supply. The 27 rate-regulated public utility may satisfy the requirements of 28 this subparagraph through a competitive bidding process, under 29 rules adopted by the board, that demonstrate the facility or 30 lease is a reasonable alternative to meet its electric supply 31 needs. 32 (3) For an application for ratemaking principles subject 33 to paragraph “a” , subparagraph (2), the rate-regulated utility 34 has demonstrated through a detailed business case filed with 35 -7- LSB 2351HV (3) 84 rn/nh 7/ 14
H.F. 561 the board that it is prudent to build the proposed nuclear 1 generating facility. 2 d. The applicable ratemaking principles shall be determined 3 in a contested case proceeding, which proceeding may be 4 combined with the proceeding for issuance of a certificate 5 conducted pursuant to chapter 476A . 6 e. The order setting forth the applicable ratemaking 7 principles shall be issued prior to the commencement of 8 construction or lease of the facility. 9 f. Following issuance of the order, the rate-regulated 10 public utility shall have the option of proceeding according to 11 either of the following: 12 (1) Withdrawing its application for a certificate pursuant 13 to chapter 476A or withdrawing its ratemaking principles 14 application . 15 (2) Proceeding with the construction or lease of the 16 facility or efforts to pursue a United States nuclear 17 regulatory commission permit or license . 18 g. Notwithstanding any provision of this chapter to the 19 contrary, the ratemaking principles established by the order 20 issued pursuant to paragraph “e” shall be binding with regard 21 to the specific electric power generating facility in any 22 subsequent rate proceeding. 23 h. Any judicial action directly or indirectly resulting 24 in a modification of the board’s ratemaking principles order 25 shall be applied prospectively only. No refunds shall be made 26 of revenues previously collected, unless the board determines 27 such revenues to be in excess of the costs incurred or to be 28 incurred by the utility. With respect to financial commitments 29 made prior to any judicial action directly or indirectly 30 resulting in a modification of the board’s ratemaking 31 principles order, the utility shall recover such costs under a 32 cancellation costs ratemaking principle. 33 4. The utilities board and the consumer advocate may employ 34 additional temporary staff, or may contract for professional 35 -8- LSB 2351HV (3) 84 rn/nh 8/ 14
H.F. 561 services with persons who are not state employees, as the 1 board and the consumer advocate deem necessary to perform 2 required functions as provided in this section , including but 3 not limited to review of power purchase contracts, review of 4 emission plans and budgets, and review of ratemaking principles 5 proposed for construction or lease of a new generating 6 facility , including a new nuclear generating facility or 7 United States nuclear regulatory commission permit or license . 8 Beginning July 1, 2002, there is appropriated out of any funds 9 in the state treasury not otherwise appropriated, such sums as 10 may be necessary to enable the board and the consumer advocate 11 to hire additional staff and contract for services under this 12 section . The costs of the additional staff and services shall 13 be assessed to the utilities pursuant to the procedure in 14 section 476.10 and section 475A.6 . 15 5. Facilities for which advanced ratemaking principles are 16 obtained pursuant to this section shall not be subject to a 17 subsequent board review pursuant to section 476.6, subsection 18 21, to the extent that the investment has been considered 19 by the board under this section. To the extent an eligible 20 utility has been authorized to make capital investments subject 21 to section 476.6, subsection 21, such investments shall not be 22 eligible for ratemaking principles pursuant to this section. 23 Sec. 3. ELECTRIC UTILITY RATE INCREASES —— MITIGATION 24 STUDY. The utilities board of the utilities division of the 25 department of commerce shall conduct a study to identify 26 the potential impact to customer electric utility rates 27 resulting from recent federal regulations adopted by the United 28 States environmental protection agency, and strategies to 29 mitigate this impact. The study shall be undertaken with the 30 involvement of rate-regulated electric public utilities and 31 other stakeholders identified by the board. The board shall 32 submit a report regarding the results of the study by January 33 1, 2012. 34 EXPLANATION 35 -9- LSB 2351HV (3) 84 rn/nh 9/ 14
H.F. 561 This bill relates to the permitting, licensing, 1 construction, and operation of nuclear generation facilities. 2 The bill provides that it is the intent of the general 3 assembly to encourage the prudent development of baseload 4 nuclear electric power generation, noting that nuclear 5 generation has a long-term proven record of providing a safe, 6 reliable, and secure source of electricity, and offers the 7 potential for significant job creation, substantial economic 8 development benefits, and the production of electricity at 9 significantly reduced levels of regulated air emissions when 10 compared to output from other thermal generation sources. 11 The bill provides that the general assembly also recognizes 12 that meeting stringent environmental permit requirements is 13 expensive and creates significant cost burdens on customers 14 and employers attributable to the imposition of additional 15 comprehensive and costly regulations by the United States 16 environmental protection agency that dramatically increase 17 costs to customers. The bill provides that the general 18 assembly additionally recognizes that development of nuclear 19 electric power generation requires significant capital 20 investment and a substantial period of time for successful 21 nuclear generation development, siting, licensing, and 22 deployment. 23 The bill requires a rate-regulated electric utility that 24 was subject to a revenue sharing settlement agreement with 25 regard to its electric base rates as of January 1, 2010, to 26 file an application for ratemaking principles applicable to the 27 construction of a nuclear generating facility with the Iowa 28 utilities board, and that the application shall comply with the 29 provisions of Code section 476.53. 30 The bill makes significant modifications to Code section 31 476.53 consistent with the potential construction of a nuclear 32 generating facility. The bill provides that the board shall 33 specify in advance the ratemaking principles that will apply 34 when a rate-regulated public utility expresses its intent, upon 35 -10- LSB 2351HV (3) 84 rn/nh 10/ 14
H.F. 561 completion of analyses authorized pursuant to Code section 1 476.6, subsection 22 for a rate-regulated utility that was 2 subject to a revenue-sharing settlement agreement with regard 3 to its electric base rates as of January 1, 2010, to file an 4 application pursuant to Code section 476A.3 to build a nuclear 5 generating facility, including but not limited to small modular 6 reactor technology, or expresses its intent to seek authority 7 pursuant to a combined construction and operating license or 8 an early site permit from the United States nuclear regulatory 9 commission, or leases or owns in whole or in part such a 10 facility. 11 The bill provides that in determining the applicable 12 ratemaking principles for a nuclear generating facility or for 13 a license or permit from the United States nuclear regulatory 14 commission, a ratemaking principles order issued by the board 15 shall incorporate several components. The bill states that 16 after the order is issued, the utility may recover from utility 17 customers a return on and a return of all prudent capitalized 18 costs and a return of all prudent noncapitalized costs 19 associated with, the permitting, licensing, and construction 20 of a facility, reduced by the amount of any funding of such 21 costs borne by the United States department of energy or any 22 other governmental entity, and costs recovered from any joint 23 owners of the nuclear generating facility. The bill provides 24 that the determination of prudent costs and the level and rate 25 of the recovery of charges shall be reset annually to reflect 26 the level of reasonable costs related to pursuit of a United 27 States nuclear regulatory commission permit or license or 28 construction costs expected to be incurred by the utility in 29 the next 12 months. A determination shall also be made of any 30 adjustment required to balance the preceding period’s actual 31 expenditures and financing costs with what had been projected 32 and included in costs recoverable for the preceding period. 33 The bill directs a utility, if applicable, to report to the 34 board annually the budgeted and actual costs as compared to 35 -11- LSB 2351HV (3) 84 rn/nh 11/ 14
H.F. 561 the estimated total in-service cost of the nuclear generating 1 facility that was presented in the last annual filing, as 2 projected through the expected in-service date of the nuclear 3 generating facility. The bill provides that after the order 4 is issued, a utility shall file an application with the board 5 on an annual basis providing the budgeted versus actual cost 6 information, and that each annual proceeding shall be completed 7 by the board within 90 days from the date of filing the 8 application. 9 The bill states that all United States nuclear regulatory 10 commission permitting or licensing costs are to be recovered 11 over a period not to exceed the estimated construction period 12 for a nuclear generating facility as determined by the board, 13 and that all nuclear generating facility construction costs 14 are to be recovered over a period not to exceed the sum of 15 the estimated construction period for a nuclear unit, plus 16 its useful life as determined by the board. The bill also 17 states that a utility’s commencement of cost collection shall 18 begin promptly after completion of the ratemaking principles 19 proceeding, allowing for such additional time as may be needed 20 by the board to review a compliance rider tariff filing. 21 The bill provides that the order shall additionally enable 22 the utility to recover in rates all prudently incurred expenses 23 and costs, including but not limited to ongoing operations 24 and maintenance costs, decommissioning funding and site 25 restoration costs, and taxes for a new nuclear generating 26 facility. Further, the order shall base the allowed debt, 27 preferred stock, and equity percentages on a capital structure 28 calculated using the average of the utility’s actual 13-month 29 balances for long-term debt, preferred stock, and common 30 equity. The bill states that the costs of long-term debt and 31 preferred stock shall reflect the actual embedded interest and 32 dividend rate for each issue as well as any annual amortization 33 of unamortized discount, premium, expense, and any gain or 34 loss on reacquired securities, and that the cost of common 35 -12- LSB 2351HV (3) 84 rn/nh 12/ 14
H.F. 561 equity shall reflect the risks to which the investor’s capital 1 is exposed and not the investor’s source of funds, and the 2 investor-required cost of capital of the rate-regulated 3 utility, and shall neither directly nor indirectly include 4 additional debt of the rate-regulated utility’s parent or other 5 affiliates in the rate-regulated utility’s capital structure 6 or cost of service. 7 The bill provides that the order shall allow the utility to 8 recover return on and a return of all prudent preconstruction 9 and construction costs incurred if the utility elects not 10 to complete or is precluded from completing construction of 11 the nuclear generating facility, and that costs determined 12 to be prudent in prior annual review proceedings shall not 13 subsequently be redetermined to be imprudent. The bill states 14 that a utility shall recover costs over a period not to exceed 15 the sum of the estimated construction period for a nuclear 16 unit plus its useful life as determined by the board. The 17 bill states that the order shall further allow the utility to 18 recover the net book value of any generating facility that the 19 utility commits to retire in anticipation of the operation of a 20 new nuclear generating facility, and that the board determines 21 to be prudent, and that the board shall allow for the recovery 22 of a return on, and return of the book value of, the retired 23 generating facility over a period not greater than the 24 remaining useful life of the facility prior to a determination 25 to retire the facility. 26 The bill exempts a rate-regulated public utility applying 27 for ratemaking principles with regard to a nuclear generating 28 facility from requirements that a utility must demonstrate to 29 the board that it has considered other sources for long-term 30 electric supply and that the facility or a lease of a facility 31 is reasonable when compared to other feasible alternative 32 sources of supply. The bill adds an application requirement 33 with regard to a nuclear generating facility requiring a 34 rate-regulated utility to demonstrate through a detailed 35 -13- LSB 2351HV (3) 84 rn/nh 13/ 14
H.F. 561 business case filed with the board that it is prudent to build 1 the proposed facility. 2 The bill provides that any judicial action directly 3 or indirectly resulting in a modification of the board’s 4 ratemaking principles order shall be applied prospectively 5 only, and that no refunds shall be made of revenues previously 6 collected, unless the board determines such revenues to be in 7 excess of the costs incurred or to be incurred by the utility. 8 The bill removes the word “temporary” from provisions 9 regarding staff which the utilities board and the consumer 10 advocate may employ, or may contract with, to perform required 11 functions pursuant to Code section 476.53 as amended by the 12 bill. 13 The bill directs the board to conduct a study to identify 14 the potential impact to customer electric utility rates 15 resulting from recent federal regulations adopted by the United 16 States environmental protection agency, and strategies to 17 mitigate this impact. The study shall be undertaken with the 18 involvement of rate-regulated electric public utilities and 19 other stakeholders identified by the board. The bill requires 20 the board to submit a report regarding the results of the study 21 by January 1, 2012. 22 The bill makes additional conforming changes and relocation 23 of specified provisions consistent with expanding applicable 24 ratemaking principles in connection with a nuclear generating 25 facility. 26 -14- LSB 2351HV (3) 84 rn/nh 14/ 14