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The Impact of Nuclear Power Plant Construction Activity on the Electric Utility Industry's Cost of Capital

Abstract:
All across the United States, electric utilities are now faced with the prospect of prematurely abandoning partially completed nuclear units. While there are many reasons for this dilemma,[ the ratemaking implications are profound. They force regulators to make the unsavory decision as to the appropriate allocation of the fixed costs sunk in the abandoned projects between ratepayers and stockholders.' If a significant number of these plants are abandoned, the dollars at stake (estimated to be as large as $66 billion') in any ratemaking division of accountability are staggering.

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Energy Specializations: Nuclear Power – Policy and Regulation; Electricity – Policy and Regulation

JEL Codes: G32: Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, L94: Electric Utilities, G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity, G12: Asset Pricing; Trading Volume; Bond Interest Rates, L95: Gas Utilities; Pipelines; Water Utilities

Keywords: Electric utilities, Nuclear energy, Cost of capital, DCF method, Sunk costs

DOI: 10.5547/ISSN0195-6574-EJ-Vol8-No2-5


Published in Volume 8, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.