Allocating nuclear power plant costs over time

The nuclear generating plants coming into service in the 1980s have book values amounting to several billion dollars, doubling the rate bases of the owner utilities in some instances. The impact that this is producing on electric rates is of concern to consumers, regulators, and utilities alike. A review of the basic nature of a productive asset, the purpose of depreciation accounting, and the composition of interest rates leads to a method of constructing capital-recovery schedules which has come to be termed economic depreciation. This methodology departs from conventional methodology only in that it accepts inflation as a fact of life. This article indicates that application of the procedure to an actual nuclear reactor provides benefits for all classes of ratepayers in that initial capital-recovery costs to ratepayers are substantially lower and, in terms of dollars of constant purchasing power, the total amount paid by customers for return on investment is substantially the same. For the utility, whereas initial capital recovery is lower, total capital recovery is somewhat greater, and the utility is no worse off if it must raise some working capital in the capital markets. 6 references, 4 figures, 2 tables.