How to avoid the billions of dollars in costs that were disallowed during the last round of construction.
Rilck Noel is managing director, Energy & Utility Practice, at Protiviti.
With nuclear energy again being viewed as part of the solution for the United States’ energy needs, a number of companies are starting the early permitting and licensing process. However, no nuclear facility will be constructed if capital markets don’t believe that a plant can be built within established budget targets. Meeting budget targets means the industry must address project-management issues and the risk of end-of-project disallowances for any company or regulator to be able to move forward with new construction.
Prudence Reviews and the Resultant Disallowances
A prudence review is a retrospective analysis of the decision-making process and the activities performed during the licensing, construction, and start-up phases of nuclear power-plant construction. It uses specific evaluative criteria to determine whether construction-related decisions were reasonably made and the activities prudently performed.
When these activities or decisions are found to be imprudent, the adverse impact, if any, is evaluated and quantified in financial terms. This financial quantification exercise forms the basis for identifying expenditures that may be disallowed from inclusion in the rate base upon completion of the prudence review.