Nov 8 - McClatchy-Tribune Business News Formerly Knight Ridder/Tribune Business News - Christopher D. Kirkpatrick The Charlotte Observer, N.C.

As Duke Energy Corp. moves ahead with plans for a nuclear plant in South Carolina, officials in North Carolina are at loggerheads.

At issue is who has the authority to approve rate increases needed to pay for the costs of planning new reactors.

Charlotte-based Duke has asked permission from the N.C. Utilities Commission to charge customers for up to $125 million in planning costs for twin reactors in Cherokee County, S.C., even if they are never completed.

The unprecedented request ignited a public policy debate over who has the authority to decide the issue -- utility regulators or state lawmakers.

The utilities commission approves rate increases to cover costs for new power plant construction. But Duke's request is unique because the company wants permission to recover costs even if a plant is not built.

The commission's Public Staff, which is its consumer advocacy arm, said state law requires plants to be built before rates can be increased. It suggested Duke go to the General Assembly to request legislation.

The state Attorney General's Office said the same, adding that Duke was asking for an open-ended nuclear expense account.

The commission recently reopened the case, to allow for more written comments from all sides until Monday. A hearing date has not been set. Duke said the commission has the authority, and the company wants it to decide in its favor. Duke would decide whether to the nuclear plant is feasible by the end of next year.

If the company has to wait for the General Assembly, which does not convene until, it could delay the timeline for the plant to be operating in 2016, the company said.

State Sen. Dan Clodfelter, a Charlotte Democrat, said the commission should make the call. He said commissions sometimes try to avoid controversial decisions by claiming they do not have the authority. Staffers of House and Senate leaders told the Observer they'd wait for the commission's ruling before commenting.

Utilities Commission member Jim Kerr said the seven-member panel doesn't know if it has the power.

"That is the issue in the case," he said. "That is something we will have to decide."

The debate ultimately could prompt legislators to create new rules for planning and building regulated power plants. Several states have laws that govern how utilities can recover planning costs from failed projects.

Duke does not know how much rates would increase from the $125 million, spokesman Tom Williams said.

If Duke decides against the project, the company still wants to be able to pass on the $125 million to ratepayers. The company has proposed that N.C. customers pay two-thirds and S.C. customers pay the rest.

The company already operates three nuclear plants that generate almost half its electricity.

Duke, North Carolina's largest utility with more than 2.1 million customers, says it deserves the protection because of the high failure rate of nuclear plants.

It points out that electricity demand is rising in the Carolinas, with Duke adding between 40,000 and 60,000 new customers a year, Williams said. And nuclear energy has become more popular among activists and policymakers as greenhouse gases and other smokestack emissions, including those from coal-fired power plants, are connected to global warming and health problems. Increased natural gas prices also have stoked interest.

After President Bush signed the Energy Policy Act of 2005, which offers millions in financial incentives for investment in alternative energy, the Nuclear Regulatory Commission, which licenses plants, received 15 letters of intent, covering 30 planned reactors. It has been 28 years since the NRC approved the building of a nuclear plant, said Scott Burnell, spokesman for the NRC.

After the partial meltdown of Three Mile Island nuclear plant in 1979, interest in nuclear plants waned. About 60 plants across the country were scrapped, and billions of investment dollars were lost or passed on to consumers through rate increases.

Duke scrapped six plants, and Progress Energy canceled three. Duke lost hundreds of millions on the site where it now wants to build the twin reactors. Duke raised rates to recover $224.5 million of the roughly $600 million it spent on the three reactors that were never completed.

Duke's current request before the commission is to avoid repeating history.

"It's basically a hedge," said Mitch Singer, spokesman for the Nuclear Energy Institute, which works for the industry.

Duke was the first publicly owned utility to send in a letter of intent -- the initial step in an estimated 11-year process for Duke to build and operate the nuclear plant. The plant would cost from $4 billion to $6 billion.

The planning costs include creating an application for the NRC, called a combined operating and construction license. The costs include Duke's staff time, paying consultants for detailed security and safety plans and coming up with an emergency evacuation plan, said Rita Sipe, a Duke spokeswoman.

The NRC's Burnell said the $125 million sounded like a reasonable budget for the nuclear plant application process.

Duke has not yet asked South Carolina officials for permission to raise rates to recover a portion of the planning costs. It hasn't decided if it will could go straight to the S.C. legislature and bypass the S.C. Public Service Commission, Williams said.

That commission still would have to issue a permit for the nuclear plant, the same as it would for any other power plan, he said.