Cost savings from nuclear regulatory reform: reply.

• Author: Canterbery, E. Ray

1. Introduction

   In a recent issue of this Journal, Canterbery, Reading, and Johnson (hereafter CRJ) [1] present an empirical model for nuclear power plant construction costs to simulate the "reasonable" costs which may arise from a standardized nuclear power plant design. The model is insightful in its attempt to incorporate the impact of Nuclear Regulatory Commission (NRC) regulations on nuclear power plant construction costs. The authors, however, failed to recognize that the underlying nuclear construction cost data is pooled cross-sectional in nature: that is, it has an unequal number of nuclear plants being constructed in an unequal number of years. Additionally, the authors have incorrectly modeled nuclear power construction costs on a "per-project" rather than "per-plant" basis under the aegis of avoiding problems with the inconsistent accounting treatment of the common costs of multiple units.

   Both of these problems could be corrected by: (1) using a fixed effects model to incorporate differences in nuclear power plant construction costs for each year like that presented in a similar model by Joskow and Rose [2] for coal generating facilities, and (2) running a "per-plant" model and incorporating an indicator variable to account for first units in a multi-unit project as presented by Zimmerman [4]. The first modification reveals that cumulative NRC regulations are perfectly correlated with time. This modification effectively eliminates one of the most important contributions of the work; namely, the relationship between NRC regulations and nuclear power project construction costs. The second modification raises questions about the significant economies of scale found by the authors.

2. Revised Nuclear Construction Cost Model

   Consider the following "per-plant" model similar in many respects to CRJ:

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   The above is similar to CRJ because it includes variables representing size and experience. It differs in that it includes variables for first unit effects,(1) the presence of a mechanical draft cooling tower, external regional learning effects (REGION), and the fixed effects of time. Construction [TABULAR DATA FOR TABLE II OMITTED] duration was excluded from the model because the data has converted to overnight costs and adjusted for the interest costs associated with construction (e.g., Allowance for Funds Used During Construction or AFUDC), as was done by the authors. Adjusting the data for AFUDC and...