Concept of prudence and its impact

The technical and financial regulation of the US nuclear electric industry is divided between the federal and state governments. The federal government oversees the environmental and safety aspects of the technology and is essentially unconcerned with costs. The state utility commissions address cost and are essentially unconcerned with the benefits which the safety and environmental enhancements add to the quality of life. Increasingly, the state utility commissions are relying on the concept of prudence to justify major cost disallowances for light water reactors (LWRs) entering the rate base. This situation, if it continues, will cause profound changes in the electric utility industry conducts its business. The authors believe these changes may not be in the long-term interest of both the ratepayers and the investors.