Keep Hope Alive: Updating the Prudent Investment Standard for Allocating Nuclear Plant Cancellation Costs

Abstract

As the United States is poised to enter a new era of nuclear power plant construction, it behooves us to revisit some of the controversies of the past and consider how best to deal with some of the major problems that arose once before and may confront us once again as we go down this path. A flurry of costly, protected, and complex disputes concerning the allocation of plant cancellation cost followed upon the collapse of the first boom in nuclear power plant construction during the 1970s and 1980s. These cases led to highly divergent results depending of the jurisdiction and the standards or review it applied. Such variation is almost always problematic. It can introduce problematic jurisdictional concerns into utility decisions that should be guided more by basic considerations of appropriately meeting energy demand. This article aims to take a step toward harmonizing the used and useful test with the prudent investment test by proposing that the latter can be updated through pursing an analogy to products liability law. By reconfiguring the concept of “prudence” away from its analogy to the business judgment rule toward products liability standards, this approach promises to provide a means both to respect precedent in those jurisdictions applying the prudent investment test and provide a more rational, consistent and equitable basis for allocating the costs of future nuclear plant cancellations.

Keywords: Energy, Nuclear Energy, Products Liability, Environment, Regulated Industries

JEL Classification: A1, D4, D6, K3, K23, K32, L5, L94, O32, Q4