Reply #47: Severance used *lower* numbers than the 2009 study you point to. [View All]

The 2009 numbers you quote:
Nuclear is financed at 50% debt, with a debt cost of capital of 8% and an equity cost of capital of 15%.

Severance:
Cost of Capital: If you wanted to build a house and it took 10 years to build it, you can easily see how the cost of interest during construction would be a major component of the construction cost. This is exactly the situation with the costs of building a new nuclear power plant. As both equity and borrowed funds are used, and both expect requisite returns, an average weighted cost of capital of 14.5% is assumed .** The Cost of Capital never goes away – money always has its cost. Some utilities propose to “lower costs” by charging financing costs to ratepayers during construction. However, “early recovery” charges simply force ratepayers to pay extra financing costs to make ends meet. You can hide, but not eliminate the Cost of Capital.

**15% after-corporate-tax ROE (As assumed by the MIT study, which includes a 3% “risk premium” on equity for nuclear utilities), payout from facility before 39% corporate taxes is thus 24.59%; 6.25% interest on debt portion; 45% equity/55% debt. Avg. Weighted Cost is thus = (.2459 x .45) + (.0625 x .55). Note the 6.25% interest rate is below recent bond rates.


So severance uses 6.25% for 55% of the debt and 15% for the other 45%.
MIT used 8% for 50% of the debt and 15% for the other 50%.

Now if I were a nuclear supporter, I'd screech about your obvious lack of math skills, but I don't think that's it; I attribute it to your lack of desire to tell the truth.