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Financial News

Fortnightly Magazine - May 15 1997

siphoned off for unrelated deficit reduction purposes, it must be put back.

The immediate damages are also significant. Each reactor faces costs of $50 million to $60 million for dry cask storage. With more than 100 reactors in the U.S. fleet, casks alone total more than $5 billion. Unfortunately, not every reactor can put dry cask storage on site. Those plants must shut down when their spent fuel pools reach capacity, which will occur long before their scheduled decommissioning dates.

Utilities also face increased decommissioning costs. Plants unable to license dry casks will also suffer lost revenues for premature closure of plants that reach "full date," employee termination costs and lost investment opportunities. Utilities can make a legitimate claim that these costs lie within the responsibility of the federal government as a result of a breach of contract.

The Right to Force Action

Fortunately for ratepayers and stockholders, there is an important precedent for recovery of damages. When Congress drove scores of S&Ls into the abyss, at least one S&L took the matter to court. The case was ultimately decided by the U.S. Supreme Court in United States v. Winstar. The court found the government breached its contract with the S&Ls (em just like Indiana-Michigan.

Winstar permits S&Ls to bring damage suits against the government. A growing number of S&Ls are pursuing such claims.

With Winstar, utilities have the basis to pursue recovery of damages owed from the DOE's continuing recalcitrance. And, despite past timidity by some companies to litigate on stockholder and ratepayer behalf, utilities can be expected to aggressively pursue Winstar breach claims. With these stakes, stockholders and regulators will not accept anything less. The stakes are just too big to ignore and too important to responsibly sign away in a legislative deal.

For example, with DOE's continuing default, both indirect and consequential damages will arise that are associated with capital market discounting of nuclear plant valuations, particularly those associated with underfunded decommissioning costs. There is also the financial risk and uncertainty associated with the DOE having to come back to seek additional money beyond the $13 billion collected to date. Finally, there are the lost investment opportunities on the dawn of electricity's competitive age.

Utilities are not the only parties at risk. If the nuclear reactor construction cost overruns offer any guide, the taxpayers can also expect that a Yucca Mountain facility circa 2010 will rise in cost by multiples that will dwarf the bill for a 1998 repository. Simulations suggest costs total as much as $20 billion to $30 billion more.

Most calculations match current estimates before the Republican leadership in the Senate (em $400 million to $700 million per reactor. Assuming 100 reactors, the potential exposure to the federal government is on the order of $40 billion to $70 billion. And the clock is ticking.

Most of the world's great stories are touched by the brush of justice. Some may call it irony. But, as the End of Days approaches for the current generation of nuclear power plants, there is something poetic to the potential recovery of