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Selling Off Your Nuclear? Here's What the NRC Has in Store

Fortnightly Magazine - June 15 1997

created by the stranded cost recovery charge is isolated and dedicated to servicing a new debt issue, whose proceeds the utility has used to write off or cover the stranded costs. The cost of the new debt is lower than the existing capitalization underlying the stranded costs. The debt is lower either because the assured and dedicated revenue stream makes the bonds less risky than the existing debt, or because the issuing entity can issue tax-free bonds, or both. The lower capital cost can be reflected in rate reductions.

Prospects for Sellers (em

and Buyers

The holder of a licensed nuclear asset can price its output based on fuel cost (em which has always been competitively advantageous compared with fossil fuel (em plus O&M costs, which are increasingly being brought under control. If stranded cost recovery is allowed for fixed capital costs, then recovery of these costs through the output price would become less burdensome. If decommissioning funding is also recovered in this way, then such costs are not a factor at all in setting the price of generation output.

Under these circumstances, what is the likelihood that a nuclear plant owner might consider

transferring the asset? Good, it appears, because certain risks remain inherent in nuclear plants. First, the complexity of nuclear operations and the scrutiny of safety requirements always make it possible that the NRC will impose new requirements that will increase operational costs to unexpected levels. Second, the size of these plants and the magnitude of these costs mean the impact of dealing with problems can be substantial. In fact, the plant owner can be forced into a permanent shutdown before the fixed costs associated with its nuclear investment have been recovered.

These risks may appear tolerable for a utility whose nuclear assets constitute a relatively small part of its generating asset portfolio. But for a company (em and there are a number of them (em whose nuclear investments make up a disproportionate share of the total portfolio, these risks appear to be highly undesirable.

On the buyer's side, however, the prospect of owning a nuclear plant free from decommissioning costs could prove attractive if the buyer could acquire the plant at a capital cost consistent with competitive energy prices. In particular, some companies may regard themselves as technically

competent and able to manage and control the inherent risks.

It appears, therefore, with appropriate decommissioning funding in place there is good reason to anticipate nuclear asset transfers. Where the stranded cost recovery adequately handles decommissioning costs, the NRC's concern with assured recovery of those costs in a transfer transaction should be allayed in much the same manner as it is now. The commission would regard the assured recovery through the stranded asset charge as it regards the "collect-as-you-go" mechanisms it permits for entities that qualify as an "electric utility." It would look to the same mechanisms it now uses to assure that the entity collecting those funds will have them available to pay the costs when the plant shuts down.

On the other hand, the NRC is well aware