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Fortnightly Magazine - September 15 1998

to sell its 2.9 percent share of Seabrook. GPU Inc. announced an agreement to sell Three Mile Island unit one. The EUA announcement did not disclose book value, but the selling price of $95 per kilowatt suggests a price under book value. TMI was sold at 17 percent of book value ($127/kW).

Seller retention of the decommissioning obligation, or up-front funding as for the EUA sale, may be necessary for sales of nuclear units to take place. However, while current regulatory commissioners may agree that the seller's customers should pay for decommissioning, there is always a risk that future commissioners will decide differently. The Nuclear Regulatory Commission allows regulated utilities to fund decommissioning costs over the operating life of the facility, but requires up-front funding by nonregulated entities, which may limit the market for nuclear units.

What prospects do utilities have to keep operating their nuclear plants?

No nuclear unit has yet lived as long as its license term. In fact, industry experience to date indicates life spans about five years shorter than license terms. Early retirement is not surprising because nuclear units require costly component replacements and upgrades that become less feasible as the time for license termination draws near. However, the NRC has issued rules and regulatory guidance that would allow license renewal for up to 20 years beyond the termination dates of original licenses, so there is now an alternative to retirement prior to termination of the original operating license. Baltimore Gas & Electric Co. and Duke Energy recently became the first utilities to file applications for license renewal. If license renewal applications become as political as applications for operating licenses became, renewal will quickly disappear as an option.

HYDROPOWER. Some hydraulic stations have been sold together with steam stations, but their purchase prices have not been disclosed separately. Now, however, Niagara Mohawk Power Corp. and Pacific Gas & Electric Co. have announced their intent to sell hydro stations, so values of such facilities soon will be a matter of public record.

Hydro stations have low operation and maintenance costs and no fuel costs, but have higher construction costs than steam stations and some nuclear stations. However, long operating life spans mitigate high construction costs to some degree. Low operating costs will make hydro-stations attractive to new owners, and high capital costs are likely to assure that new owners are buying the equipment and not the site for redevelopment. Further reasons for lack of site redevelopment are the interest of environmentalists to return rivers to their pristine state and the policy of the Federal Energy Regulatory Commission to consider dam removal as an alternative to project relicensing. Purchasers should recognize that removal costs may be higher than the original cost and that maintenance of a reservoir is forever. It is not yet clear whether sales agreements for hydraulic stations will need to treat decommissioning obligations like the obligations for nuclear stations.

Independent consultant John S. Ferguson is a former principal of Deloitte & Touche LLP and a frequent contributor to Public Utilities Fortnightly.

* While it is true that