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Business & Money

The Exelon-PSEG Super Merger:
Fortnightly Magazine - February 2005

of millions of dollars replacing reactor vessel heads due to corrosion. Or take First Energy, which had to shut down its 1,320-MW Perry nuclear station in Ohio on January 6 because of circumstances surrounding problems with two pumps. And in the last decade, Portland General Electric (PGE) had decommissioned its 1,130-MW Trojan nuclear plant, because the company deemed it too costly to replace some of its parts.

Similarly, many experts are discussing what would happen to Exelon if it were hit suddenly with hundreds of millions of dollars in nuclear repairs and overall O&M expense from multiple plants that suddenly needed to be taken off line or even decommissioned for economic reasons. As veteran Wall Street analyst Dan Scotto puts it, "How much concentration of nuclear do you want to put in one entity?"

Hanson Pickerl, managing director in Marsh's nuclear group, says, "As ownership of nuclear power plants continues to consolidate, there are economies of scale-especially for plants that have superior management of nuclear facilities, excellent procurement, and O&M. However, there are credible external economic scenarios, such as a terrorist threat or something else anywhere in the country that could ultimately force reactor owners to shut down their plants involuntarily. The financial reward comes from running the plant safely. The downside is exposure to a forced closure before the end of useful life."

Furthermore, Pickerl describes a possible scenario that anyone who owns significant nuclear capacity fears. If a generic or industry-wide issue forces widespread early and permanent closure of a substantial number of nuclear units in the U.S., the owners of those plants will face significant premature costs that they didn't anticipate. In this case, the more locations you own and the further away they are from scheduled decommissioning, the larger your exposure.

Another executive speaking on the condition of anonymity adds, "Once those plants are shut down you would no longer have an income-producing asset. You now have a liability on your hands."

Decommissioning: The Multi-Billion-Dollar Unknown

Craig Nesbitt, communications officer for Exelon Nuclear, isn't worried about whether his company will have enough funds for decommissioning. Most utilities, he points out, are allowed by the PUC to collect in rates monies that will go to a special external decommissioning fund.

But as Nesbitt explains, the process can prove troublesome to manage.

"The whole notion is that by the time the plant reaches decommissioning, adequate funds exist to decommission the plant," he says. However, he adds, "there are a lot of other factors that go into this."

"Most plants cannot be decommissioned until the fuel is removed, and the fuel cannot be removed until Yucca Mountain or some other central repository is open. So they just sit there. Some plants sit there in their entirety. Some plants are partially dismantled. Decommissioning is returning the site to its green-field state."

Most of Exelon's plants likely will receive a license extension to 60 years, so the funds accumulated over 40 years will accrue interest, according to Nesbitt.

"They are portfolio investments and are going to continue to grow and be bigger than