Like a physician with her stethoscope at the outset of a check-up, astute shareholders and directors should use the level and trend of a utility’s market-to-book ratio (MtB) as one of the first...
A Utility Executives' Guide to 2007: A Cloudy Forecast
Experts predict the top issues that utilities will have to weather this year, and beyond.
storm for nuclear energy development, according to Mark Herlach, a partner and head of the nuclear practice group at Sutherland Asbill & Brennan in Washington, D.C.
“The outlook for nuclear-power development is quite good,” Herlach says. “Significant drivers in the world market—concerns about oil and gas prices, global warming, and energy security—have changed the dynamics for nuclear power. The revival is real; the question is how many people will take the plunge and move forward in the short term.”
Developments in 2007 will clarify the answer to that question. Of the approximately 29 Generation III nuclear-reactor projects being considered for sites in the United States, some 17 might submit license applications to the Nuclear Regulatory Commission (NRC) in 2007—a huge milestone, considering the years of preparatory work that go into a nuclear license application. Some of these projects likely will be canceled, however, once the first six projects are selected for federal loan guarantees and up to $500 million in “standby support” authorized under EPACT.
Additionally, 2007 will see major progress in nuclear-fuel enrichment capacity in the United States. Early this year, NRC expects to complete its review of USEC Inc.’s application to build a commercial enrichment facility at the site of the former DOE Lead Cascade centrifuge demonstration plant in Piketon, Ohio, which USEC manages under a five-year license. And last year, construction began at the National Enrichment Facility, a new $1.5 billion gas-centrifuge complex in Lea County, N.M., by a limited partnership including Europe’s Urenco and U.S. utility companies Duke, Entergy, and Exelon.
Recent progress on nuclear-fuel enrichment, if nothing else, serves as a harbinger of things to come—particularly in the context of climate-change policy trends and the November 2006 elections. “People from both sides of the aisle passed EPACT,” Herlach says. “[Sen. Jeff] Bingaman [D, N.M.] was just as supportive of the National Enrichment Facility as [Sen. Pete] Domenici [R-N.M.]. Prospects are good for bipartisan support.”
Such support has strengthened enough to revive hopes for Generation IV approaches— i.e., “fast” reactors and thorium-fuel designs that could reduce waste-disposal issues and bring other benefits. The DOE launched the Global Nuclear Energy Partnership in 2006, and solicited expressions of interest to build an advanced burner reactor.
But while support for nuclear energy in America has strengthened, opposition has not disappeared. Ongoing delays in the Yucca Mountain waste repository, for example, continue creating uncertainties about long-term alternatives for spent-fuel storage. After two decades and nearly $7 billion of investment, the federal government still is working on a license application for the Yucca Mountain site, and does not expect to complete such an application until 2008.
Real Value: The Investor’s View
Veteran utilities analyst Leonard Hyman believes he knows what utility investors want. In his editorial in the Rudden Energy Strategies Report, published late last year by Black & Veatch, he wrote, “What I am proposing is that investors in utilities may have return expectations in the 7 to 9 percent range per year, in nominal terms. If inflation heated up, the expectations would rise, and that would present a problem for