S&P says public power shouldn’t be spooked by nuclear retirements

While consumer-owned utilities are not immune to the risk inherent in nuclear plant ownership, they should not be alarmed about the recent flurry of retirements, according to a Sept. 4 analysis by Standard & Poor’s.

Recently-announced early retirements of five reactors at four nuclear plants account for about 4% of U.S. nuclear capacity. But the retirements “relate to problems unique to each plant, and we believe there is no bigger problem with the U.S. nuclear fleet,” said S&P Primary Credit Analyst David Bodek in the report.

“Moreover, the public power and cooperative utilities’ interests in the affected units are a modest 90 MW, spread over several utilities,” Bodek said.

When Duke Energy (NYSE:DUK) announced plans to officially retire the Crystal River 3 plant in Florida, it had implications for more than a half-dozen public power utilities and electric power cooperatives. The ones with the largest chunks of minority ownership were Seminole Electric Cooperative (15 MW); Orlando Utilities Commission (14 MW); Gainesville Regional Utilities or GRU (12 MW); and Ocala (11 MW). The other public partners had ownership ranging from 1 MW to 7 MW, according to the S&P report.

But the retirement of the San Onofre Nuclear Generating Station (SONGS), operated by an Edison International (NYSE:EIX) subsidiary in Southern California only had public power implications for the 19 MW share held by Riverside Public Utilities.

As for the Dominion (NYSE:D) Kewaunee nuclear plant in Wisconsin and the Entergy (NYSE:ETR) nuclear station in Vermont, both are merchant plants with no public power ownership, according to the S&P analysis.

Cheap natural gas and other market factors have been cited by analysts as primary reasons behind the Kewaunee and Vermont Yankee decisions while CR3 [cracking] and SONGS [steam generator problems] required expensive fixes.

Public power entities rarely solely own their nuclear capacity; “typically, but not universally, they co-own it with others, most often seasoned nuclear operators,” Bodek said in the report.

Some public power utilities that own their own nuclear plants, such as Nebraska Public Power District (NPPD) have partnered with operators of fleets of nuclear units to gain the benefits of their experience and expertise. For instance, NPPD has partnered with Entergy in restarting the troubled Fort Calhoun station.

After Fort Calhoun shut down for a refueling in April 2011, flooding of the Missouri River delayed the refueling’s completion. Subsequently, an electrical fire and several operational issues identified by the Nuclear Regulatory Commission (NRC) precluded the plant’s reopening, and it remains offline.

Public power plays key role in Southeast nuclear construction

Consumer-owned utilities do, however, play a proportionally bigger role in new nuclear generation being brought online at three sites in the Southeast, S&P noted.

The five plant retirement announcements come against the backdrop of renewed interest in nuclear investments. “With five units under construction at three sites, the nuclear power sector is in the midst of its largest expansion in more than 20 years,” Bodek said.

“Although the capacity additions are modest relative to the more than 101 GW in the U.S. nuclear generation fleet, they are significant nevertheless in that they follow a long hiatus in nuclear development,” the S&P analyst added.

No new U.S. reactor units have come online since 1996 when the Tennessee Valley Authority (TVA) began commercial operation of Watts Bar 1.

Now TVA as well as groups led by subsidiaries of Southern (NYSE:SO) and SCANA (NYSE:SCG) are poised to bring online new nuclear capacity.

Developers project 5.6 GW of new nuclear capacity will come online from 2015 through 2019, and public power and cooperative utilities are a big part of this limited–but meaningful–nuclear revival, Bodek said. While consumer-owned utilities represent only about 30% of the nation’s energy sales, “not-for-profit utilities have committed to own 3.4 GW of the 5.6 GW under development, or 60% of the new capacity,” the S&P analyst said.

TVA projects to bring the 1,200-MW Watts Bar 2 online in December 2015. TVA is finishing project construction after it stopped building Watts Bar 2 in the late 1980s. The plant’s December 2015 in-service date is three years behind earlier estimates and cost estimates have increased sharply to $4bn-$4.5bn from 2007’s $2.5 bn forecast.

Developers are also moving forward with four new nuclear plants at two sites in Georgia and South Carolina. South Carolina Electric & Gas is developing two 1,117 MW units at its V.C. Summer site in a 55%/45% partnership with the South Carolina Public Service Authority, also known as Santee Cooper.

Georgia Power is building two 1,117-MW units at its Vogtle site. It will own 45.7% of the plant, together with cooperative utility Oglethorpe Power (30%); Municipal Electric Authority of Georgia (MEAG; 22.7%); and Dalton Utilities (1.6%), a municipal utility.

MEAG has mitigated some of its nuclear investment exposure by entering into 20-year power sales agreements where it has transferred part of its interest in the Vogtle plant’s debt service, construction and operating risks to Jacksonville Electric Authority or JEA, and PowerSouth Energy Cooperative. The contracted capacity will revert to MEAG at the end of the contract.

Santee Cooper’s difficulty in reducing some of its 45% interest in the new Summer units reflects the barriers to new nuclear development that low natural gas and electricity prices create, S&P said.

“However, Standard & Poor’s believes that limited interest in additional nuclear plants, or even some additional retirements of merchant capacity will not hurt the credit quality of not-for-profit utilities that can recover their nuclear investments’ costs from their customers,” said S&P’s Bodek.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.