Nuclear industry stirs with plans for new plants

updated 2:57 p.m. ET Sept. 19, 2007

NEW YORK - The current turmoil in credit markets is unlikely to derail plans by power companies to begin ordering the first new nuclear plants since cost overruns and public opposition virtually killed the industry three decades ago.

Nearly 30 years after the disastrous partial meltdown at Three Mile Island, Pa., several companies are planning to seek regulatory approval to build new plants, including Entergy Corp., Dominion Resources Inc., Exelon Corp. and the Tennessee Valley Authority. Constellation Energy Group has already filed a partial application with the Nuclear Regulatory Commission, which expects up to seven requests this year and 28 by 2009. The first plants could be online by 2014 or 2015.

TVA’s plans to expand its nuclear capacity have already begun, with the recent restart of a reactor at Browns Ferry Nuclear Plant in Athens, Ala.

The nation’s largest public utility is also a partner in a consortium to resume construction at the unfinished Bellefonte plant site in Hollywood, Ala. It is also looking to finish a second reactor at the Watts Bar nuclear plant in Spring City, Tenn.

“I think investors are relatively positive on companies that are ... planning the next round of nuclear plants,” said Barry Abramson, analyst and portfolio manager at GAMCO Investors Inc., in Rye, N.Y. “The numbers seem to work.”

Utilities see in nuclear plants an opportunity to affordably meet demand for electricity, which the Energy Information Administration is forecasting will grow by 42 percent by 2030. High natural gas prices and the prospect of taxes or constraints on greenhouse gases are making gas- or coal-fired plants less attractive. New modular designs and a streamlined regulatory process further strengthen the argument for nuclear power.

“At the end of the day, we believe ... nuclear will be cost-competitive,” said Randy Hutchinson, senior vice president of nuclear business development at New Orleans-based Entergy.

But this nuclear renaissance faces challenges. No company has lined up financing, and their ability to borrow affordably will depend on federal loan guarantees and state rules about when utilities can hike rates to pay for construction. Construction costs are rising due to growing global demand for raw materials. And activism, an accident or terrorist attack could stoke public opposition.

Still, reactor vendors, such as General Electric Co., Toshiba Corp.-owned Westinghouse Electric Co. and France’s Areva Group, in a new joint venture with Constellation, are positioning themselves to profit. GE, in joint venture with Japan’s Hitachi Ltd., sees its annual reactor business growing from $1.1 billion to $8 billion over the next decade.

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To strengthen its hand, the industry is pushing legislation to expand federal loan guarantees, available for 80 percent of plant costs. Utilities are also lobbying state lawmakers to let them raise rates to recover construction costs. Florida and Louisiana, for example, have passed such measures.

State officials are reluctant. “I just don’t want to ... give them a blank check and say, build a plant and we can talk about the cost later,” said Nielsen Cochran, chairman of the Mississippi Public Service Commission.

Some states are allowing such rules subject to “prudence reviews,” said Diane Munns, executive director of the Edison Electric Institute’s retail energy services group.

The Energy Department is also helping, paying half the cost of three early applications, including $5.5 million of the $11 million Entergy has spent so far preparing an application for a new reactor in Port Gibson, Miss., site of its existing Grand Gulf plant. GE has received $46 million in incentives since 2004, and expects a total of $250 million by 2010.

Experts doubt the current credit market dislocations will affect nuclear plant financing. Lenders will view reactors as safe and desirable investments because of the federal guarantees and state cost recovery rules, and because they’ll be built by established utilities with long track records of operating power plants.

Most utilities will invest some of their own equity in the projects, and many will finance the plants on their balance sheets — paying for them out of cash flows and borrowings not tied directly to any one project.

“I would argue that you’re investing in an entire company,” said Standard & Poor’s analyst Dimitri Nikas. “The issue will not be tied to a specific asset.”

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