• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Utilities

Nuclear Dominoes Are Falling

Declining market prices are pushing some nuclear plants toward early retirement.
By GLENN WILLIAMS
May 10, 2013 | 06:10 PM EDT
Stocks quotes in this article: NEE, ETR, D, DUK, EIX, SRE, XEL

With energy markets punishing independent power producers, the industry has begun to discuss the early retirement of some nuclear power plants. In particular, three units owned by NextEra Energy (NEE) and four by Entergy (ETR) could be the next in line to be taken permanently off line.

Dominion Resources (D) started the trend. The company decided to retire its Kewaunee Power Station, which could have operated until 2033. The nuclear facility's components had been upgraded or replaced, and had a record of reliability. It just could not make enough money for the company's shareholders.

Declining market prices for the grid's wholesale power are at issue, not the plant's performance. Apparently, Dominion could not see enough of a profit margin to continue Kewaunee's operations. Smaller and older nuclear power plants need higher gross margins than do newer facilities.

Dominion did not reach this decision all by itself. Its managers went to the market to see if any competitor wanted to buy a perfectly good nuclear plant on the cheap. There were no takers. As a result, Dominion reluctantly decided to retire and dismantle Kewaunee. Dominion wrote off the plant's book value in the fourth quarter of 2012, and last week, permanently discontinued operations.

Duke Energy (DUK) recently announced a similar decision for its Crystal River Nuclear Generating Plant. After discovering major maintenance issues, Duke's decision process took a different direction than Dominion's, but the outcome was the same: Duke permanently discontinued the operations of the Crystal River plant.

Now, Edison International (EIX), Sempra (SRE) and their municipal utility partners are warning about their two-reactor San Onofre Nuclear Generating Station. Owners are threatening to retire one or both reactors by year-end if federal regulators deny the request to restart one of its reactors.

The nation's nuclear power plants seem to be falling like dominoes. Now the question is: "Who is next?"

We can get a hint from data published by the Nuclear Regulatory Commission and the Nuclear Energy Institute of U.S. commercial nuclear plants in operation. Top candidates for closure are found in the lower left-hand corner of the graph below.

U.S. Commercial Nuclear Power Plants in Operation

If we sort the fleet by size and age, a small group of nuclear plants appears as potential candidates for retirement. NextEra owns three such plants, as does Xcel Energy (XEL). Entergy owns two of these candidates (and other at-risk candidates). Exelon owns one, in addition to Oyster Creek.

Nuclear Plant  Majority Owner Age (yrs) Size (MW) Regulated
Fort Calhoun OPPD 40 478 Yes
Point Beach 1 NextEra Energy 43 506 No
Prairie Island 2 Xcel Energy 39 519 Yes
Prairie Island 1 Xcel Energy 39 521 Yes
Monticello Xcel Energy 43 554 Yes
Ginna Exelon 44 580 No
Point Beach 2 NextEra Energy 40 586 No
Duane Arnold NextEra Energy 39 601 No
Vermont Yankee 1 Entergy 41 620 No
Nine Mile Point 1 Exelon 39 630 No
Pilgrim 1 Entergy 41 685 No

Notwithstanding their rankings, Xcel's three units may not retire anytime soon. Their units are unique as state-regulated assets. When a plant is under the economic control of state regulators, its shareholders' interests are protected as long as the plants run safely and reliably. Xcel's ratepayers are also protected: If the plants remain safe, reliable, and avoid operating on the margin, there may not be pressure to retire.

Fort Calhoun is a different story, however. At 478 megawatts, Fort Calhoun is the smallest commercial nuclear plant operating in the U.S. In addition, it recently experienced an equipment-damaging flood, and subsequently a fire. Nuclear safety was not affected, but the municipal plant's economics were. It would not be a surprise if this plant were to be retired.

NextEra owns three assets that appear at risk of early retirement. Prairie Island is located near the same power market that killed Dominion's Kewaunee unit. While geographically distant, NextEra's Duane Arnold unit is operating in a similar power market. If NextEra decided to retire all three of these units, it would not come as a shock.

Despite its position in the chart, Exelon (EXC) may resist the urge to retire Ginna and Nine Mile Point. Exelon only owns 50.01%, with French utility Électricité de France owning the balance. These are Exelon's only nuclear assets operating on New York's grid. If they continue earning capacity payments, energy prices may not be the deciding factor. In addition, because they are located far from New York City, they are not under political pressure to be closed early.

Entergy is not as lucky. Its plants are small and old, and in unfriendly locations. The states of Vermont and New York want Entergy to shut Vermont Yankee and Indian Point, respectively. Massachusetts has mixed feelings about Pilgrim. In addition, Entergy's Palisades unit in Michigan is on the cusp.

Investors should keep in mind that utilities are required to maintain a sinking fund to pay decommissioning expenses. These funds are regulated to assure adequacy. The longer the plant operates, the stronger the fund becomes. In fact, some owners could profit from those funds.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Glenn Williams had no position in any of the stocks mentioned.

TAGS: Investing | U.S. Equity | Regulation | Markets | Utilities

More from Utilities

My Interest Is High in FuelCell Energy: Here's My Trade Idea

Stephen Guilfoyle
Dec 24, 2020 11:00 AM EST

The environment for these firms is not only friendlier at the federal level, but far friendlier at the corporate and investment levels.

With Dividend Investing En Vogue, Here Are 4 More Stocks to Consider

Chris Versace
Dec 22, 2020 10:00 AM EST

The consistent annual dividend increases by this quartet even during bad times make them good income-investing bets going forward.

A Dividend Aristocrat for an Uncertain Economy

Bob Ciura
Nov 19, 2020 8:30 AM EST

This utility has increased its dividend for over 40 years.

Today, I'm Drowning in WTER

Timothy Collins
Nov 17, 2020 1:52 PM EST

Alkaline Water Company is making me look all wet. But, still, I see good things flowing downstream.

American Electric Power Could Keep Powering Higher

Bruce Kamich
Oct 27, 2020 8:35 AM EDT

Here's how traders could approach AEP.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    I'll discuss price targets in my Saturday column.
  • 07:54 AM EST GARY BERMAN

    Friday Morning Fibocall for 1/22/2021

    SPX (Long-Term View) The 1/21/21 NEW high @ 3861...
  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login