• 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
    • Bruce Kamich
    • Doug Kass
    • 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
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Energy

NRC to Decide Swan SONGS

Last of three nuke plants may hobble along or shutter to a close.
By GLENN WILLIAMS May 17, 2013 | 05:00 PM EDT
Stocks quotes in this article: EIX, GE, SRE

Tensions are rising as judicial proceedings come to a close. The judge is readying a life or death decision. In this case, the judge is deciding the fate of Edison International's (EIX) San Onofre Nuclear Generating Station in California.

San Onofre Nuclear Generating Station, or SONGS for short, is really three power plants wrapped into one. The first unit began operation in 1968, and retired in 1992.

The issue before the judge is SONGS's other units. Both units completed expensive preventive maintenance procedures, which involved replacing some large heat exchangers, called steam generators. The result was not what was expected. The new heat exchangers leaked and they failed to meet technical specifications.

From a nuclear safety point of view, the equipment failure was not a big deal. The heat exchangers prevent reactor water in the containment building from touching turbine blades in the adjacent turbine building. To put the heat exchanger issue it in context, General Electric's (GE) boiling water reactor designs purposely allow reactor water to move turbine blades and GE's designs have been in use all over the world for more than five decades.

From an economic point of view, SONGS's equipment failure is serious. The failure caused both units to cease production and remain in cold shut down. Economic losses are in the billions of dollars, most of which are covered by insurance and other parties.

No matter what the decision, it appears SONGS's Unit 3 is lost. The technical challenges to clean up and repair the unit are not overwhelming. However, the costs to complete that work are heavy, and it is not clear how owners could recover those costs. As a result, retirement of a second unit appears to be the least cost alternative.

The judge is concerned about the remaining unit. Owners have already repaired the unit so it will operate without incident at about 70 percent power. Owners' engineers and contractors have demonstrated that short-term operations at lower production levels should not cause safety concerns.

The judge in this case is the Nuclear Regulatory Commission. While they operate like a regular court, their authority is limited. They have minimal economic jurisdiction or interests. Their rulings are normally limited to the issues involving the safe operation of the facility.

If they stick to their mission, it would seem the NRC should approve SONGS's request to return Unit 2 to limited service. However, the NRC may look beyond the narrow issues and rule more broadly to delay. Unfortunately in this case, a delay is as good as a deny.

It is their call. If the NRC denies owners their right to safely operate Unit 2, then SONGS's last unit will join the other two units and it will remain in cold shutdown. Should it remain in cold shutdown much longer, it is likely the entire SONGS facility will be retired, decommissioned and dismembered.

Losing SONGS will affect stakeholders in unexpected ways. Of course, SONGS's owners will lose a valuable asset that would cost approximately $30 billion to replace.

Most impacted is Edison. According to the Nuclear Energy Institute, Edison owns 75.1% of both units. Sempra Energy (SRE) owns 20%. The City of Anaheim and Riverside Public Utilities own the balance.

If SONGS retires, consumers lose. SONGS operates in a market-based grid, called California Independent System Operator. In that market, SONGS was not a marginal unit and it did not normally set market-clearing prices for power. Taking SONGS out of the stack requires more costly units to enter the market and fill the gap. The more costly units will now clear the market and they will set a higher price. That is just how the market works.

The biggest loser might be environmentalists. Nuclear power is a carbon-free source of power. It is also a lot like solar and wind power; it is completely free of greenhouse gases. As long as SONGS remains in cold shutdown, energy planners must dispatch power plants that use natural gas and other hydrocarbons as fuel. With more hydrocarbons in the mix, more carbon and other gases are pumped into the atmosphere.

Owners, investors and stakeholders anxiously await NRC's decision. If it is a "no" or a delay, the nation loses two more nuclear power plants. It also means decommissioning of three nuclear power plants will most certainly start immediately. These projects will be large and costly, but most of the funds needed should already be in the bank.

If the NRC's decision is yes, SONGS will limp through summer. After the summer is over, the utility will reexamine costs and cost recovery opportunities and they may end up singing the swan song.

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 the author held no position in the stocks mentioned.

TAGS: Investing | U.S. Equity | Energy

More from Energy

It's a Long Shot, but Here's My Ideal Scenario to Keep the Fed in Check

Bob Byrne
May 30, 2023 7:15 AM EDT

It involves people pocketing their savings from lower gasoline prices so that the economy cools and the Fed doesn't need to raise rates again.

3 High-Yield International Oil & Gas Majors

Bob Ciura
May 27, 2023 7:15 AM EDT

The top global energy names are returning more cash to shareholders through dividends and share repurchases.

CorEnergy Takes Important Step in Deleveraging

Jim Collins
May 25, 2023 1:15 PM EDT

However, the preferreds are no longer 'money good.' So a completely new 'distressed company' calculus has taken over.

Chevron: Drilling Down on the Charts

Bruce Kamich
May 23, 2023 2:18 PM EDT

Here's where aggressive traders could probe.

OPEC: To Cut or Not to Cut Production?

Maleeha Bengali
May 23, 2023 2:00 PM EDT

Oil market dynamics in 2023 are a far cry from what was seen in 2022.

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

  • 06:54 PM EDT CHRIS VERSACE

    AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

    Listen in as the Action Alerts PLUS Podcast tackle...
  • 12:07 PM EDT STEPHEN GUILFOYLE

    Selling Some of This Surging AI-Related Stock

    This isn't the only name in the Stocks Under $10 p...
  • 09:48 AM EDT CHRIS VERSACE

    AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 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