Plant closings don't mean larger problems for public power utility nuclear investments, S&P says
Originally published September 6, 2013
The planned retirements in 2013 and 2014 of five nuclear generation units at four sites, which represent 4 percent (4.2 gigawatts) of existing U.S. nuclear capacity, do not have credit implications for the public power and cooperative utilities with nuclear assets, Standard & Poor's Ratings Services said in a Sept. 4 report. The nuclear plants retiring in 2013 and 2014 are all operated by investor-owned utilities, but some have public power and cooperative ownership participation. In addition to the announced retirements, the fate of two units at New York's Indian Point plant hangs in the balance amid stiff political resistance to its relicensing bid, S&P noted.
The high sunk costs of nuclear plants underscore how retirements and relicensing hurdles could represent a threat to credit quality for public power and cooperative utilities that invest in these assets, the report said. "Yet Standard & Poor's Ratings Services does not believe the announced plant retirements or relicensing issues have credit implications for the not-for-profit utilities we rate because, in our view, the circumstances surrounding the closures are unique to each affected facility and do not have widespread implications for the U.S. nuclear fleet, nor do they signal problems endemic to the sector."
Moreover, the public power and cooperative utilities' interests in the units being retired are a modest 90 MW, spread over several utilities, S&P said in the report, "Nuclear Plant Retirements Don't Signal Larger Problems For U.S. Public Power And Cooperative Utilities' Nuclear Investments."
Public power utilities and co-ops do not have a unique advantage over other utilities in protecting themselves from operational issues, S&P said. However, public power and cooperative utilities rarely exclusively own their nuclear capacity; typically, but not universally, they co-own it with others, most often seasoned nuclear operators. Shared ownership structures and operating partnerships serve to mitigate risk, according to the report.
The inextricable link between public power and cooperative utilities and their end-use customers allows them to more easily shoulder nuclear investments and maintain financial strength while operating nuclear units whose output cannot readily be ramped up and down, the report said. This customer relationship and the lack of or limited exposure to merchant markets helps shield public power and cooperative utilities from the competition from natural gas that undermined the economic viability of the Vermont Yankee and Kewaunee, Wis., nuclear plants, the report said.
If ownership and operating costs of nuclear capacity "increases such that it skews overall competitiveness and erodes financial flexibility to the point that not-for-profit utilities' financial performance suffers, there could be negative credit implications," S&P said. "However, we have not seen evidence of this yet."
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