Nuclear Plant Sale Shows Power Shift
By Martha M. Hamilton
In the next few months a historic transaction is expected to be completed -- the sale of a nuclear power plant at Three Mile Island, a name made famous 20 years ago by the world's first major nuclear accident.
It also is a transaction that underscores the changes underway in the nearly $300 billion electric utility industry.
State by state, the rules are being written that will transform the industry from a network of nearly 200 regional monopolies into a handful of national competitors that will vie for customers the way long-distance phone companies do. One of the most visible changes underway so far has been the sale of power plants by utility companies.
In July, AmerGen Energy Inc. (a joint venture of the Philadelphia-based utility company PECO Energy Co. and British Energy PLC) agreed to buy the nuclear facility at Three Mile Island for $100 million from GPU Inc., an electric-utility holding company that operates in New Jersey and Pennsylvania. It was the first time a nuclear power plant in the United States has changed hands, but industry analysts say it won't be the last.
Three Mile Island Unit 1 was sold by GPU as part of a strategic decision to get out of the power generating business. Instead of manufacturing power, the company hopes to seize opportunities elsewhere in a business that also includes transmission, sales and services.
The nuclear power plant that was sold shares the site 10 miles southeast of Harrisburg, Pa., with the nonfunctioning Three Mile Island Unit 2. It was at Unit 2 on March 28, 1979, that a series of errors resulted in escaping radiation, a relatively small hydrogen explosion and radioactive contamination of the Susquehanna River.
The accident marked the end of nuclear power plant construction in the United States. But it didn't mark the end of nuclear power. Even with no new plants built since then, there are 103 operating nuclear power plants producing about 20 percent of the nation's electricity.
Now some companies hope to make money in the evolving electric power industry by using expertise to operate the best of the remaining power plants more efficiently.
AmerGen believes it can pull together a cluster of nuclear power plants, including Three Mile Island and PECO's nuclear plants and others it may acquire, so "we can gain operating efficiencies," said PECO spokesman Michael O. Wood.
One reason that more nuclear power plants are likely to change hands is that buyers can acquire them at bargain prices, said Lester P. Silverman, head of McKinsey & Co.'s electric utility practice. For instance, AmerGen paid $29 per kilowatt, compared with the costs that have ranged from approximately $400 to $900 per kilowatt for fossil fuel plants. "I'll be amazed if we don't see another 20 to 40 acquisitions like it over the next few years," Silverman said.
At the time of the accident the Three Mile Island Unit 1 had been shut down for routine maintenance and fueling. Despite a solid safety record, in the wake of the accident it remained closed until 1985 "because of its Zip code," said GPU Chairman Fred D. Hafer.
The combination of the accident and the shutdown forced GPU to buy power from other utilities, which added $25 million to the firm's costs and sent rates for its customers skyrocketing, Hafer said. Rates for customers of Metropolitan Edison Co., one of its subsidiaries, doubled.
Shareholders suffered, too. There were no dividends for seven or eight years, and the stock dropped from about $18 a share to $3.50.
Once Unit 1 was allowed to resume operating, rates began to decline and the stock price improved. The stock, which closed yesterday at $38.50, has since split two-for-one.
Despite the market for existing nuclear power plants, it's unlikely that any new ones will be built in the United States. However, at least some of the existing plants may have their lives extended. For instance, Baltimore Gas and Electric Co. already has filed for permission to extend the license for its Calvert Cliffs nuclear power plant beyond 2014 when it is scheduled to expire.
One of the arguments in favor of extending the lives of nuclear power plants is that they produce cleaner energy than plants powered by fossil fuel. The existing plants also have a cost advantage over most fossil fuel plants -- nationwide nuclear plant costs average 1.9 cents per kilowatt hour, compared with 4.1 cents for oil. But because of the cost of capital, new plants wouldn't have that edge.
"There are none under order, and in my mind, there won't be," said analyst Silverman.
© Copyright 1999 The Washington Post Company