The day before the major nuclear accident at Three Mile Island on March 28, the stock of General Public Utilities Corp. closed at 17 5/8.
Today the stock is trading around $11 a share.
General Public Utilities is a large holding company that owns several power companies in New Jersey and Pennsylvania, including Metropolitan Edison, which operates Three Mile Island.
Directors of General Utilities will meet Thursday to decide, among other things, what to do about the company's divident-now $1.80 a year, or 45 cents a quarter.
It will be a reluctant decision, but directors have no choice but to cut, or perhaps even temporarily eliminate, the dividend.
To a company that is probably on the edge of bankruptcy, the $27 million outlay a dividend payment represents is vital to cash flow.
More importantly, the company never will get the kinds of rate increases it will need to stave off bankruptcy if shareholders do not shoulder much of the cost of the accident, notes Joseph Egan, senior industry analyst for Merrill Lynch, Pierce, Fenner and Smith.
Already the Pennsylvania Public Service Commission has withdrawn a rate increase that had been scheduled to go into effect March 29 for Metropolitan Edison. That increase was supposed to reflect the addition of Three Mile Island plant number two to its generating system. That was the plant that had the accident.
While politically the company's directors must cut the divident, that decision carries with it its own risks both for General Public Utilities and for dozens of other utilities across the country that rely in part on nuclear power plants to generate electriclty.
Already those utilities have felt the impace of the Three Mile Island accident.
Commonwealth Edison of Chicago, a major power company that early on made the decision to rely on nuclear power, has seen its stock price drop $1.50 since Three Mile Island.
Consolidated Edison stock has declined nearly 50 cents a share, Duke Power is off $1.50 and Virginia Electric Power Co. is off $1. Similar declines are evident at other major utilities.
Furthermore, even though bonds floated recently by utilities are carrying exceptionally high yields, investors have been reluctant to purchase them. Bond experts say the reluctance stems in large part from worries about nuclear power.
Even companies that have no nuclear facilities aren't exempt from the cloud. Gulf Power Co. sold $30 million in bonds yielding 10.3 percent this week. They sold slowly. Gulf operates no nuclear plants, although its parent, Southern Co., does.
A key issue from the investors' point of view is who pays for accidents of the type that occurred at Three Mile Island-the company and its shareholders or the consumer of nuclear power.
William G. Kuhns, chairman of General Public Utilities, told a Senate subcommittee earlier this week that unless power companies are permitted to pass along the costs to customers, utilities that use nuclear power will have to pay substantially more for their capital than they do today, perhaps 20 percent more than the $1 billion or so in finance charges that utilities must shell out now for the 10 billion of borrowing they do each year to buid new facilities.
Investor reluctance would increase, no doubt, if General Public Utilities cuts or eliminates its dividend. Investors generally have considered power companies-like other utilities such as gas and telephone-as secure investments, in part because regulatory commissions grant rate requests designed to guarantee a certain rate of return.
When Consolidated Edison of New York skipped a dividend in 1974, nearly all utilities felt the impace. If-or more likely, when-General Public Utilities cuts its dividend, its price is likely to plummet from $11 to $6 or (TABLE) That will make it even more difficult for General Public to go to the market to sell bonds or stock to come up with the cash it needs. It also will raise the cost of capital to all other utilities and, inevitably, raise rates for all power consumers.(COLUMN)Utility rates are aimed at achieving a rate of return on the so-called base-the value of the plant's generating power. When the costs of building those plants goes up, so do rates.(COLUMN)As Merrill Lynch's Egan notes, it is unfair to burden rate payers in the General Public system with all the costs of the nuclear accident. Already, because of adjustment clauses contained in the rate structure, they are paying the higher costs of buying power from other utilities to replace the generating capacity lost at Three Mile Island (both the damaged plant and its undamaged sister are shut down).(COLUMN)The added costs are somewhere between $800,000 and million a day. They will drop sharply when Three Mile Island number one (the undamaged plant) comes back on line sometime between July 1 and Sept. 1.(COLUMN)But if General Public Utilities is to avoid bankruptcy, it will need sharply higher rates to enable it to carry the $1.1 billion Three Mile Island number two facility, even if insurance covers the added costs of cleanup and repair. And as the government takes a harsher look at all nuclear power plants in the wake of Three Mile Island, the costs of Building nuclear plants will rise.(COLUMN)Add the problems of rising oil prices and coal pollution to the nuclear difficulties, and it becomes apparent that utilities never again will be the safe haven for the investor that they used to be. (END TABLE)