Westinghouse Electric Corp. yesterday joined Bechtel Power Corp. of Gaithersburg in a partnership to buy a nuclear power plant from a Michigan utility and operate it as an independent power producer.
This landmark deal, a first in the troubled nuclear power industry, may be a prototype of the ownership structure of any new nuclear plants to be built in the future.
With no electric utility willing to take the financial risk of ordering a new plant, many industry officials have been predicting that partnerships of reactor manufacturers and power plant builders would be formed to spread the risk and share the regulatory burdens.
The partnership, to be known as Palisades Generating Co., will buy the 768-megawatt Palisades nuclear plant near South Haven, Mich., from the utility that owns it, Consumers Power Co. Westinghouse announced it would invest $20 million to acquire 22 percent ownership of the partnership. Bechtel will own 33 percent.
Consumers Power will own 44 percent of the partnership. According to William T. McCormick Jr., chairman of Consumers Power and of its parent company, CMS Energy Corp., the utility will continue to operate the plant for the partnership and will purchase its entire output but will remove the plant from its rate base.
Under federal law, an independent power producer may negotiate with a regulated public utility to sell power at the utility's "avoided cost" of building the same amount of generating capacity itself. If the cost of producing the power exceeds the sale price, it is the independent power producer, not consumers, that bears the burden. But if the cost of producing the power is less than the predetermined "avoided cost," the independent producer can retain the extra profit because its rate of return is not limited by state regulators.
Palisades, plagued by constant shutdowns and operating at less than half of its capacity since its opening in 1971, has one of the worst operating performance records of any commercial nuclear plant in the country. It was one piece of an ill-fated nuclear commitment that brought Consumers Power to the brink of bankruptcy in the 1980s. Negotiations over its sale have been in progress for more than three years.
Industry sources said the deal makes sense for all three companies. Consumers Power obtains cash while ridding itself of a trouble-plagued plant, but still has access to the plant's electricity output.
Bechtel, a builder of nuclear power plants -- including Palisades -- and Westinghouse, a supplier of nuclear reactors, get the opportunity to establish themselves as operators as well as suppliers to the nuclear power industry in an arrangement that could encourage other utilities to enter into similar deals for new nuclear plants.
"It is a sound investment that complements our energy portfolio," said Theodore Stern, senior vice president of Westinghouse.
"This provides us with an opportunity for an improved rate of return," McCormick said. "It puts the plant on a basis where we won't be nitpicked by the state regulators. And it provides cash."
He said the plant will be closed in September to be fitted with new steam turbines, then sold to the partnership for book value, which, he said, will be "well over $500 million." If the partnership were to build a nuclear plant from scratch, the cost would be at least $4 billion.
Westinghouse said that while it will own a 22 percent equity interest in Palisades Generating, its voting share will be only 4.9 percent. By keeping its voting interest below 5 percent, Westinghouse avoids the restrictions of the 1935 Public Utility Holding Company Act, which would restrict its ability to enter similar arrangements in other states.