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US nuclear plant operators estimate $3.6 bil in post-Fukushima costs

US nuclear power plant operators might have to spend nearly $3.6 billionover the next three to five years on modifications to the country's 102nuclear units in response to the Fukushima I accident in 2011, according to aPlatts survey of companies.

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An analyst said those costs may cut into profits at companies that selltheir power in competitive electricity markets, and an industry official saidthe work could cause utilities to rearrange other capital projects. The workis not expected to affect the length of outages, respondents said.

The cost estimate includes US Nuclear Regulatory Commission-orderedcapital expenditure on new equipment to handle threats such as floods andearthquakes as well as the cost of conducting extensive engineering studiesabout each plant's resistance to such events.

Companies also expect increases in operating and maintenance costs inconnection with post-Fukushima requirements. While most of the costs relateto operating units, some are from work at one unit that has been permanentlyshut and from another under construction.

The responses show that modifications to containment venting systems forcertain boiling water reactors, one of the two types of power reactorsoperating in the US, might account for a large portion of upgrade costs forthose units, although how much exactly remains uncertain.

The 10 respondents to the survey operate about half the US' reactors andhave a mix of boiling water reactors and pressurized water reactors.

Companies responding to the survey gave cost estimates that averaged,using the middle of ranges, $1.855 billion for those 53 units, or $35 millionper unit. If all 102 US reactors spent that amount, the total cost forpost-Fukushima compliance would be $3.57 billion.

In March 2012, almost exactly a year after the Fukushima I accident, NRCordered all reactor operators to comply with new requirements designed tostrengthen their ability to keep reactors and spent fuel cooled during severeexternal events such as the earthquake and tsunami that hit the station inJapan, causing three units there to meltdown and release radioactivity.

The Nuclear Energy Institute, which represents nuclear operators andvendors, developed a plan dubbed FLEX, and eventually endorsed by the NRC,that would use portable equipment deployed around the plants and in regionalcenters to help respond to such an emergency.

Additional orders from NRC in 2012 required improvements to instrumentsthat measure water levels in spent fuel pools. A third order requiredoperators of 31 of the US' 35 BWRs to upgrade containment venting systems.

Dimitri Nikas, a credit analyst with Standard & Poor's Ratings Services,said the spending could hurt the already thin profit margins of merchantplant operators, but is not expected to have an impact on credit ratings ofregulated utilities.

The spending by regulated utilities, which are often allowed to obtain arate of return on spending approved by state regulators, could actuallyincrease profits, he said in an interview Tuesday.

"For the unregulated companies, it's a question of how much your profitmargins can be squeezed," he said. S&P, like Platts, is part of McGraw HillFinancial.

Regulated utilities are likely to gain approval to recover NRC-orderedpost-Fukushima costs from ratepayers, said Rob Thormeyer, spokesman for theNational Association of Regulatory Utility Commissioners.

In almost all regulated states, upgrades mandated by regulators aresubject to recovery from ratepayers with an allowed return on investment,including profits, that varies from state to state, he said Tuesday.

"Our members are looking very carefully at this issue," he said.

WIDE RANGE OF ESTIMATES

Platts' survey of all US nuclear power plant operators revealed a widerange of estimates for the cost of complying with post-Fukushima requirements.For the operators of 53 units that provided an estimate, the total cost forcompliance was between $1.78 billion and $1.93 billion, or $1.855 billion onaverage. That translates to a range of $33.5 million to $36.5 million perunit, with a midpoint of $35 million.

David Lochbaum, director of the nuclear safety project of the Union ofConcerned Scientists, said in an interview Monday that the wide range couldbe a result of plant-specific issues, because the US fleet is notstandardized. "It's not going to be the same fix for each plant," he said.

Older reactors might require more upgrades than newer ones, Lochbaumsaid. Half of the country's operational reactors entered service between 1969and 1979.

Duke Energy, which operates the US' largest regulated nuclear fleet,said it would spend $600 million on post-Fukushima upgrades. Duke operates 11reactors and owns the permanently closed Crystal River-3 unit in Florida.

By contrast, Exelon expects to spend $400 million for upgrades to itsfleet of 17 units, the largest in the country, over the next five years.American Electric Power estimates post-Fukushima costs at $30 million to $60million for its two units.

Arizona Public Service, which operates the 4,284-MW three-unit PaloVerde station, forecasts it will spend $90 million on post-Fukushimamodifications.

Dominion, which has six operating reactors and the permanently shutKewaunee, will spend $30 million to $40 million per operating unit onpost-Fukushima costs, a total of $180 million to $240 million.

Pacific Gas & Electric expects to spend between $60 million and $80million at its 2,400-MW Diablo Canyon plant.

PPL will spend $75 million on upgrades at its two units.

PSEG estimates costs of $90 million or more for work at its three units.Tennessee Valley Authority said its six operating reactors and one underconstruction should require post-Fukushima upgrades totaling $225 million to$250 million.

The Duke estimate, provided to financial analysts during a presentationin February, was a "very high level" forecast, company spokeswoman Rita Sipesaid Wednesday, adding: "Fukushima costs across the industry cannot be easilycompared and will differ based on multiple variables, such as plant location,plant type and more."

NO IMPACT ON OTHER UPGRADES EXPECTED

It is unclear whether the spending on post-Fukushima compliance couldreduce spending on other capital improvements in either nuclear ornon-nuclear plants.

Even before the Fukushima accident, several operators were alreadyshelving plans for uprates that would increase the output of existing units.

Low electricity and natural gas prices make such uprates uneconomical inmany unregulated power markets, Exelon President and CEO Christopher Cranesaid in a May appearance at an NEI conference.

S&P's Nikas said that because most nuclear operating companies haveheavy capital improvements spending every year, the amounts forpost-Fukushima upgrades might not be large enough in any given year to "crowdout" other spending, although some impact could be felt on discretionaryspending such as for preventive maintenance or trimming of trees aroundtransmission lines.

Most respondents said the post-Fukushima upgrades are unlikely to affectthe length of refueling and maintenance outages, during which much of thework must be done. Dominion, Exelon, NPPD, PPL, and South Carolina Electric &Gas said they do not expect any impact on outage lengths.

Duke's Sipe said in an email May 17 that "conceptual engineering" showsmuch of the work could probably be done while units are online.

--William Freebairn, William.freebairn@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com