Mergers, acquisitions, deregulation, stranded assets, higher capacity, lower costs.

These financial and performance issues are critical elements of assessment of the health of the nuclear power industry in the United States. And healthy it has become! Several years ago, the “doom and gloom” predictions concerning premature nuclear plant shutdowns had the industry teetering on the brink of extinction. The problems seemed endless: economic challenges, regulatory shutdowns, uncertain ownership, aging plants, long refueling outages, high forced outage rates – just some of the obstacles that faced our industry.

But some companies saw opportunity where others saw risk. As utility owners went through the process of “deregulation thinking,” decisions were and are being made about their company’s core competencies. Some have gone the route of emphasizing operation and generation, some divestiture of their nuclear generation assets. Mergers and acquisitions have resulted in a situation where only 10 companies contribute 71% of the United States’ nuclear generation today. This concentration is expected to increase as our industry matures.

By any measure, the nuclear power industry has made significant improvements in critical areas and continues to remain a strong and viable generation option. Recently available statistics from 1999 show impressive gains in electrical production, capacity factor, and O&M expenditures.

This figure plots net generation and capacity factor from 1989 through 1999.

This figure illustrates the dramatic and steady trend in length of refueling outages since 1993.

Clearly, performance is improving dramatically. Although the optimum values for outage length and capacity factor may be different from plant to plant, it is essential for every nuclear plant to have initiatives focused on continued improvement and/or maintaining already realized improvements.

As with any business, profitability in nuclear power depends on product features, its cost, and its sale price.

Under deregulation, electricity demand and competition with other generation sources (other nuclear plants included) will likely drive the price of electricity. Product (electricity) differentiation through reliability, voltage control, etc. may offer some premium pricing opportunities for electricity. Demand, however, is clearly the price driver. The seasonal swings in electricity prices are truly astounding. When spot prices for electricity are in the thousands of dollars per megawatt hour, it pays to be on line producing power. This translates into high reliability (low forced outage rate and short outages) and net generation – high capacity factor.

The economics of a nuclear power plant require these high capacity factors. Our industry’s advantages in fuel costs over fossil generation can be swept away by low capacity factors. With high fixed costs, a nuclear plant MUST generate sufficient product over which to amortize these costs.

This figure illustrates where the industry is and where we need
to go.

As seen, the dramatic decrease in non-fuel O&M spending at nuclear power plants in the U.S. has caused the overall trend to be slightly down. The $8.4B spent in 1999 on non-fuel O&M translates to an average of $11.93/MWh for all plants. But the most startling aspects of the figure are the non-fuel production costs of the Top Quartile of plants and the best performing plants. The Top Quartile plants had non-fuel O&M production costs less than $9.68/MWh. The red bar in the figure shows what total O&M expenditures would have been if all plants operated at today’s Top Quartile level. The best non-fuel O&M production costs were $6.24/MWh, with the white bar showing total O&M if all plants had met that standard.

This indicates there are many plants for which significant reductions in O&M spending will be necessary to be competitive. Many plants have already achieved these significant reductions. But, is capacity factor (or reliability) sacrificed when O&M expenditures are drastically reduced? Does attaining high capacity factor come at the cost of very high expenditures on O&M? Recently published economic data from 1999 suggest the answers to both of these questions are no. The best running plants excel in both production costs and capacity factor.

Although the future is not yet secured, all trends show significant and positive improvement in all essential economic indicators for nuclear power. Two sites (5 plants) have already been granted 20-year extensions of their operating licenses, 3 more sites have applied, and at least 25 more are expected to apply within 2-3 years. These license extensions, when coupled with the dramatic economic improvements, ensure that nuclear power will continue to play an essential role in American electrical production.