MIDDLETOWN, Pa. (AP) -- Island property for sale, cheap!
It didn't take long for a buyer. The Three Mile Island nuclear reactor on a small island in the middle of the Susquehanna River went up for sale -- and a purchaser came running.It didn't matter that the reactor was right next to its well-known neighbor, Reactor No. 2, now a shell and forever emblazoned in nuclear industry history as the site of America's worst nuclear accident.
Within weeks, GPU Inc. of Morristown, N.J., is expected to turn over to AmerGen -- a partnership of Philadelphia-based PECO Energy Co. and British Energy -- ownership of the undamaged Three Mile Island Unit 1 reactor. It will mark the first time a nuclear reactor has been bought in its entirety, and other such deals are expected to follow, industry analysts say.
The sale marks a dramatic change in the nuclear power industry, which is trying to find ways to survive the onslaught of competition in the electricity business. Many utility executive say nuclear can't compete against cheaper coal and modern natural gas, so they're selling out.
But there also are buyers who say, in fact, they can and will compete.
The viability of a nuclear plant will be determined by "bottom-line dollars and cents realism," says Roger Gale, an analyst at the Washington International Energy Group, a consulting firm. It predicts as many as 37 to 40 of the 103 currently operating reactors likely will not survive.
But other reactors that are able to get rid of their huge indebtedness from construction, have a reputation for good management and have stayed out of trouble with federal regulators are likely to do well, industry experts say.
Some of these plants have come on the market recently and buyers are grabbing them up at bargain-basement prices.
"In general you're able to buy nuclear for next to nothing. ... and that could bring a renaissance" to the industry, says Robert Rubin, an analyst for Bear Stearns & Co.
For example:
--AmerGen, the PECO joint venture, will get the TMI reactor for less than 20 cents on the dollar -- for only $23 million plus another $77 million for the fuel already contracted. The plant is on GPU's books for $600 million.
--In Massachusetts, Entergy, another company out to become a national nuclear operator, will soon close on a deal to buy the Pilgrim reactor for a scant $13 million plus $67 million for its fuel, although the plant is on Boston Edison's books for $700 million.
--AmerGen, which pursued the soon-to-be-closed Maine Yankee plant but rejected it, also is negotiating for a possible purchase of the Vermont Yankee reactor, and has shown an interest in GPU's Oyster Creek reactor in New Jersey.
With some plants destined to close and others being grabbed up by companies seeking to become national nuclear powerhouses, the industry is undergoing its biggest changes since the Three Mile Island accident 20 years ago this month.
"There will be a continued consolidation," predicts PECO Energy chairman Corbin McNeill Jr., who says there are plants that will close because they're not economical, but others that will be attractive and profitable at the right price. He foresees fewer than 10 nuclear operators in five to 10 years, compared with the 43 utilities that own reactors today.
McNeill says the Three Mile Island reactor is one that can make money.
"It's a phenomenal deal," says Rubin, the Bear Stearns analyst. Not counting the fuel purchase, the TMI reactor is selling for about $30 per kilowatt of generation. By comparison, GPU recently sold its fossil fuel generation plants for 2.5 times their book value at $510 per kilowatt.
But GPU chairman Fred Hafer calls the sale a good deal for his company, too. He sees his utility's future role in a competitive industry as an electricity distributor and power generator. And, he says, it frees the company from "the overhanging liability" and uncertainties of nuclear power.
"With the nuclear industry you can't be successful with being just a dabbler in the business," Hafer said in a telephone interview.
Mark Potkin, Boston Edison's manager of finance and strategic planning, says his utility's decision to sell the Pilgrim plant was "a no-brainer" and that it would have cost shareholders more to shut it down. The utility, like GPU, is getting out of the power generation business and, says Potkin, "out of the nuclear headache."
But for New Orleans-based Entergy, the deal means the purchase of a well-run power plant and its fuel for a rock-bottom $80 million. Entergy will even get about $40 million in "transitional payments" from customers through 2000.
In both the TMI and Pilgrim case, the tens of millions of dollars in "stranded costs" -- the amount between what the plants were valued on the utilities' books and the actual sale price -- will be paid by ratepayers, no matter from whom they purchase electricity.
State electricity deregulation programs in both Massachusetts and Pennsylvania allow for such payments.