New US Nuclear Plants Face New Credit Risks

With the demand for energy growing, high prices for natural gas, and growing environmental concern about coal-burning power plants, some U.S. utilities are now taking a hard look at new nuclear plants, according to report published by Standard & Poor's Ratings Services titled "New U.S. Nuclear Power Plants, New Technologies, New Credit Risks."

Risk abounds in the development of new nuclear plants--risks for those who build, operate, and finance them. The new technologies and construction methods are untested in the U.S.

That will make construction lengthier, more expensive, and riskier than traditional gas- or coal-fired projects, an especially important issue for nonregulated utilities that don't have the potential safety net of utilities with regulators who allow them to tap rate-payers for the high construction costs.

And while the Nuclear Regulatory Commission has developed new ways to oversee the building and operation of these plants, those methods are also untested, which adds yet another level of uncertainty.

Finally, the contentious issue of nuclear waste disposal hasn't been fully resolved. All told, we expect that these problems mean that any new nuclear plant in the U.S. won't start up until 2016 at the earliest.

Because there has been no nuclear construction in the U.S. for decades, very limited technical and engineering know-how exists here. We believe that to obtain the project-management expertise for the first few next-generation nuclear plants in the U.S. utilities will have to lure the personnel, primarily from Japan and France, who already have experience building them.

"After operations begin, we believe that these plants may need additional financial resources to guard against service interruptions, especially since utilities will have built them using hitherto untested technologies," said Standard & Poor's credit analyst Aneesh Prabhu.

We believe that a new project could need up to 18 months' of contingent liquidity (including debt service reserves and other reserves) to achieve an investment-grade rating, and 12 months to achieve a 'BB' rating.