Fitch: Domino Effect Unlikely from US Nuclear Plant Closures

NEW YORK, Oct 22, 2012 -- BUSINESS WIRE

 

Low power prices as a function of weak demand in the Midwest and the lack of a capacity market within the Midwest Independent Transmission System Operator region have led Dominion Resources to shut down its Kewaunee plant in Wisconsin, according to Fitch Ratings. Dominion said it would close the plant during the second half of 2013.

A significant increase in U.S. natural gas output has translated to historically low power prices. Those prices, coupled with a limping U.S. economic recovery, led to a significant decrease in demand.

We believe Dominion's decision to close Kewaunee is indicative of a difficult operating environment for merchant nuclear plants in the Midwest. This is the first closure of a U.S. nuclear plant as a result of extremely low, long-term power prices. While other small, single-unit merchant nuclear plants may also be at risk for closure, we feel any such decision would depend on management strategies and the existence of power purchase contracts.

The economics of Kewaunee is also hindered due to the fact that it is a single-unit, merchant nuclear plant located outside of Dominion's existing merchant fleet footprint. The 556 MW capacity plant began operation in 1974 but was acquired by Dominion in July 2005. Its Nuclear Regulatory Commission license was renewed in February 2011 for an additional 20 years, extending through to 2033.

We do not expect the closure of Kewaunee to have a material impact on financial metrics or the company's credit profile. We have an issuer default rating of 'BBB+' with a Stable Rating Outlook for Dominion Resources, Inc.

Dominion will recognize a one-time after-tax charge of $281 million in the third quarter of 2012 related to the decommissioning of Kewaunee. We believe the plant's contribution to earnings is modest. Management also expects that amounts available in the decommissioning trust plus expected earnings will be sufficient to cover decommissioning costs.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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SOURCE: Fitch Ratings

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