Fitch: Nuclear Operators Face Significant Challenges

NEW YORK, Jun 11, 2013 -- BUSINESS WIRE

The decision to shutter the 2,150-megawatt San Onofre Nuclear Generating Station (SONGS) by Southern California Edison Co. (SCE) underscores the significant challenges confronting both regulated and unregulated nuclear operators according to Fitch Ratings.

SCE, Edison International's primary operating utility subsidiary, announced plans to retire SONGS on June 7.

With regional markets generally characterized by relatively healthy reserve margins and low natural gas and power prices, recovery of significantly higher fixed costs associated with an aging U.S. nuclear fleet becomes more challenging in regulated, hybrid, and merchant markets.

SCE's investment in SONGS should be largely recoverable in rates, although it is uncertain what return, if any, state regulators will grant on investment since the SONGS units were idled in January 2012. We believe precedent in the state for a reasonable regulatory outcome exists and that retirement of SONGS should be manageable within the current rating category.

The $450 million to $650 million pre-tax charge to be taken by SCE in the second quarter 2013 and regulatory overhang are a source of concern for the utility's creditworthiness. While we believe past treatment of the Humboldt Bay 3 and SONGS unit 1 nuclear plant retirements implies a reasonable regulatory outcome for SONGS units 2 and 3, adverse developments cannot be ruled out.

Fitch notes that the decision to retire SONGS follows Duke Energy's recent decision to retire the Crystal River 3 nuclear unit. In 2012, Dominion announced the planned retirement of the Kewuanee Nuclear facility and some industry participants have backed off planned nuclear plant uprates.

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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