A Hot Market for Good, Used Nuclear Power Plants

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.

GPU Inc. of Morristown, N.J., agreed 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 is 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 executives say nuclear power 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,” said 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 probably 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, said Robert Rubin, an analyst for Bear Stearns & Co.

For example:

* AmerGen, the PECO joint venture, bought 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, garnered 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.

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.

“There will be a continued consolidation,” predicted PECO Energy Chairman Corbin McNeill Jr., who said 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 said the Three Mile Island reactor is one that can make money.

“It’s a phenomenal deal,” said Rubin, the Bear Stearns analyst. Not counting the fuel purchase, the TMI reactor sold 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 called 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 said, it frees the company from “the overhanging liability” and uncertainties of nuclear power.