UPDATE 3-In split from SocGen, TCW's fortunes seen set to rise
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
* Dominion fails to sell plant
* Company to take 3rd-qtr after-tax charge of $281 million
* Power prices fall to 10-year lows
By Scott DiSavino
Oct 22 Dominion Resources Inc's plans to shut its Kewaunee plant in Wisconsin next year, the first U.S. nuclear plant to fall victim to growing competition from natural gas, triggering expectations more reactors could be forced to shut down.
After claiming hundreds of coal-fired plants, the surge in U.S. shale gas output is now starting to grind down the nuclear industry, with smaller, older plants like the 566-megawatt (MW) Kewaunee plant the first to be affected.
Power prices have followed the natural gas market to decade lows this year, as the market grapples with the shale gas boom and flagging demand due to the struggling economy.
For the nuclear industry, it means the Dominion plant -- which had been up for sale since April 2011 -- will be the first U.S. reactor to shut since the late 1990s when it closes in the second quarter of next year. See factbox
"The abundance of cheap natural gas is putting operators with aging reactors in a difficult bind," said Robert Alvarez, senior scholar at the Institute for Policy Studies, adding maintenance and operating costs are making some plants uncompetitive to gas.
The Kewaunee shutdown did not surprise many in the industry, having watched the fizzling out of the "nuclear renaissance" that a decade ago was expected to redefine the U.S. energy landscape by providing a cheaper alternative to rising fossil fuel prices and cutting greenhouse gas emissions.
The rush of cheap domestic gas has scuttled plans to build new reactors, and safety concerns following the Fukushima disaster in Japan damped public appetite for new nuclear power.
While reactors produce cheaper power than gas -- in general it cost about 2.2 cents per kilowatt hour in 2011 to produce power in a nuclear plant versus about 4.5 cents in a gas plant according to a Nuclear Energy Institute study -- costs associated with running a nuclear plant such as labor, security, regulatory oversight can make older reactors less competitive than new gas-fired stations.
The explosion in U.S. shale gas production has roiled the power market, not only hitting nuclear and coal plants but also the drive to boost reliance on renewable energy sources like wind and solar.
Natural gas' share of total U.S. generation has increased to 30 percent this year from about 20 percent in 2006, while the percentage from nuclear has held steady at about 20 percent.
Power prices in the PJM grid, the nation's biggest network, for the first nine months of 2012 were down almost 30 percent from the same period last year to levels not seen since 2002.
Generators have already announced the retirement or fuel conversion of more than 35,000 MW of coal-fired power plants, which is more than 10 percent of the nation's total coal-fired fleet.
For Virginia-based Dominion, the decision to decommission the plant next year was "based purely on economics," Thomas Farrell, Dominion chairman, president and chief executive said on Monday.
Analysts say future capital investments, which could run into the hundreds of millions or more at existing reactors, might prompt operators to shut units.
"A number of nuclear units won't run their 60-year licensed lives if current gas price forecasts prove accurate," said Peter Bradford, a former member of the U.S. Nuclear Regulatory Commission and current professor of energy policy and law at the Vermont Law School.
"The determining factor is likely to come at the point at which they need to decide on a major capital investment."
Bradford pointed to Duke Energy Corp's Crystal River reactor in Florida, which may need a new containment dome that could cost more than $3 billion, and Edison International's San Onofre reactors in California, which may need new steam generators.
Especially vulnerable under this scenario would be small, old single reactor sites.
Other units that could be on the hit list because they fit the profile include Exelon Corp's Oyster Creek in New Jersey, Xcel Energy Inc's Monticello in Minnesota, and Entergy Corp's Palisades in Michigan, Vermont Yankee in Vermont and Pilgrim in Massachusetts.
"Future decisions will be made on a case by case basis determined by the circumstances unique to each facility, just as is the case for fossil-fueled power plants," said Steven Kerekes, a spokesman for the Nuclear Energy Institute, an industry trade group.
Kerekes noted that so far coal-fired plants had borne the brunt of the competition from cheap gas, as they collectively face billions of dollars worth of investment to upgrade systems to meet increasingly strict federal environmental regulations.
Dominion's attempts to find a buyer for Kewaunee failed, even though the plant had a renewed license that did not expire until 2033. With natural gas prices expected to remain under pressure from rising shale output, the company decided to take a third-quarter after-tax charge of $281 million to decommission the plant.
"Dominion was not able to move forward with our plan to grow our nuclear fleet in the Midwest to take advantage of economies of scale," Farrell said.
The station will remain under the oversight of the U.S. Nuclear Regulatory Commission (NRC) throughout the decommissioning process.
Following the station's shutdown, Dominion said it plans to meet its obligations to the two Wisconsin utilities -- Integrys Energy Group Inc's Wisconsin Public Service unit and Alliant Energy Corp's Wisconsin Power and Light unit --that buy power from Kewaunee under power purchase agreements expiring in December 2013.
"Kewaunee's power purchase agreements are ending at a time of projected low wholesale electricity prices in the region," said Farrell.
Kewaunee is located on Lake Michigan, about 35 miles (56 km) southeast of Green Bay. It began commercial operation in 1974 and has a Westinghouse pressurized water reactor.
Dominion, which serves 15 states and 6 million customers, is one of the top U.S. power generating companies, with about 27,400 MW of capacity. Shares of Dominion lost 55 cents or 1 percent to $52.96 on Monday, while shares of other power companies in the utility indexes declined just 0.5 percent.
NOT THE END FOR ALL
Despite the planned shutdown of Kewaunee, Farrell said Dominion, which also owns reactors in Virginia and Connecticut, still firmly believes nuclear power must play an important part in the nation's energy future.
"The situation Dominion faces at Kewaunee is the result of circumstances unique to the station and do not reflect the nuclear industry in general," Farrell said.
"The nation will be hard-pressed to meet its energy needs, let alone do so in a secure and affordable manner, without a robust and growing nuclear energy program,"
Analysts also insist larger nuclear plants, which have better economies of scale, will remain profitable and in business.
"We agree that the economics of Kewaunee were uniquely challenged given its small size and regionally depressed power prices," said UBS Research.
By Greg Roumeliotis and Jessica Toonkel and Jennifer Ablan
* Defendant's federal conviction was overturned in February
* Alternatives to Libor to be found for some contracts