* 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
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
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
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
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
"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
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,"
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
"We agree that the economics of Kewaunee were uniquely
challenged given its small size and regionally depressed power
prices," said UBS Research.