September 25, 2015

Funding Sought for Nuclear-Plant Shutdowns

Several energy companies are looking into asset-backed bond sales that would help cover the costs of closing aging nuclear plants.

Duke Energy, Entergy and Exelon are among those developing the offerings — with Charlotte-based Duke the furthest along. On July 29, the Florida Public Service Commission approved an application by the company to issue $1.3 billion of bonds amid the planned closing of a facility in the state. The commission also hired Saber Partners to advise it on the process.

The deal is expected to hit the market around the end of the first quarter.

The Duke plant, Crystal River 3, was commissioned in 1977 but has been oflline since damage to the facility was discovered in 2009. The planned bond sale would cover the entire cost of its decommissioning, which would run until 2070.

New Orleans-based Entergy, meanwhile, is talking to the New York Public Ser­vice Commission about a similar deal that would fund the decommissioning of its James A. FitzPatrick Nuclear Power Plant — a still-operating facility that opened in 1974. And Chicago-based Exelon is in discussions with the Illinois Public Commerce Commission about how it would fund the closing of its Quad Cities Nuclear Generating Station. That plant was commissioned in 1973, and remains in operation.

As part of the talks, the companies are arguing that secu­ritization offers one of the only cost-effective means of paying for the projects. Like past deals, the bonds would be backed by special fees added to customers’ monthly bills.

The plans add a wrinkle to the asset class, where previous offerings have been motivated by different needs. Among them: repairing facilities damaged by storms; upgrading pollution controls; and recovering so-called stranded costs tied to plants that became uneconomical amid federal and state deregulation efforts in the 1990s.

As for the Florida Public Service Commission, the Duke deal marks the second time it has hired Saber, a New York firm led by Joseph Fichera. The first was in 2005, when it engaged the shop to advise it on an offering from Florida Power & Light that helped pay for hurricane-damage repairs.

In awarding Saber the latest contract, the commission noted that the Florida Power & Light deal “had the lowest interest­ rate spreads over market benchmarks of any other electric util­ ity securitization offering.” The $652 million transaction priced in May 2007. Its top class, encompassing $124 million of triple­ A-rated notes with 1.4-year lives, sold at a yield of less than 5.1%. Wachovia ran the books.

Asset-Backed Alert, Copyright 2015, is published weekly by Harrison Scott Publications Inc.