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Moody's taking dim view of nuclear option

By Greg Harman

This small alert from Moody's Investor Service has been making the rounds these past two weeks. So we'd be remiss if we didn't throw it out there with schmear o' analysis.

The “special comment” issued last month is pretty plain. Moody's analysts found that the construction of nuclear-power plants represents a huge financial gamble â?? a “bet the farm” proposition â?? that proceeds only at the whim of innumerable political factors over a lengthy time line.

But, all that aside, NRG Energy's (possibly joined by San Antonio's CPS Energy at a 40 percent stake) planned South Texas Project expansion is the least-worst of the bunch.

On the positive side:

Moody's believes there is a significant difference between new nuclear plants located adjacent to existing units from those that are greenfield projects. In our opinion, brown-field projects benefit from the existing infrastructure (including security plans), local political support and historical operating record of the existing units. We believe the U.S. Department of Energy also recognized this as well in the selection of the Southern Company's Vogtle; NRG's South Texas Project, SCANA's Summer and Constellation's Calvert Cliffs / Nine Mile projects.

On the down slope:

We view new nuclear generation plans as a “bet the farm” endeavor for most companies, due to the size of the investment and length of time needed to build a nuclear power facility. While we continue to view operating nuclear units positively, we increasingly sense that none of the issuers actively pursuing these endeavors have taken any material actions to strengthen their balance sheets. As a result, it has become increasingly likely that the pursuit of new nuclear power projects will lead to some near-term rating actions or outlook changes.

Here's the doc, make what hay of it you will â?¦

Moody's New Nuclear Generation June 2009

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