Company charged with dismantling Zion nuclear plant struggling financially.
The dismantling of the Zion nuclear plant was to be a model for how the process should be done, an unprecedented arrangement that allowed owner Exelon to turn the plant over to a third-party until the job was completed, reports the Chicago Tribune.
But even as the company doing the work, EnergySolutions, nears the riskiest phase of the project – moving the nuclear fuel into storage casks – the company is struggling financially, calling its future into question.
Last month EnergySolutions suddenly replaced its chief executive and chief financial officer for the second time in two years, causing the company’s stock to plunge 55 percent and its credit ratings to fall two notches amid a weak earnings forecast. In March, EnergySolutions revealed that it underestimated by about $100 million the cost to dismantle Zion piece by piece, and ship the material to Utah for disposal.
EnergySolutions underbid the Zion project, gambling that publicity over it would help it snare similar work around the world, notably in Germany which vows to shutter its nuclear plants by 2022, the company’s new chief executive and president David Lockwood told analysts last month. “We undertook Zion for strategic, not financial reasons,” Lockwood said.
What happens next has ramifications for Salt Lake City-based EnergySolutions Inc. but also the City of Zion and Chicago-based Exelon Corp. which shuttered the plant about 14 years ago.
Exelon was hoping to rid itself of the plant 10 years early, which would remove some risk for the company and earn it political goodwill.
If the project falters, EnergySolutions could cede control of the plant back to Exelon. If that occurs cost overruns would be covered by an EnergySolutions line of credit.
When EnergySolutions revealed that it grossly underestimated dismantling costs, investors took notice. That’s because the amount is roughly one-eighth of the $800 million Exelon had set aside in a trust to fund the project.
Since then Energy Solutions has lowered profit projections from Zion from 10 to 15 percent in March to 5 to 10 percent in June, in part because it overestimated how much money the trust fund itself would earn.
The company says the decommissioning is ahead of schedule, which could translate to future cost savings. Last month, in downgrading the company’s credit rating, Standard & Poor’s cited concerns about the budget’s dwindling cushion between the costs of decommissioning and the funds available in the trust fund.
If costs continue to escalate, EnergySolutions will be forced to dip in to its own finances or be forced to borrow to pay the costs. Currently, the company’s cushion is just $6 million, compared with $121 million when Exelon handed over the keys in 2010, according to company budget updates.
Meanwhile, owners of more than two dozen other idled nuclear plants are watching what happens at Zion because, as the deal was structured, EnergySolutions took on the risk of cost overruns.
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