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Few nuclear shutdowns to cap fuel prices

By Bloomberg News

The fewest nuclear reactors in two years are shutting to refuel nationwide this fall, limiting price increases for natural gas, coal and power.

Twenty-one plants are going offline from September to November, compared with 30 last year, according to data compiled by Bloomberg. Shutdowns by companies from Exelon Corp. to Duke Energy Corp. may be 18 percent below the 10-year average as the 18-to-24-month refueling cycle enters a lull.

The drop in closures raises the prospect of increased U.S. power supply. Electricity produced from nuclear plants may be 12 percent greater in October than the same month in 2012, providing a lower-cost alternative to gas and coal, according to BNP Paribas SA. Gas futures have tumbled 6.6 percent since Sept. 19 amid weakening demand and rising U.S. stockpiles. Power for October use in the PJM Interconnection LLC region, the largest U.S. grid, is down 6.2 percent from the same month last year and is at the lowest level in at least seven years.

"More nuclear output is going to displace coal and natural gas," Kyle Cooper, director of research at IAF Advisors, said in a phone interview from Houston. "You've got two fossil fuels that are competing to lower the price because your nuclear units supply steady power at unbelievably low marginal cost. That's bearish for power prices."

The average fuel price at a nuclear power plant in 2012 was 0.75 cent per kilowatt-hour, compared with 2.93 cents for natural gas plants and 2.55 cents for coal, according to Ventyx Velocity Suite data published by the Nuclear Energy Institute.

Natural gas for November delivery was unchanged at $3.567 per million British thermal units at 10:36 a.m. on the New York Mercantile Exchange. Front-month futures are down from a two- month intraday high of $3.82 on Sept. 19.

U.S. gas stockpiles increased by 87 billion cubic feet to 3.386 trillion cubic feet last week, according to an Energy Information Administration report Thursday. It was the biggest weekly gain since Aug. 2.

"The inventory restocking has been boosted by this light nuclear refueling schedule," said Teri Viswanath, director of commodities strategy at BNP in New York. "We are not using as much gas as a replacement fuel."

PJM on-peak power for October use cost $40.25 a megawatt- hour Thursday, down from $42.90 a year earlier and the lowest price for the month since at least 2006, according to broker and grid data compiled by Bloomberg. Coal on the Nymex traded at $53.74 a ton on Sept. 25, down 13 percent from this year's closing high of $61.80 in May.

The next four weeks will probably be a period of light gas demand without the backdrop of an active maintenance season, Viswanath said.

Reactors representing about 21 percent of U.S. capacity were scheduled to shut this fall. The Southeast will see the biggest drop in nuclear output at 27 percent of the regional total, while at the 13-state PJM power grid, from Washington to Chicago, 25 percent of capacity will be offline to refuel.

None of 11 reactors in New York and New England is scheduled to shut. Companies stagger the dates reactors are taken offline to replace spent fuel rods.

Refueling shutdowns in the fall of 2012 were the highest since 2009, according to U.S. Nuclear Regulatory Commission data. Twenty reactors refueled the same months in 2011 and 23 were down in 2010.

"The pattern of aggregate nuclear outages typically follows a three-year cycle, so this fall's outage pattern looks similar to the one in 2010, while last year's pattern resembled the path in 2009," Anthony Yuen, a gas strategist at Citigroup Inc. in New York, said in a Sept. 18 note to clients.

Nine PJM reactors were slated for refueling including: Hope Creek 1 in New Jersey; Peach Bottom 3, Beaver Valley 1 and Three Mile Island 1 in Pennsylvania; Braidwood 1 and Dresden 2 in Illinois; Surry 1 and North Anna 1 in Virginia; and Cook 2 in Michigan. Peach Bottom 3, Braidwood 1 and North Anna 1 began outages in September.

Last fall, seven reactors accounting for 27 percent of PJM's capacity were shut for the planned work. Outages climbed to as much as 36 percent of the grid's nuclear generation because of unplanned maintenance at three other units.

Exelon, the largest nuclear operator in the U.S., is expected to shut four plants. Refueling for Exelon reactors in the spring averaged 24 days, down from an average of 30 days for all of 2012, said Craig Nesbit, vice president of communications for the Chicago-based company.

Pennsylvania and New Jersey may each see 31 percent of statewide nuclear capacity out between September and November as FirstEnergy Corp. and Public Service Enterprise Group Inc. shut units, according to data compiled by Bloomberg and the EIA.

Nuclear output in the power grid managed by the Midwest Independent System Operator Inc. may drop by about 16 percent as Entergy Corp.'s Palisades 1 and Xcel Energy Inc.'s Prairie Island 2 refuel. An additional 560 megawatts will be offline after Dominion Resources Inc. permanently shut its Kewaunee 1 reactor in Wisconsin.

Last fall, output declines were exacerbated by a forced shutdown at DTE Energy Co.'s Fermi 2 unit in Michigan.

Eight plants may be taken offline across the central U.S. and West this fall. South Texas Nuclear Operating Co., Entergy Corp. and Pinnacle West Capital Corp. are set to refuel in Texas, Mississippi and Arizona, removing about 4,197 megawatts from the states, according to data compiled by Bloomberg.

No plants are scheduled to shut in California, home to Edison International's twin San Onofre units, which closed permanently in June. The reactors were initially idled in January 2012 by a leak of radioactive water.

The decision not to restart the reactors removes the state's largest generators from the grid.



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