Two decades after questions about safety and the disposal of radioactive waste effectively halted the development of nuclear power in the United States, the nuclear industry is once again being considered as a viable source of energy.
But investors planning to climb on the nuclear bandwagon should be aware of the significant cleanup costs that these plants will incur in the future, according to a new study published in the Journal of Accounting and Economics.
Accounting professors John Jacob and Naomi Soderstrom at the University of Colorado at Boulder's College of Business and Julia D'Souza of Cornell University found that a lack of accounting standardization in the field makes it difficult for investors to compare companies' financial health. Current regulations allow power companies which own and operate nuclear plants to account for future decommissioning costs in a variety of ways.
Decommissioning costs include such things as decontaminating a plant's structures, equipment and land, and disposing of any remaining radioactive waste. These costs can range in the hundreds of millions of dollars, Jacob said.
An electric utility's decision to build and operate a nuclear power plant results in a significant discount of the utility's stock price based on the costs the plant will incur when the plant is shut down, the study found. But utilities' financial statements don't always track those decommissioning costs in a way that allows investors to compare companies, Jacob said.
"The Financial Accounting Standards Board wants these companies to recognize the future costs of decommissioning nuclear plants in their financial statements in a consistent fashion," he said.
The study was based on an analysis of annual reports and the stock prices of investor-owned utilities, and explored how utilities account for the costs of decommissioning nuclear power plants.
Jacob said the findings have implications for investors and the nuclear industry in light of the Bush administration's proposed energy policy unveiled on May 17. The plan recommends the construction of more than 1,300 new power plants and a national nuclear waste repository, licensing new nuclear reactors and speeding the re-licensing of existing nuclear plants.
Currently, 103 nuclear reactors operate in 31 states, Jacob said. Nuclear energy accounts for 20 percent of all U.S. electricity generation and more than 40 percent of power generation in 10 states.