Looking for the most valuable
nukes
What are non-regulated nuclear plants really worth?
In the past year, we have heard much discussion about nuclear plant economics and new
development, and it is hard to dispute because there are 17 companies pursuing licenses to
build 30 nuclear reactors in the US. The costs to build a new nuclear plant have increased
meaningfully and are only slightly offset by some relief provided in the Energy Policy Act of
2005. This has driven a renewed focus in the market on gaining exposure to existing nuclear
assets in the Utilities and Power sector, as these assets are expected to benefit from a
combination of rising natural gas, coal and ultimately power prices, in addition to eventual
greenhouse gas/carbon legislation. As a result, we believe it is important to understand the
substantial differences in the value of existing non-regulated nuclear assets in order to gain
exposure to these positive fundamental drivers at the best price. We valued 34 different
nuclear plants using a plant-specific discounted cash flow analysis. Our work shows that due
to location, contract structure and the associated realized pricing and operational
performance, EXC and PEG offer the most valuable nuclear assets in the sector, in some
cases excess of $3,500/KW using between $8.50 and $8.00/MMBtu natural gas prices. In our
analysis, structurally higher coal prices also benefit these (and other) companies that own
assets in regions where coal sets the marginal price of power during the off peak hours.
Northeastern assets without PPAs screened best
Despite the healthy YTD performance of the stock, we believe that this pricing disparity is
most prominent in EXC, where at $86 per share we believe the implied value of the
company's nuclear fleet is only $2,640/KW, an 18% discount to our DCF implied valuation of
$3,200/KW of capacity. In conjunction with this report we are upgrading EXC from Hold to
Buy and raising our price target from $94 to $102 per share.

PEG did screen well, but with more of the intrinsic nuclear value already priced into the stock,
at 8.0x unhedged EBITDA in our view. As a result, we maintain our Hold rating on PEG but
raise our price target by $2 to $47 per share. Figure 1 above highlights the weighted average
results by company with plant by plant discounted cash flow valuation detail shown later in
our report.
We took 9 companies in our coverage universe that own non-regulated nuclear plants and
valued each of their nuclear plants on an asset by asset basis using a discounted cash flow
model, arriving at individual valuations for 37 nuclear plants (including some co-owned
facilities). Under this analysis the value of these 37 nuclear plants varies significantly, from
almost $3,850/KW of capacity on the high end to as low as $1,600/KW of capacity on the low
end. This 143%+ premium (or 59% discount) is driven by several factors that we discuss in
our report, most important being:
􀂄 Location and contract terms that drive realized power prices
􀂄 Capacity pricing assumptions
􀂄 Realized capacity factors (operational performance)
􀂄 Asset age and capital intensity
As a result, we see these companies as the cheapest vehicles to gain exposure to positive
fundamentals for nuclear generators that we expect to persist for the next several years
Results of our plant by plant nuclear valuation work
Similarly to real estate, location and realized pricing is a key factor in power plant valuation.
As expected, plants in the same region generally have similar valuation profiles, with PPAs,
value sharing agreements and below market hedges dramatically impacting valuation. In the
case of the top 10 most valuable plants, 7 of the top 10 are located in PJM East; Dominion’s
Millstone and FPL’s Seabrook plant are located in NEPOOL and PPL’s Susquehanna is
located in PJM West. We believe the asset valuations in PJM and NEPOOL are attractive for
a number of reasons, but focus on the following three reasons:
􀂄 The higher PJM RPM capacity prices for power;
􀂄 Higher market clearing heat rates and expectations of improvements in NI Hub and
NEPOOL (compared to PJM East and ERCOT); and
􀂄 Lower asset property taxes available in New Jersey and Pennsylvania. Illinois
screened as having higher property taxes that negatively impacted the relative valuation
of a portion of EXC’s fleet in our analysis, despite the overall robust valuation results for
the company.
In addition, larger nuclear plants in some cases exhibited a higher valuation than smaller
assets—the synergies gained from having a larger plant and the savings in fixed costs are
reflected in the operating margins and the associated plant valuation.

Table of Contents
Looking for the most valuable nukes............................................... 3
What are non-regulated nuclear plants really worth? ................................................................3
Northeastern assets without PPAs screened best ...................................................................3
Results of our plant by plant nuclear valuation work.................................................................4
Is there a nuclear premium in the market?................................................................................7
M&A transactions in the nuclear space ....................................................................................8
New nuclear development................................................................ 9
A potential wave of new nuclear in the US is in the planning stages........................................9
Is building a greenfield nuke economically positive? ..............................................................11
Escalation in uranium costs............................................................ 14
Rising uranium fuel costs not a meaningful burden for nuclear plants....................................14
Long-term demand will keep uranium prices higher than normal, in our view........................15
Valuation assumptions and drivers ............................................... 16
Assumptions and costs we used when valuing nuclear plants...............................................16
Snapshot of plant level discounted cash flow analysis ...........................................................18
Decommissioning trusts for nuclear power plants .................................................................30
Risks to nuclear stocks.................................................................... 31
Factors that could upset diversified utility equity market valuations.......................................31
Table of Figures
Figure 1: Weighted average $/KW valuation by company.........................................................3
Figure 2: $/KW-capacity from our DCF analysis for non-regulated US nuclear plants ...............5
Figure 3: Non-regulated nuclear plant by plant valuation summary ..........................................6
Figure 4: Nuclear companies returns versus UTY and IPPs ......................................................7
Figure 5: 2009 market adjusted EV/EBITDA..............................................................................8
Figure 6: Merchant nuclear M&A transactions..........................................................................8
Figure 7: Proposed US nuclear power plants..........................................................................10
Figure 8: New PJM East nuke NPV at $10.16/MMBtu natural gas .........................................12
Figure 9: New ERCOT nuke NPV at $11.72/MMBtu natural gas.............................................12
Figure 10: New PJM East Nuke NPV sensitivity .....................................................................12
Figure 11: New PJM East Nuke IRR sensitivity ......................................................................12
Figure 12: New ERCOT Nuke NPV sensitivity.........................................................................13
Figure 13: New ERCOT Nuke IRR sensitivity ..........................................................................13
Figure 14: Surge in Uranium spot price has declined recently ................................................14
Figure 15: Historical and projected LT uranium prices............................................................15
Figure 16: Implied $/KW PV sensitivity to fuel costs...............................................................15
Figure 17: Discounted cash flow commodity price assumptions ...........................................17
Figure 18: DCF model for EXC Salem .....................................................................................19
Figure 19: DCF model for CEG Calvert Cliffs ..........................................................................20
Figure 20: DCF model for D Millstone ....................................................................................21
Figure 21: DCF model for FPL Seabrook ................................................................................22
Figure 22: DCF model for PEG Hope Creek............................................................................23
Figure 23: DCF model for PPL Susquehanna..........................................................................24
Figure 24: DCF model for ETR James Fitzpatrick....................................................................25
Figure 25: DCF model for D Kewaunee ..................................................................................26
Figure 26: DCF model for ETR Palisades ................................................................................27
Figure 27: DCF model for FPL Point Beach ............................................................................28
Figure 28: Location of merchant nuclear power plants in the United States ..........................29