Is Nuclear Power Safe Enough for Your Backyard?

Exelon thinks so, and it's betting the ranch

What on earth are Exelon Corp.'s (EXC ) Corbin A. McNeill Jr. and John W. Rowe thinking? At a time when most executives at electric companies had given up on atomic energy, the co-CEOs went out and created a nuclear powerhouse by combining McNeill's Peco Energy Co. and Rowe's Unicom Corp. to form a company with 15 reactors. Then, even before the merger closed last October, they acquired two more nuke plants, including the surviving unit at Pennsylvania's Three Mile Island. And they just boosted their holdings in two others, giving the Chicago-based utility nearly a fifth of the nation's 103-unit nuclear fleet.

Now, McNeill and Rowe are upping their wager. Some 20 miles north of Cape Town, South Africa, Exelon is bankrolling a next-generation nuclear plant that is expected to be smaller, cheaper, and safer than yesterday's giants. If all goes well, they plan to transfer the technology home and do what no one has dared do since 1978: put in an order for a new nuclear power plant.

G0OD LUCK. Even some of their peers say the effort is quixotic. "The NIMBY hurdle is potentially insurmountable when it comes to nuclear power," says James M. Donnell, CEO of Duke Energy North America (DUK ), a Duke Power Corp. subsidiary that owns five plants outright and stakes in two others. Environmental activists oppose nukes in general, and there are also widespread worries about the disposal of nuclear waste.

But the co-chiefs at Exelon are unfazed. McNeill, 61, who heads its power-generation operations, envisions filing for a construction-and-operating license in 18 months and loading a new reactor with fist-size balls of uranium by 2006 at the latest. "There will be an extreme reaction from a minority of environmentalists," he concedes. But he thinks public opinion is swinging in favor of atomic energy, swayed by runaway natural-gas prices and years of accident-free nuclear operations in the U.S. And he notes the sprawl of homes around Exelon's Limerick facility near Philadelphia. "People are really not afraid to live around a plant," he says.

To better their chances, McNeill and Rowe would locate the first of the new nuke plants on the grounds of Exelon's existing facilities, in Illinois or the Mid-Atlantic region. Meanwhile, the company has been burnishing its image with a $10 million TV and print-ad campaign that plays up innovation. And Rowe, 55, who runs Exelon's regulated retail operations in Chicago and Philadelphia, has worked to build political support.

CHEAPER. The pair contends their plans are economical. Earlier nuclear plants had to be built all at once, at costs of $4 billion or more. Exelon's proposed reactors could be built in prefab modules at $110 million per phase. That works out to $1 million per megawatt of capacity, about the same as natural-gas-fired generators. At today's gas prices, Exelon's would be cheaper to operate.

Investors are cheering them on. Last year, while the average share price of the 26 electric companies in the Standard & Poor's 500-stock index jumped 54%, Exelon shares more than doubled, closing the year at $70.21, though they have slipped to $67.61 in the recent market collapse. "This is a company that's going to pay off for some time," predicts Richard C. Larsen, a senior investment analyst at Lord, Abbett & Co., which owns 4.2 million shares. Steven L. Fleishman, an analyst at Merrill Lynch & Co., figures Exelon's earnings will outpace the industry's in 2001, rising 22%, to $1.45 billion, on $15.5 billion in revenues, thanks largely to its low-cost nukes.

McNeill and Rowe aren't exclusively devoted to their nuclear agenda. In December, they paid $696 million for a 49.9% stake in Sithe Energies Inc., an independent power producer with two dozen fossil-fuel plants, mainly in the Northeast. Exelon is also keeping a big presence in retail electricity sales. "I'm into whatever makes more money for shareholders," says Rowe. But Exelon's star remains hitched to atomic energy. McNeill's team already is busy on site selection and preparing applications to the Nuclear Regulatory Commission for up to 10 mini-reactors. And after a few more seasons of power shortages and sky-high gas and oil prices, the fissionaries at Exelon just may light the way for the industry.

By Michael Arndt in Chicago

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