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Exelon Corporation (EXC), Duke Energy Corp (DUK): Will Uranium Costs Kill Nuclear?

For a pinch of perspective, I also compared uranium costs with each utility’s 2012 net profit. While earnings aren’t the most reliable metric to judge long-term capital-intensive companies like utilities, it gives us an idea how expenditures added up last year.

Company 2012 Net Profit ($M) Uranium-to-Earnings Ratio (%)
Exelon $1,160 55%
Duke $1,768 16%
Southern Company $2,415 10%
FirstEnergy $770 17%

Author’s approximations. Sources: investor-relations websites, SEC filings, eia.gov.

Exelon Corporation (NYSE:EXC) dished out 55% of its earnings in uranium expenses, while The Southern Company (NYSE:SO) sacrificed just 10% of its $2.4 billion in net profit. FirstEnergy Corp. (NYSE:FE) followed with a 17% payout, while Duke Energy Corp (NYSE:DUK) doled out 16%.

But while costs today mean something to investors, costs tomorrow are what really matter. If Uranium’s 400% increase keeps up over the next decade, Exelon’s prices will mushroom accordingly. And even though The Southern Company (NYSE:SO) currently spends more on the magic molecule than FirstEnergy Corp. (NYSE:FE), its 16% capacity reliance gives it the most protection from volatile prices.

The end of nuclear?
Luckily for investors, there’s more to power pricing than meets the eye. As an example, Exelon Corporation (NYSE:EXC) currently contracts with three suppliers for guaranteed supply requirements through 2016. Its enrichment agreements have the company set through 2017, fuel fabrication through 2018, and conversion services through 2020.

And while uranium hedging isn’t common practice today, markets have a way of creating themselves for vital goods with volatile prices. Recent natural gas price increases pushed many utilities to take one-time hits for bad hedges, but the companies kept plants powering through thick and thin.

Uranium was a $3.2 billion market in 2012 — and it could easily hit $15 billion in the next decade. Energy diversity is never a bad thing, and nuclear-centric companies like Exelon Corporation (NYSE:EXC) have worked around the kryptonite conundrum by sourcing from multiple suppliers. For now, at least, uranium spending is cost that remains relatively under control.

The article Will Uranium Costs Kill Nuclear? originally appeared on Fool.com and is written by Justin Loiseau.

Motley Fool contributor Justin Loiseau has no position in any stocks mentioned, but he does use electricity. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.The Motley Fool recommends Exelon and Southern.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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