Nuclear decommissioning costs: The impact of recoverability risk on valuation

Mounting nuclear plant decommissioning costs and utility deregulation focus ed attention on accounting for decommissioning liabilities. FASB's Exposure Draft 158-B proposes balance sheet recognition of the projected future dec ommissioning cost liability at initial plant commission. We expect market v aluation of each dollar of decommissioning cost apportioned to utilities to vary with utility-specific factors related to the probability of cost reco very via rates. We find a more negative decommissioning cost/firm value ass ociation for utilities-with higher business or financial risk. Also, equity value is significantly associated with total decommissioning cost across a ll nuclear units in which a utility has ownership interest. (C) 2000 Elsevi er Science B.V. All rights reserved.