The Impact of Nuclear Power on the Systematic Risk and Market Value of Electric Utility Common Stock
Russell l. Fuller,
George W. Hinman and
Thomas C. Lowinger
The Energy Journal, 1990, vol. Volume 11, issue Number 2, 117-134
The objective of this study is to determine whether investors perceive utilities with nuclear plants to be more risky than utilities with no nuclear facilities. Two basic analytical frameworks are used. One approach is to analyze investors' differential perception of the market-related systematic risk of nuclear utility stocks versus non-nuclear utility stocks. This is done by comparing the betas of nuclear versus non-nuclear utility stocks. The second approach is an econometric treatment of price to book value ratios, using cross-sectional data in the time period 1973 to 1987. For both approaches, the differences in the financial markets' perception of risk, related to the special events of TMI, Chernobyl and the WPPSS bond default; are analyzed. Based on the crosssectional analysis of P/BV ratios in recent years, we estimate the financial markets valued nuclear power utilities at approximately 20% less than comparable non-nuclear utilities. We estimate that a 3% increase in the allowed rate of return for nuclear utilities (from 13.7% to 16.7% in 1988) would have been necessary to fully offset the discount associated with nuclear power.
JEL-codes: F0 (search for similar items in EconPapers)
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