Investor perceptions of nuclear power

Evidence is provided that investor concerns about nuclear power have recently been reflected in the common stock returns of all utilities with such facilities and have resulted in a risk premium. In particular, over the 1978-1982 period, three nuclear-related events occurred at the same time as, and therefore appear to have caused, significant drops in the market values of nuclear utilities relative to their non-nuclear counterparts. The three events were as follows: the accident at TMI, which occurred in March 1979; the realization in the summer of 1980 that an accident of the magnitude of TMI could result in cleanup costs of over $1 billion, which are not completely insurable and could therefore result in substantial losses; and the summer 1982 decision by the Tennessee Valley Authority (TVA) to cancel some if its nuclear power plant construction projects, and the Nuclear Regulatory Commission (NRC) decision to stop work on the construction of the Zimmer reactor, followed by a warning that it might close the Indian Point 2 and 3 reactors. If an individual had invested $100 in an average nuclear utility on the day before the TMI accident and reinvested all dividends, the value of this investment would have fallen by 10% relative to an identical investment in the average non-nuclear utility. The risk of investments in nuclear power versus conventional generating technologies shows nuclear power to be a relatively risky investment. However, relative to all investments, nuclear power was less risky in terms of the type of risk that would cause investors to require a premium before purchasing their securities. 6 figures, 6 tables