Declining profit margins, in some cases just 2 to 4 percent, are a major reason for the wave of mergers and acquisitions by companies that do business in the Department of Energy’s nuclear cleanup sector, a senior executive with one contractor said last week.
These companies might also eye new opportunities in the commercial nuclear reactor decommissioning market, according to Billy Morrison, head of North American operations for Veolia Nuclear Solutions and chairman of the Energy Facility Contractors Group.
Contractors can expect to receive 5 to 7 percent if everything goes well on a DOE contract, Morrison said at the Energy Communities Alliance (ECA) annual meeting on April 12 in Washington, D.C. But Energy Department contractors are often on the hook for costs when things don’t go well. They can also find certain expenses are unexpectedly disallowed, the cost of bidding big contracts is higher than anticipated, or the procurement process simply drags on too long. Business can even be hurt by an “overactive” Justice Department, Morrison said, without elaborating.
These factors, plus the technically complex nature of the work, together squeeze profit margins and force contractors to question if the risk is worth the reward, Morrison said. Some companies see the Energy Department environmental remediation market as “fairly anemic,” he noted.
The DOE Office of Environmental Management (EM) has an annual budget of $6.5 billion or higher, the majority of it paying for cleanup of the nuclear legacy at 16 active sites.
Despite the healthy funding, it has been years since Congress passed a federal budget on time, instead relying on continuing resolutions that can stretch for months and finally wrapping everything into an omnibus spending bill. Uncertainty over total and site-specific funding levels can make planning difficult.
The uncertainty and slim profits can prompt companies to grow through consolidation and greater economies of scale, Morrison indicated.
In December, Jacobs Engineering completed its acquisition of CH2M, significantly augmenting its footprint in the EM sphere. Among other projects, CH2M is a prime cleanup contractor for the Hanford Site in Washington state, the largest and most complex of DOE’s remediation jobs.
Earlier in 2017, Montreal-based SNC-Lavalin bought out Atkins, which partners with AECOM in tank waste contractor Washington River Protection Solutions at Hanford. Atkins is also a partner in the contractor that in 2016 won the five-year, $318 million DOE contract to manage depleted uranium hexafluoride (DUF6) conversion facilities in Kentucky and Ohio.
Earlier this year, Morrison’s employer, Veolia, completed its purchase of Ohio-based Wastren Advantage. Wastren’s business includes sampling and analytical services at the 222-S Laboratory at Hanford.
Reactor Decommissioning Seen as Alternate Market
One market that could look increasingly attractive for nuclear cleanup companies is decommissioning of commercial nuclear plants. It appears that commercial reactor decommissioning could be a big and steady market for decades to come, Morrison said.
Market challenges are forcing more nuclear power plants to close. Just in late March, FirstEnergy Solutions announced plans to close four reactors in Ohio and Pennsylvania.
“There is a lot of money to be made” in nuclear decommissioning, Morrison said. “You can assume there is a certain dollar amount per-megawatt for decommissioning” that can be made in the years to come, Morrison said. He noted nuclear cleanup companies have experience with decommissioning.
Morrison pointed to the role of AECOM, a major DOE contractor, as a partner with EnergySolutions as general contractor for decommissioning of the San Onofre Nuclear Generating Station (SONGS) in California. The partnership’s contract is worth $1 billion.
Orano (formerly AREVA) is another example of a company that participates deeply in both spheres. The company is a lead subcontractor for Savannah River Remediation, the liquid waste management prime for DOE’s Savannah River Site in South Carolina. It is also partnering with CB&I to build the Mixed Oxide Fuel Fabrication Facility at the site. Meanwhile, Orano manufactures spent fuel storage systems and is half of a joint venture that aims to buy retired nuclear power plants for decommissioning.
Of course, companies entering the reactor commissioning sector face “the risk of the fund,” Morrison said. Nuclear plant licensees must report to the Nuclear Regulatory Commission no less than every two years on the state of the mandatory trust funds to cover the costs of decommissioning.
If companies “can get their head around that” they might elect to pursue more reactor decommissioning, Morrison said.
