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Corporate Restructuring to Protect Nukes from Liability

by Karl GrossmanSpecial to CorpWatch
October 23rd, 2002

Not only have manufacturers of nuclear plants undergone globalization, but utilities in the U.S. have been engaged in consolidation and mergers in the last several years along with the increased use of limited liability and multi-tiered holding companies to own nuclear plants.

According to a report titled Financial Insecurity done by Synapse Energy Economics of Cambridge Massachusetts for the Standing for Truth About Radiation (STAR) Foundation and Riverkeeper, the use of such "complex organizational structurescan shield the parent corporations and their shareholders from liabilities."

"Nuclear power plants were traditionally constructed and operated mainly by integrated investor-owned utilities under 'cost-of-service regulation' through which necessary funds were provided to operate and decommission the plants safely. Starting in the mid-1990s, however, many nuclear power plant owners began to reorganize and to sell their nuclear units to unaffiliated companies or corporate affiliates," it notes.

Some of the entities with such set-ups cited by Financial Insecurity include the Excelon Corporation-now with 10 nuclear plants, Entergy-with 10, Dominion Resources-with six, and Constellation Energy Group-with four.

A key object of the new corporate set-ups, says Scott Cullen, executive director of the East Hampton, New York-based STAR, is in a nutshell, to avoid liability. The nature of a limited liability corporation," said Cullen, an attorney, "is to insulate the owners and stockholders from liability in the event of litigation or some sort of accident."

"We are not saying that limited liability corporations in and of themselves are bad. But we are saying that the ownership of ultra-hazardous machines by limited liability corporations is extremely problematic," Cullen explained.

"The idea is to buy these things cheaply and to run them basically on skeleton crews thereby reducing operation and maintenance costs-to run these things into the ground," says Paul Gunter, head of the Reactor Watchdog Project at the Nuclear Information & Resource Service/World Information Service on Energy-Amsterdam.

The conclusion of Financial Insecurity: "Over the last ten years, the ownership of an increasing number of nuclear power plants has been transferred to a relatively small number of very large corporations. These large corporations have adopted business structures that create separate limited liability subsidiaries for each nuclear plant, and in a number of instances, separate operating and ownership entities that provide additional liability buffers."

"The limited liability structures being utilized are effective mechanisms for transferring profits to the parent/owner while avoiding tax payments. They also provide a financial shield for the parent/owner if an accident, equipment failure, safety upgrade, or unusual maintenance need at one particular plant creates a large unanticipated cost. The parent/owner can walk away, by declaring bankruptcy for that separate entity, without jeopardizing its other nuclear and non-nuclear investments."

Return to the article, "Nuclear Renaissance or Nuclear Nightmare?"

Karl Grossman, professor of journalism at the State University of New York/College at Old Westbury, is the author of books on nuclear technology including Cover Up: What You ARE NOT Supposed To Know About Nuclear Power and host of numerous television programs on atomic energy available from EnviroVideo at www.envirovideo.com