Morningstar Magazine - October/November 2017 - 63

immediately from the disaster and 28 others died
from radiation exposure in the following
months. Among the most exposed, 134 people
received between 80,000 millirems and 1.6 million
millirems. The average radiation dose to the
roughly 115,000 individuals evacuated from
Chernobyl was about 3,100 millirems, or about five
times the normal annual dose. There has been
a significant increase in incidence of certain
cancers among residents who had the greatest
exposure. The World Health Organization
estimates the number of cancer deaths related
to Chernobyl were about 4,000.

Governance
Operational Governance

We think the nuclear industry gets high marks
for its governance framework. It is the most
regulated industry in the United States. Federal
oversight through the Nuclear Regulatory
Commission, or NRC, is key, but nuclear plants also
are subject to numerous regional, state, and local
regulations. This creates a strong governance
structure in the industry and an impressive safety
record. Additionally, the oversight process is
steadily improving. Regulators and plant owners
strengthened operational requirements after
the Fukushima nuclear accident in 2011. In addition,
nuclear plants are highly secured and have
not had a material security breach in recent years.
The NRC routinely visits nuclear facilities to assess
compliance with regulations and corrective
actions, if ordered. The NRC uses enforcement
actions to ensure plants are operating safely and
in line with current regulations. If the NRC
identifies a violation, it assigns a severity level or a
risk color code. Risk color codes range from red
(highest risk) to green (little risk). Of the 86
enforcement actions the NRC has issued since
2013, there have been only five yellow violations
and no red violations. After Fukushima, the
international nuclear generation community
implemented additional measures to protect plants
from a similar incident.

safety standards, small-scale leaks, and chemical
releases, happen occasionally. Sustainalytics'
incident analysis for the 20 U.S. utilities with
nuclear exposure in our coverage universe
showed 56 low-risk Category 1 and 2 incidents but
no Category 3, 4, or 5 incidents during the last
three years.
Entergy has the second-worst record for incidents
when adjusting for its sizable nuclear fleet.
Entergy's 8,759 MW nuclear fleet accounts for 10%
of total U.S. nuclear capacity, but it is responsible
for 23 incidents, or 41% of the national total.
Scana SCG has the worst record as a function of
the size of its fleet. Scana owns just 67% of one
nuclear reactor but has been involved in three
incidents during the past three years. By contrast,
Exelon, which owns 21,585 MW of nuclear
generating capacity, has experienced only six
incidents, or 0.3 per gigawatt, and has proved
itself to be one of the safest nuclear operators in
the world.

sources. Its low carbon-emissions profile and
reliability make it a critical contributor to meeting
state and federal environmental policy goals.
It also is the safest baseload energy source
for employees and the public on several measures,
including minimal radiation risk.
We think that top-tier nuclear operators should
earn premium valuations for their positive
ESG characteristics and that sustainability will help
ensure that nuclear remains a primary
energy source in the United States for decades. K
Travis Miller is a strategist, energy and utilities, with
Morningstar Research Services.
Doug Morrow is an associate director, thematic research,
with Sustainalytics.
Luke Raftis is a senior associate, extractives and utilities,
with Sustainalytics.

Incidents can be the result of many factors,
including facility age, but significant gaps
in performance can also indicate differences in
operational strategy and point to potential
weaknesses in management.
In our opinion, Exelon's low number of nuclearrelated incidents is in part due to strong nuclear
fleet governance. Exelon's board of directors
has a generation oversight subcommittee that is
responsible for the safe and reliable operation of
all its generating facilities. The committee
comprises CEO and president Chris Crane, who
previously was Exelon's chief nuclear officer
and chief operating officer, and five independent
board members who have significant
industry expertise.
Entergy, the second-largest nuclear owner, has
a board of directors with vast industry experience,
but it has no committee dedicated to the
oversight of its nuclear generation fleet. This
governance difference might partly explain
Exelon's superior performance.

Operational Incident Analysis

ESG Premium

While the U.S. nuclear industry is highly regulated,
operational incidents, including violations of

We think nuclear power has a more favorable
ESG profile than most other nonrenewable energy

global.morningstar.com/Morningstarmagazine

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