Morning Briefing - April 16, 2018
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April 16, 2018

Declining Profit Margins Drive Mergers for DOE Contractors, Executive Says

By ExchangeMonitor

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 Thursday.

The reduced margins are due in part to regulatory responsibilities and “claw-back” of certain fees by DOE, according to Billy Morrison, head of North American operations for Veolia Nuclear Solutions and chairman of the Energy Facility Contractors Group.

Some see the Energy Department environmental remediation market as “fairly anemic,” Morrison added during the Energy Communities Alliance annual meeting in Washington, D.C.

The department’s 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.

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.

Morrison said companies with deep experience in DOE cleanup might increasingly look to put their abilities to work in the nuclear decommissioning market, which seem sure to grow as market challenges force more power plants to close.

Just in late March, FirstEnergy Solutions announced plans to close four reactors in Ohio and Pennsylvania.

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.

Of course, companies entering the reactor commissioning sector face “the risk of the fund,” Morrison said. Nuclear plant licensees must report no less than every two years on the state of the funds designated to cover the costs of decommissioning.