Only two weeks ago, Middle East tensions and volatile oil prices seemed sure to trigger a “nuclear renaissance”.  Nuclear power not only is greener than fossil fuels, many lawmakers said, but it’s the quickest way the U.S. can achieve energy independence. 

But the surest things can change – and the catastrophe at Japan’s Fukushima I nuclear plant has called into question many of the experience-based certainties about U.S. nuclear energy, reviving that old  “trust, but verify” mantra. 

U.S. lawmakers and regulators are scrambling to determine whether oversight of domestic nuclear plants has been rigorous enough to ensure that the same thing can’t happen here.  President Obama last week ordered the Nuclear Regulatory Commission to conduct a comprehensive review of the safety of all U.S. nuclear plants.

The review comes in the wake of a nuclear plant safety report released by the Union of Concerned Scientists last week.  The report discussed 14 “near-misses” at U.S. nuclear plants during 2010 that exposed a variety of shortcomings, such as inadequate training, faulty maintenance, poor design, and failure to investigate problems thoroughly. 

The report called on the NRC to step up its oversight and become a more effective watchdog for the public interest.  Tougher regulations – and greater enforcement of existing regulations – are likely to be costly for nuclear plant operators.  Here are four nuclear plant operators likely to come under scrutiny in the coming weeks and months:

• Exelon (NYSE:EXC) accounts for one-fifth of the U.S. nuclear industry’s power capacity with 10 power plants and 17 reactors located in three states.  The company operates a total of 12 GE Boiling Water Reactors – seven of which have the same Mark I containment systems as Japan’s Fukushima I nuclear plant.  The UCS report identified an incident at the company’s Peach Bottom plant near Lancaster, Pa. last year in which workers slowed down control rod testing in order “to evade regulations that would have required a plant shutdown”.   From a PR standpoint, the new regulatory reviews are likely to remind the public that Exelon currently operates a Babcock & Wilcox pressurized water reactor at the infamous Three Mile Island Nuclear Station near Harrisburg, Pa. 
• Entergy (NYSE:ETR) operates 12 nuclear reactors at 10 plant sites.  The two most controversial sites are the Vermont Yankee plant in Vernon, Vt. and the Pilgrim Nuclear Station in Plymouth, Mass.  The NRC renewed the license at Vermont Yankee just one day before its original 40-year license was scheduled to expire — and in the midst of the nuclear crisis in Japan.  Count on strong opposition to Entergy’s bid to renew Massachusetts-based Pilgrim’s license, which will expire in 2012.  Consumer advocates have spent the past six years filing appeals to deny the license renewal and shut down the plant.  Entergy’s two Indian Point reactors — 24 miles from New York City — also have generated howls of protest.  The original federal licenses for the Indian Point reactors expire in 2013 and 2015, and a water quality certificate is a prerequisite for a 20-year renewal by the NRC.
• Tennessee Valley Authority (NYSE:TVE). Nearly one-third of all power generated by TVA comes from its three nuclear plants: Browns Ferry, near Athens, Ala.; Sequoyah, in Soddy-Daisy, Tenn., and Watts Bar, near Spring City, Tenn.  Of the seven reactors represented at those three plants, three units (Brown’s Ferry) are the same design as those at Fukushima I.  A 1975 accident at the Brown’s Ferry plant illustrates why you don’t need a 9.0-magnitude earthquake and tsunami to have a serious nuclear problem.  A technician at the Alabama plant checking for air leaks with a lighted candle set the insulation on fire and burned out the electrical controls, lowering the coolant water to dangerously low levels.
• Pacific Gas & Electric (NYSE:PCG) operates the Diablo Canyon Power Plant – two Westinghouse pressurized water reactors that power electrical service to 2.2 million people in San Luis Obispo County, Calif. The plant, which has seismic monitoring and safety systems, was upgraded to withstand a 7.5-magnitude earthquake. Of course, you’d expect some additional safety measures with a nuclear reactor that straddles four faults, including the notorious San Andreas.   Perhaps that’s why the plant is at the epicenter of anti-nuclear protests.  At the zenith of those protests, 1,900 activists were arrested at Diablo Canyon over a two-week period back in 1981.

Bottom Line: Shares of major nuclear operators took about a 5% hit last week, but are edging back up as investors remember the overall safety trend the U.S. nuclear sector has been able to boast about since the Three Mile Island accident in 1979.  (And of course there’s that minor distraction of Libyan military operations to consider.) 

Still, the events in Japan have reminded the public in general – and their duly elected representatives in particular – that things can fall apart.  And when you’re talking about a 40-year-old nuclear power plant near highly populated areas, lawmakers tend to mitigate risk by putting plant operators on the hot seat. 

No doubt about it, there will be greater oversight for the industry this year.  Whether that scrutiny is simply limited to license renewals or whether it digs deeper into plant operations (and operators’ pockets) remains to be seen.  But while nuclear energy is basically on sound footing for the long term, expect the pendulum to swing back toward risk management in the near future. 

As of this writing, Susan J. Aluise did not hold an interest in any of the stocks mentioned here.