The Effect of Three Mile Island on Utility Bond Risk Premia: A Note

On March 28, 1979, one of the 2 nuclear reactors operated by General Public Utilities (GPU) at its Three Mile Island (TMI) power-generating plant malfunctioned. The public outcry that followed had a dramatic impact on the shares of GPU and equity returns throughout the entire electric utility industry. Tests are conducted to determine the effects of the TMI accident on bond risk premiums in the public utility industry. Four null hypotheses are tested. The findings correspond with previous findings that TMI had an industrywide effect on risk premiums independent of nuclear power generation. Firms with nuclear-generating facilities also experienced significant relative increases in risk premiums in the aftermath of TMI. However, the results indicate that the nuclear effect on risk premiums was a function of the existence, not the degree, of a firm's commitment to nuclear power.