Shutting down nuclear plants is set to become a multi-billion dollar business. If that business fails, critics say, your tax dollars - and possibly your safety - could be on the line. Learn more in our USA TODAY NETWORK Northeast project, The Nuclear Option.

Some of the nation’s richest investors are betting they see profit where no one else does: tearing down America’s aging nuclear reactors.

Among them is one of the most recognized names from the Reagan Administration, former Secretary of the Navy John Lehman.

Lehman’s plans are shrouded in secrecy. The hedge fund that bears his name does not disclose basic information about its finances.

But an examination of deals made by the hedge fund since 2017 to raise money and acquire firms, makes it clear the company sees a pot of gold for the taking — some $60 billion accumulating in trust funds owned by nuclear power plants — all of it bankrolled by ratepayers.

“We believe that the profitability potential remains high,” said Daryl Walcroft, a lead adviser at the accounting firm PwC, which recently released a 20-page report titled “Ready, set...shut down!” to lure new investors.

If they succeed, investors will control a brand-new industry. If they fail, as some independent experts predict, those investors — including public employee pension funds for teachers, police and firefighters — could lose hundreds of millions of dollars.

Past projects blew their budgets by up to half a billion dollars, forcing ratepayers to cover the costs. Current projects may be even riskier, as companies saddle the trust funds with new cleanup costs that federal rules never envisioned, and do not allow.

Such deals may enable big investors like Lehman to take their profit and walk away, leaving “taxpayers to bear the financial burden and responsibility for finishing the work,” Massachusetts Attorney General Maura Healey said in a petition to federal regulators.

For years, power companies supervised reactor cleanup themselves. Nearly every project was a financial failure. In some cases the cost approached $1 billion, double the original estimate.

“I would say all of the early projects went over budget,” said Scott State, CEO of NorthStar Group, a company that deconstructs buildings.

Industry leaders like State believe they can decommission a nuclear plant faster and cheaper, and share the savings with their investors as profit.

“They’re taking on a big risk that they can do a big job,” said Tom LaGuardia, an engineer widely regarded as the world’s top expert on decommissioning costs.

To some people, a closed nuclear plant is a dangerous place contaminated with radioactive waste.

To investors, each reactor is a pot of gold.

Federal law requires electricity companies to save money in trust funds for the eventual closure and cleanup of nuclear reactors. Fund totals ranged from $286.6 million for Beaver Valley reactor 1 in Pennsylvania to $1.5 billion for Diablo Canyon reactor 2 in California, according to 2016 tallies from the Nuclear Regulatory Commission, the latest available.

Nationwide, trust fund balances topped $60 billion in 2016, the NRC found. They grew to $70 billion by 2018, according to The Callan Institute, which advises fund managers. And the total may soon rise to $90 billion, according to PwC, a major accounting firm formerly known as PriceWaterhouseCoopers.

And unlike virtually every other big construction project, companies decommissioning nuclear plants get paid upfront, before work even starts.

“Having pre-funded work is very good,” said State, of NorthStar.

Powerhouses including the PwC accounting firm also see profit opportunity in teardown deals.

“(T)he growth of this market is accelerating more quickly than predicted,” according to the company’s recent report. “Already, we are seeing qualified decommissioning specialists and institutional investors clamoring through various deals to own” decommissioning companies.

Here’s what that clamor looks like. After serving as President Ronald Reagan’s Secretary of the Navy, John Lehman founded J.F. Lehman & Co., a hedge fund that invested $1.9 billion primarily in defense and aerospace industries, according to the company’s website.

In 2016, J.F. Lehman & Co. sought to raise $700 million. It attracted more than 48 investors, including “leading public and private pension funds” who together invested $883 million, more than 25 percent above Lehman’s original plan, according to a Lehman press release.

Investments included $40 million from the Teachers’ Retirement System of Oklahoma. Another $36.5 million came from three public employee retirement funds in Connecticut. The public employee retirement fund in Montgomery County, Maryland invested $23 million, the Arkansas Teacher Retirement System invested $14.6 million, and the retirement system for municipal police in Louisiana invested $12.5 million, according to the funds’ annual reports, for a total of at least $126.6 million. Together, these funds own $75.9 billion in assets.

Three months after Lehman announced it had beaten its fundraising goal, in June 2017, it gained a foothold in the decommissioning industry by acquiring NorthStar. The following month, it announced a partnership with a company now called Orano, which specializes in nuclear teardowns. In January 2018 Lehman bought Waste Control Specialists, which owns radioactive waste disposal sites in Texas.

The deals allow Lehman’s companies to save money at every step of decommissioning, said State, who is CEO of both NorthStar and Waste Control Specialists.

“We own and control everything we need to do this work,” State said.

Important details about Lehman’s companies remain unknown, including how much cash each keeps for emergencies. Even less is known about Holtec’s decommissioning venture Comprehensive Decommissioning International, which is co-owned with SNC-Lavalin, a large Canadian engineering firm.

The company is secretive about its finances, refusing to disclose basic information about its revenue, assets or ability to handle contingencies. “Both Holtec and SNC-Lavalin supplied the capital for establishing CDI,” Joe Delmar, a Holtec spokesman, said by email.

The financial success or failure of decommissioning a nuclear reactor hinges on one thing: the size of its trust fund.

“The most unique risk in this market has to do with the health of the trust fund,” said Walcroft, lead adviser on American infrastructure projects for PwC.

In Holtec’s application to buy Pilgrim nuclear power plant in Massachusetts, and in NorthStar’s application to buy the Vermont Yankee plant, both companies said they expect each reactor’s trust fund to pay for the entire project.

“I am telling you they will get it done with the trust fund because they’re really good,” said Rod McCullum, senior director of used fuel and decommissioning at the Nuclear Energy Institute, the industry’s powerful trade group.

Consultants, financial experts and three federal agencies are not so confident. Plant owners must prove their trust funds meet the Nuclear Regulatory Commission’s minimum formula, which the commission estimates will generate enough money to clean up a nuclear plant's radioactive contamination.

But the commission’s own Office of Inspector General, as well as the Government Accountability Office and Pacific Northwest National Laboratory, together published four reports since 2011 finding the formula — created in the early 1980s — is so old that it consistently underestimates the amount of money needed.

“The NRC estimate is still low,” said LaGuardia, who said he has completed cost estimates on 90 percent of all decommissioning projects in North America.

Moreover, Holtec and NorthStar plan to use trust funds in ways the NRC never envisioned. According to federal rules, trust money may be used only to clean up nuclear contamination. Other jobs, like managing spent reactor fuel and removing asbestos or lead, must use other money.

“It comes from their own money, their own profits,” said Richard Turtil, a senior financial analyst for the NRC.

That’s not what NorthStar and Holtec have in mind. At Pilgrim, Holtec requested an exemption allowing the trust fund to cover $541 million in spent fuel management and site restoration costs. NorthStar requested a similar exemption at Vermont Yankee for $425 million. Both companies stated the funds will have sufficient money to cover the additional work, and provide them with profits.

“This very substantial amount — over a billion dollars — in Pilgrim’s [trust fund] will be sufficient to cover the estimated cost of decommissioning and spent fuel management, as well as site restoration,” Holtec said in a filing to the NRC.

Some current and former regulators disagree. If granted, the exemption “poses a significant risk that insufficient funds will exist” to clean the site, Massachusetts Attorney General Maura Healey told the NRC.

“Certainly, I think the funds are sufficient to cover the cost of the cleanup,” Gregory Jaczko, former chairman of the Nuclear Regulatory Commission, said in May at a Congressional briefing. “But I’m not sure that they’re sufficient to cover the costs of the cleanup and a very nice level of leftover benefit for the company.”

Finally, there’s the question of cost overruns. The cost to decommission Yankee Rowe nuclear plant in Massachusetts was estimated at $370 million in 1994. By the time it was finished in 2003, costs rose by an extra $266 million, according to book co-authored by LaGuardia. At Connecticut Yankee the final bill was $931 million, more than double original estimates.

“Almost invariably in the work I’ve done, the costs were greater than expected,” said Julia Moriarty, senior vice president of The Callan Institute, which advises nuclear fund managers.

Work accidents and changing government rules caused many projects to run over-budget, LaGuardia said, but the biggest driver of cost increases is finding pockets of previously unknown contamination.

Companies learned from these mistakes, State and Delmar said. Teardown experts now perform more intensive site studies; avoid cutting apart reactors with tools like grit sanders that spread contamination around a site; and often control the final disposition of nuclear waste. This means they can simply "rip and pitch" waste into trucks or trains bound for disposal sites, State said, rather than spend valuable workers' time decontaminating materials on-site.

“They’re getting smarter now, and they’re doing site characterization first,” LaGuardia said. “They know the risks. If they’re not comfortable with their cost estimating method, they’re not going to be in this business.”

Site studies remain imperfect, however.

“Site conditions are never known with absolute precision,” Warren K. Brewer, a decommissioning expert, told the Vermont Public Utilities Commission.

All construction companies build cushions into their plans to cover unexpected costs. At Vermont Yankee, NorthStar set aside 10 percent of the trust fund’s $500 million for contingency and profits, far below standard industry practice, according to Brewer and Gregory Maret, another expert hired by the state.

Even small changes in site conditions or state regulations could increase costs by up to $200 million, Brewer found, enough to overwhelm the contingency fund.

“That’s a very risky business play,” LaGuardia said of NorthStar’s plan.

Eventually NorthStar and its partners committed $200 million in additional financial assurances, said Dan Dane, a financial expert involved in the negotiations.

Holtec’s contingency at Pilgrim is even smaller. The company will set aside 17 percent of Pilgrim’s projected $1.3 billion trust fund for surprises, it told the NRC.

But as Healey found, Holtec plans to spend all but $3.6 million of the $1.3 billion in its trust fund on basic decommissioning work.

“In other words, its contingency allowance covers costs it expects to incur,” Healey wrote in her petition. “Holtec’s attempt to account for contingencies and uncertainty risk is woefully deficient.”

Leaders of decommissioning companies are confident they can avoid the failures of the past.

“Does that mean every project will go perfectly? No,” State said. “But I don’t lose any sleep thinking we aren’t going to be able to do these projects in precisely the way we say we expect we can.”

Consultants think failure is an option, however.

“I think the vast majority will do just fine,” said Moriarty, who has monitored nuclear funds for 20 years. “I think there will be cases where they run into problems.”

If even a handful of decommissioning projects goes broke, current and future public employees in at least five states stand to lose $126.6 million in investments. In its report, PwC advised investors to consider, “Do I have the financial capability to manage the nuclear decommissioning trust fund as required by the NRC — or to make up the difference if it falls short?”

If investors can’t step up, some worry it will fall to “taxpayers to bear the financial burden and responsibility for finishing the work,” Healey told the NRC.

“If they go bankrupt,” Moriarty said, “I assume the taxpayers are on the hook.”

Email: maag@northjersey.com

Data reporter Frank Esposito contributed to this report.