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WALL STREET UTILITY GROUP The Energy Policy Act of 2005: The Implications for Nuclear Energy

WALL STREET UTILITY GROUP The Energy Policy Act of 2005: The Implications for Nuclear Energy

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WALL STREET UTILITY GROUP The Energy Policy Act of 2005: The Implications for Nuclear Energy

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  1. WALL STREET UTILITY GROUPThe Energy Policy Act of 2005: The Implications for Nuclear Energy 22 September 2005

  2. Today’s Briefing • Major elements of Energy Policy Act of 2005 Frank L. (Skip) Bowman President and CEO, Nuclear Energy Institute • Risk management: Understanding the nuclear licensing process Michael J. Wallace Executive Vice President, Constellation Energy Group President, Constellation Generation Group • Industry response to the 2005 energy legislation Marvin S. Fertel Senior Vice President, Nuclear Energy Institute

  3. Major Elements of the Energy Policy Act of 2005 Frank L. (Skip) Bowman President and CEO Nuclear Energy Institute

  4. Implications for Nuclear Energy • Positions nuclear energy firmly as one of the cornerstones of U.S. energy supply • Provides substantial investment stimulus for new nuclear plant construction • Provides investment protection for first plants • Establishes long-term vision for nuclear energy in U.S. by authorizing robust R&D program • Provides appropriate recognition of nuclear energy within DOE

  5. Major Nuclear Energy Elements • Investment stimulus for new nuclear power plant construction • Loan guarantee authority for technologies that reduce emissions • Production tax credit for new nuclear power plants • Investment protection for new nuclear power plants • 20-year renewal of Price-Anderson • Updated tax treatment of decommissioning trust funds • Substantial R&D authorization

  6. Stimulus for InvestmentIn New Nuclear Plants • Loan guarantees for up to 80% of project cost • Higher leverage, lower debt cost reduces overall project cost by approx. $200 – $300 million • Production tax credit of $18 per MWhr for new nuclear capacity through 2021, subject to 2 limitations: • $125 million per 1,000-MW per year • 6,000-MW eligible, allocated among available capacity • Treasury Department/IRS rulemaking: Feb. 2006

  7. The Value of Leverage Note: $2,000/kW overnight capital cost; 51-month construction; 3-month start-up

  8. New Generating Capacity: Estimated Power Costs($/MWh)

  9. Protection of Private Sector Investment • Insurance protection against delays during construction and until commercial operation caused by factors beyond private sector’s control • Coverage: $500 million apiece for first two plants, $250 million for next four • Covered delays: NRC licensing delays, litigation delays • Major covered cost: Debt service • Final rules: August 2006

  10. New Tax Treatment for Decommissioning Funds • Legislation updates tax treatment of nuclear decommissioning trust funds to reflect competitive electricity markets • Until now, tax treatment based on regulated, cost-of-service business model • Repeals “cost of service” limitation: Allows all companies to establish qualified decommissioning funds and make deductible contributions • Allows companies to transfer monies in nonqualified funds into qualified funds and claim deduction • Accretive to earnings

  11. Long-Term Vision for Nuclear Energy • Creates robust R&D portfolio ($2.95 billion authorized) • Nuclear Power 2010 • $1 billion program cost-shared 50/50 with industry • Complete design/engineering on two advanced designs, test and validate new licensing process • Next Generation Nuclear Plant • $1.125 billion • Hydrogen production • Creates Assistant Secretary for Nuclear Energy at DOE

  12. Understanding the Nuclear Licensing Process Michael J. Wallace Executive Vice President Constellation Energy Group President, Constellation Generation Group

  13. Overview of the Old “Two-Step” Licensing Process In this sequential process, regulatory reviews were overlapping: Process was inefficient, unpredictable and invited abuse. Construction Permit Application * 10-30% of design complete Operating License Proceeding * Completed plant idle during proceeding Operating License Issued * Construction (design as you build) Operation * Opportunity for intervention, hearings and delay

  14. Overview of the New Licensing Process Early Site Permit (ESP) * In this process, all regulatory reviews (site, reactor design, construction/operating license) are completed before major capital investment at risk. Potential for delay significantly reduced. Combined Construction and Operating License (COL)* Design >90% Complete ITAAC Met ** Construction Operation * Opportunity for public comment ** Opportunity for hearing, but threshold very high Design Certification *

  15. ITAAC: A KeyRisk-Management Tool • ITAAC = Inspections, Tests, Analyses, Acceptance Criteria • ITAAC are quantitative indicators* that allow ... • NRC to verify plant is built to specifications • Project developer to prove plant is built to specifications • ITAAC are formally incorporated into COL • If ITAAC are met, no grounds for hearings, no delay after COL is issued * For example, an ITAAC might specify that a certain pump will deliver a certain flow rate, or that a valve will close in a specified time.

  16. The Process Leading to Commercial Operation • Project developer notifies NRC 180 days before fuel load; NRC publishes notice in Federal Register inviting requests for hearings • Threshold for intervention hard-wired to objective criteria: Hearing request granted only with prima facie evidence that one or more ITAAC has not been met, or will not be met • Even if NRC allows hearing, NRC can also allow fuel load and plant operation while hearing proceeds, if plant operation would not jeopardize public health and safety

  17. Nuclear Plant Licensing: “Then and Now”

  18. Time-to-Market Under New Licensing Process • First applications • ESP: 33–36 months • Design Certification: 36–60 months • COL: 27–60 months (depending on whether application references DC and/or ESP) • Nth applications • COL: 22–36 months (depending on whether application references ESP) • Construction: 45 months from first concrete to fuel load (achieved overseas)

  19. Roadmap to Commercial Operation Before a company can apply for a construction/operating license (COL), design and engineering work must be essentially complete and the reactor design certified by the NRC FIRST DECISION: To file an application for a COL (a 3-4 year process, $50-90 million commitment) 1 SECOND DECISION (approx. 12 months before COL is issued): Long-lead procurement of major components and commodities Building a new nuclear plant is not a one-step process or decision: It is a sequence of 3 successive decisions 2 THIRD DECISION: proceed with construction 3 Time in Years (times shown are estimates)

  20. Industry Response to the 2005 Energy Legislation Marvin S. Fertel Senior Vice President Nuclear Energy Institute

  21. Status of Reactor Designs • AP1000 (Westinghouse): Design certification expected in 2005/2006 • ESBWR (General Electric): Design certification application filed August 2005, certification expected 2008 • US EPR (UniStar): Application for design certification expected in 2007.

  22. Before the Energy Legislation • Three companies have applied for Early Site Permits (ESPs) • Dominion (North Anna) • Entergy (Grand Gulf) • Exelon (Clinton) • Three consortia • Dominion (preparing COL for 2007 filing) • NuStart (preparing COLs for 2007 filing) • ESBWR at Grand Gulf • AP1000 at Bellefonte • TVA (feasibility study of new nuclear plant at Bellefonte) • Duke Energy considering COL

  23. After the Energy Legislation • Progress • Considering COL application in 2008, evaluating sites and reactor vendors • Southern Nuclear • In 2006, will file ESP application or preliminary data for COL application for Vogtle site • South Carolina E&G/Santee Cooper • Considering COL • UniStar Nuclear • Joint initiative by Constellation and Areva to develop projects on own account, or in partnership with other companies • Entergy • COL for ESBWR at River Bend

  24. Financing New Nuclear: Significant Flexibility • Expect to see a spectrum of project and financing arrangements: • Regulated projects • Merchant projects • Varying degrees of leverage • Projects built by single companies • Projects built by consortia in order to share risk • Projects built by companies on behalf of others • Projects that are non-recourse to the project developers’ balance sheets • Projects that are full-recourse • Other arrangements that we have not yet thought of

  25. Prerequisites for NewNuclear Plant Deployment

  26. 2005 Energy Policy Act Satisfies All Prerequisites    

  27. The Energy Policy Act of 2005: The Implications for Nuclear Energy