"Dispute Resolution Clauses in Commercial Contracts Ppt"
American Bar Association Forum on the Construction Industry ________________________________________________________________________ NUCLEAR POWER PROJECTS NEW RISKS REQUIRE NEW APPROACHES Peter D’Ambrosio Partner, Winston & Strawn Washington, D.C. and Kevin O’Brien Partner, Howrey LLP Washington, D.C. April 16-18, 2009 New Orleans, Louisiana ________________________________________________________________________ ©2009 American Bar Association DM_US:21858167_1 NUCLEAR POWER PROJECTS NEW RISKS REQUIRE NEW APPROACHES I. INTRODUCTION The nuclear power industry in the United States is poised for growth. Despite many set-backs over the past twenty-five years, including two highly publicized accidents at Three Mile Island and Chernobyl, and the cancellation or decommissioning of over 100 nuclear plants since the 1980s, nuclear power continues to be an important source of energy in the United States. Today, Nuclear power provides nearly 20% of the nation’s electricity supply and operates at a nearly 92% capacity factor1 – the percentage of electricity actually produced compared to the total potential electricity that the plant is capable of producing. This high rate of plant efficiency, as measured by capacity factor, is primarily due to fewer plant shutdowns for maintenance or safety problems, and is significantly higher than all other power generating sources.2 In 2007, the average capacity factor for U.S. nuclear plants was 91.8% compared to a capacity factor for coal at 71.8%, natural gas at a range of 16 to 43.3%, heavy oil steam turbine at 19.6%, hydroelectric at 27.8%, wind at 30.4%, and solar at 19.8%.3 For nuclear power to maintain its 20% share of electricity generation into the future, new nuclear reactors will need to be built. In recent years U.S. commercial nuclear output has increased through a combination of “uprating” (upgrading) of existing reactors and license extensions.4 Going forward, however, with demand for energy increasing and U.S. nuclear plants approaching the capacity factor ceiling, these measures alone will not be enough.5 The Department of Energy (DOE) projects that for nuclear power to maintain its current 20% share of electricity generation, nuclear plants must come online at a rate of three to four per year starting as early as 2015.6 In an effort to encourage this growth, the United States government has provided a number of incentives to the nuclear power industry. These incentives have brought renewed opportunity for nuclear power in the United States. With new opportunity, DM_US:21858167_1 however, come new risks. This article will address the new realities facing the nuclear industry, and will discuss ways to control schedule risks and costs as the industry moves forward. II. NEW REALITIES To stimulate nuclear power plant construction in the United States, the Nuclear Regulatory Commission (NRC) and Congress have recently provided a number of incentives to encourage investment in new nuclear power plants. The NRC has created a new streamlined regulatory approval process that includes certification of standardized reactor designs, early site permits, and a combined construction/operation (COL) application.7 Congress, through the Energy Policy Act of 2005 (Energy Policy Act), has provided a number of financial incentives.8 These include federal loan guarantees, a production tax credit, and “standby support” to insulate applicants from licensing delays. Furthermore, the Energy Policy Act extends the Price-Anderson Act, which places limits on the amount of liability a manufacturer would be subject to in the event of a nuclear accident. Even with these increased incentives, however, many obstacles remain. Financing new nuclear power plants will be a challenge, not only because of the significant capital required, but also because of the inherent uncertainty of initial capital projections as the industry seeks to implement new technologies and plant designs. Similarly, the domestic workforce is untrained and untested on nuclear standards, and manufacturers and vendors of nuclear equipment within the United States are limited. In addition, there is still no long term solution to the storage of nuclear waste. These and other limitations demonstrate that the new realities facing the nuclear industry are not all favorable. While many incentives exist to encourage investment in nuclear power, the long hiatus within the United States from nuclear power plant construction has created new challenges. The new conditions facing the nuclear power industry, both those favoring growth and those presenting challenges, are addressed below. DM_US:21858167_1 2 A. Favorable Conditions for Growth 1. Streamlined Regulatory Approval Process In the past, nuclear power plants were licensed under a two-step process whereby a facility would first obtain a construction permit and then an operating license.9 This two-step process was both unpredictable and inefficient, and on one occasion resulted in a plant being built but never operated.10 In an effort to add greater predictability and improved efficiency to the licensing process,11 the NRC has established streamlined alternatives, which – as stated above – include certification of standardized reactor designs, early site permits, and a combined construction/operation license (COL) application process. Under the design certification process, the NRC certifies standard plant designs, independent of any specific site, which can then be used in subsequent COL applications as pre-approved designs. Once certified, the design is valid for fifteen years and the NRC cannot modify the design “unless it finds that [it] does not meet the applicable regulations in effect at the time of the design certification, or [unless] it is necessary to modify the design to assure adequate protection of the public health and safety.”12 Not only should design certification increase efficiency in the licensing process, but it should also serve to reduce construction costs as projects learn from the experience of earlier plants.13 Conversely, the NRC has also provided applicants with a process whereby they may obtain approval for a specific site, independent of the design of the reactor(s) to be built on the site. With an early site permit, applicants can have the emergency plan, environmental impact, and safety report aspects of the site reviewed by the NRC prior to designating a plant design.14 Early site permits are valid for up to twenty years, and if necessary, can be renewed for an additional ten to twenty years.15 DM_US:21858167_1 3 Perhaps the most significant improvement in nuclear power plant licensing is the advent of the combined construction/operation license application process. The COL application process essentially takes the previous two-step review process of the NRC down to one-step. This ensures that significant issues such as environmental impact, management qualifications and emergency planning are all addressed prior to construction, and alleviates the risk of having an operating license denied after significant capital investment has been made.16 These streamlined regulatory processes are intended to work together to expedite regulatory review and restore confidence in an industry long plagued with licensing delays. The idea being that one could apply for a combined license (construction and operation) that would provide for an early site permit and incorporate by reference a pre- certified reactor design should serve to insert a much needed level of certainty of outcome to the development process. Furthermore, “issues resolved during the design certification rulemaking, and the early site permit hearing processes are precluded from reconsideration at the combined license stage.”17 In other words, once a design is approved and a site is determined to be safe and adequate, those determinations are final, and can only be reviewed in limited circumstances.18 If implemented correctly, these processes should not only facilitate faster construction, but should also improve cost efficiencies over the short and long-term. 2. Financial Incentives Under the Energy Policy Act In addition to regulatory changes made by the NRC, Congress has provided a number of financial incentives to encourage investment in new nuclear power plants. The Energy Policy Act of 2005 contains three key provisions to encourage such investment. These provisions are federal loan guarantees, a production tax credit, and “standby support” to insulate applicants from licensing delays. Section 1703 of the Energy Policy Act provides federal loan guarantees for those energy projects that “avoid, reduce, or sequester air pollutants or [human-made] DM_US:21858167_1 4 emissions of greenhouse gases.” Accordingly, advanced nuclear power facilities are among the eligible projects.19 The loan guarantees span a period of up to thirty years or 90% of the projects useful life, whichever is shorter, and may cover up to 80% of the facilities estimated cost.20 The federal loan guarantees are intended to reassure investors and to assist utilities in acquiring capital.21 The second key provision of the Energy Policy Act designed to encourage investment in new nuclear power is a production tax credit. Section 1306 provides a 1.8 cent per kilowatt hour tax credit (available for the first eight-years of operation) for all eligible facilities up to a national capacity limitation of 6000 megawatts. To be considered an eligible facility, construction on the nuclear plant must begin prior to January 2014 and the plant must be in operation before January 2021.22 Furthermore, the COL application for the eligible nuclear plant must be filed with the NRC before the aggregate capacity for all other COL applications filed with the NRC for nuclear power plants equals or exceeds 6000 megawatts.23 The third financial incentive for the construction of new nuclear plants provided by the Energy Policy Act is the creation of what has been termed “standby support.” “Standby support” is essentially federal insurance for any increased costs due to litigation and/or regulatory delays for which the project developer is not at fault. For example, costs associated with delays caused by the NRC, such as untimely review of test results, inspections, analyses, and acceptance criteria, are covered costs under the standby support provision.24 In addition, and perhaps more significantly, the costs associated with defending a challenge to enjoin the construction or operation of a new nuclear facility are also covered.25 Standby support is available for all nuclear facilities using reactors that were approved by the NRC after December 31, 1993, and will cover a total of six reactors at each site. The first two reactors will have 100% coverage of all eligible delay costs, up to a maximum of $500 million for each reactor; the next four reactors will have 50% coverage, up to a total of $250 million for each reactor.26 This federal risk insurance protects companies against bureaucratic delays and judicial challenges – which will undoubtedly be present after this country’s thirty-year suspension from nuclear DM_US:21858167_1 5 power plant construction – and “is an important step in speeding the nuclear renaissance in this country.”27 3. Nuclear Liability Protection – Extending the Price-Anderson Act In addition to financial incentives, Congress extended the Price-Anderson Act (the “Act”) to maintain liability protections in the event of a nuclear accident. Section 602 of the Energy Policy Act extends the Act’s liability protection approach for twenty years to December 31, 2025. As an overview, the Act provides that liability for nuclear accidents will be channeled back to facility owners and will in turn be responded to by various layers of liability protections. Thus, all facility owners must maintain nuclear insurance policy[ies] to address an initial layer of nuclear liability of up to $500 million. These insurance requirements are then buttressed by the Act’s secondary financial protection “pool,” which, through assessments against facility owners, results in an additional pool of over $10 Billion being available to respond to nuclear accidents. Finally, residual liability beyond these funded layers would then be addressed and/or responded to by a US government indemnity. The Act’s liability protection approach provides nuclear manufacturers and utilities with necessary certainty and financial protection in an industry whose liability exposure is arguably global in scope. 4. Changed Attitudes Towards Nuclear Power Public perception has always been a significant impediment to the growth of nuclear power. Public opposition contributed to the delays and ultimate failure of the Shoreham Nuclear Generating Station on Long Island,28 and is most often spurred by fear of accidents and the storage of nuclear waste. In recent years, however, public attitudes toward nuclear power have improved. A 2006 Gallup poll showed that 55% of Americans support the “expanding use of nuclear energy” as an environmental proposal – up from 43% in 2003.29 The expansion of nuclear power is not only gaining support from average Americans, but also from some leaders of the environmental movement DM_US:21858167_1 6 who recognize nuclear power as a lesser evil to combat global warming.30 Proponents of expanded nuclear power point to this improved public perception as yet another condition favoring the growth of nuclear power in the United States. Although public perception has improved, discomfort remains regarding the construction of new nuclear facilities. A 2007 CBS News/New York Times Poll found that only 45% of Americans approve of building more nuclear power plants, in contrast to 47% who oppose it.31 When asked whether they would approve of a nuclear power plant being built in their community, the numbers were significantly lower, with only 36% approving and 59% disapproving.32 A 2006 Gallup poll produced similar results.33 In any event, public perception is markedly better than it was ten or fifteen years ago. The increase of greenhouse gases coupled with nuclear power’s impressive safety record over the past decade has helped to reduce skepticism and fear of nuclear power. Thus while it may be too early to classify public perception as a “favorable condition” for nuclear growth, it is no longer the obstacle that it once was. B. Unfavorable Conditions for Growth Not all of the new realities facing the nuclear power industry favor expansion. It has been more than ten years since a new nuclear facility came online in the United States, and until recently, more than thirty years since a new nuclear reactor was even ordered.34 This long furlough has created significant uncertainty about the ability and length of time required to construct a nuclear plant.35 An untrained and limited domestic workforce and supply chain combined with new technology, amplifies the uncertainty. Furthermore, many of the regulatory concerns and financial risks that have always existed in the nuclear industry remain. The prospects for expansion of nuclear power in the United States depend largely on the ability of a next generation of plants to successfully meet regulatory, operational, and financial targets. Therefore, understanding potential pitfalls is essential to nuclear power’s future success. DM_US:21858167_1 7 1. Limited Workforce and Vendors With virtually no nuclear power plant construction in the United States since the early 1990s, the dearth of experienced nuclear engineers and construction workers is a significant obstacle to cost certainty and successful plant construction.36 A 2001 Nuclear Energy Institute Study determined that, by 2017, almost all of the industry’s current workforce of skilled labor will have retired; leading one senior director of the Nuclear Energy Institute to predict a shortage of up to 20,000 skilled workers over the next ten years.37 In response to the concern over declining domestic nuclear expertise, the Energy Policy Act contains provisions to strengthen university training in nuclear science and engineering.38 In addition, the Nuclear Energy Institute, the American Gas Association, and Edison Electric Institute have recently created the Center for Energy Workforce Development, which is collaborating with secondary and post-secondary educational institutions to develop a steady stream of future labor.39 These measures, however, will not address the immediate labor shortage. The construction of nuclear power plants requires several specialized skills that are unique to the nuclear industry (such as high quality welding and nuclear island project management).40 Therefore, to obtain a workforce that is qualified to construct the next generation of plants, the United States will be required to compete in the global market where the most experienced personnel are overseas. Obtaining the necessary material and equipment to construct the next generation of nuclear plants in the United States presents an additional challenge. In the 1980s there were approximately 400 nuclear suppliers in the United States.41 Today, that number has diminished to fewer than 80.42 If the nuclear power industry is to expand in the United States, therefore, more than just labor will be required to come from overseas. The limited availability of labor, manufacturing and other resources creates significant risks to the timely completion of new plant construction, as delays, back- orders and bottlenecks are sure to ensue. DM_US:21858167_1 8 2. New Technologies are Untested The risks associated with an untrained workforce are exacerbated by the fact that of the more than eight nuclear reactor designs for which the NRC has either recently issued a design certificate or is currently reviewing for design certification,43 only two (the Advanced Boiling Water Reactor (ABWR) and the Evolutionary Power Reactor (EPR)) benefit from any construction experience, and only the ABWR has operational experience.44 This means that not only will much of the workforce be untrained and untested, but so will many of the project managers and engineers. This risk is tempered somewhat when one considers that most of the new reactor designs are evolutionary in nature (improvements of older, proven designs), rather than revolutionary. Nonetheless, the technology is new, and will require to some extent that contractors learn as-they-go. 3. Likely Challenges in the Permitting Process Even with the NRC’s new simplified and streamlined application process, obtaining an operating license will not be without delays. The new NRC application process anticipates standardized COL applications using pre-certified nuclear reactor designs. In many cases, however, applicants will need to modify these pre-certified designs to meet changed circumstances and/or technological advances.45 This will require additional review time by the NRC and may in some instances require recertification of the reactor design.46 Such recertification could introduce significant delays, as the process would need to be reopened to address challenges from the public and to ensure that all other regulatory requirements complied are with.47 Further complicating the design certification process is the number of design applications that will need to be approved by the NRC before they can be referenced in a COL application.48 Currently there are four reactor designs under active review by the NRC, with two more in the pre-application review process.49 As these numbers grow, and the NRC attempts to concurrently conduct design certification reviews with its COL DM_US:21858167_1 9 reviews – some of which may not include pre-certified designs – regulatory delays may further increase.50 4. Waste Storage – Still No Long Term Solution Every year approximately 2,000 metric tons of Spent Nuclear Fuel (SNF) is produced in the United States, yet there remains no permanent facility at which to store it.51 Instead, this waste – which exceeds 55,000 metric tons – is being stored in more than 100 temporary above-ground locations in thirty-nine different states.52 The permanent and safe storage of SNF is a significant obstacle to the growth of the nuclear power industry, and is an issue with no immediate solution. Since the 1950s, state and federal authorities have grappled with what to do about SNF. Congress again addressed the issue in 1982 with the enactment of the Nuclear Waste Policy Act (NWPA). The NWPA gave the federal government the responsibility to take and dispose of all nuclear waste at the expense of the various utilities.53 Under the Act, nuclear power utilities were required to enter into contracts with the DOE whereby, in exchange for a fee, the DOE would remove and dispose of their SNF by January 31, 1998.54 The fees – which included a one-time payment based on the amount of electricity the utility had produced up to the time of the contracting, plus ongoing payments based on the amount of electricity the utility would produce in the future – were deposited into what was termed the Nuclear Waste Fund, for the creation of a federal nuclear waste repository.55 Despite utilities pouring billions into the fund, to date, no federal repository has been established. The federal government’s failure to fulfill its promises under the NWPA, has forced utilities to spend millions in on-site storage facilities, and millions more in litigation over the federal government’s breach of contract.56 In 2002, after years of regulatory and legislative delays, Congress and President Bush designated Yucca Mountain, in the state of Nevada, as a safe and permanent repository for the nation’s nuclear waste.57 The DOE projected that Yucca Mountain could be prepared to receive SNF stores as early as 2010.58 But opposition from public DM_US:21858167_1 10 watch groups and most especially the state of Nevada has further delayed the process.59 The latest estimates are that storage of nuclear waste at Yucca Mountain will not be able to begin until at least 2020.60 Perhaps the best solution to nuclear waste is a change in the fuel cycle in order to recycle and reuse spent fuel. Recycling used fuel would significantly reduce the volume, thermal output, and radiotoxicity of the nuclear waste requiring disposal.61 The once- through fuel cycle currently employed in the United States only extracts about 1% of the energy content in the original uranium ore.62 In contrast, by using multiple-through cycles, less than 1% of the radioactive material produced ends up as high-level waste. France and Britain effectively reprocess spent nuclear fuel using the PUREX (plutonium- uranium extraction) process.63 With the PUREX process, used fuel is dissolved in acid to extract pure plutonium and uranium with the remaining material being waste. The United States, however, has historically been opposed to the reprocessing of spent nuclear fuel because the pure plutonium extracted from the spent fuel during recycling can be used to make nuclear weapons. For example, if the largest stores of surplus commercial plutonium extracted from spent fuel rods in both France and Britain were combined, there would be enough plutonium to make more than 20,000 nuclear bombs.64 Citing such statistics and noting the continuing fear of nuclear terrorism, some commentators say it is doubtful that reprocessing systems would survive legislative scrutiny in the United States.65 The DOE, however, is working toward a long-term solution for nuclear waste that includes multi-cycle fuel strategies. Consistent with the nation’s nonproliferation policy, the DOE has created the Global Nuclear Energy Partnership (GNEP) program to address spent nuclear fuel, eliminate proliferation risks, and expand the availability of nuclear energy.66 The principle aims of the GNEP are to develop technology to reprocess spent nuclear fuel in a way that restricts plutonium use to energy production, to implement modern safeguards directly into the planning and building of new nuclear systems and fuel cycle facilities to make monitoring more efficient, and to create a fuel management system that segregates the fuel suppliers/processors from the fuel buyers.67 The GNEP DM_US:21858167_1 11 includes countries from around the world, including those with nuclear capability and those without, as well as multilateral entities such as IAEA and Euratom.68 5. Financing Challenges (Need for Cost Credibility) Substantial capital requirements, coupled with the uncertainties associated with the above mentioned risks, means that obtaining financing for new nuclear power plants may be difficult. Investors are well aware of the tortured history of nuclear plant construction in the United States, which includes long construction delays and huge cost inflation and, in some cases, the loss of capital investment.69 In 1984, the New York Times reported that “three-fourths of the [United States’] reactors cost consumers at least double what was promised. In 28 percent of the cases, the final cost was more than four times the estimate.”70 The Watts Bar nuclear power plant in Tennessee, the most recently completed plant in the United States, took twenty-two years to complete and cost $7 billion.71 Investors, therefore, are justifiably concerned and will require some degree of cost certainty before committing significant capital to new nuclear plant projects. Finding a way to quantify the above risks to provide investors with cost certainty, while at the same time maintaining enough flexibility in the contract to account for delays and cost overruns beyond the contractor’s control, will be the primary challenge. Owners and contractors will need to develop project delivery methods and related contract terms that will maximize cost and schedule certainty. III. CONTROLLING COST AND SCHEDULE RISKS In 2005, the World Nuclear Association reported “of all factors affecting prospects for substantial growth of nuclear power in the 21st Century, cost is the most fundamental.”72 While nuclear plant operating costs are generally low relative to those of other generating technologies, construction cost remains the most important cost.73 DM_US:21858167_1 12 The cost estimates for new nuclear power plant construction are very uncertain and have increased significantly in recent years. For example, as recently as the years 2000-2002, the industry and Department of Energy were talking about overnight costs of $1,200/kW to $1,500/ kW for new nuclear units or $2-4 billion per nuclear plant.74 As the interest in new nuclear construction increased, various industry experts continue to update estimated costs for new nuclear power plants. For example, a June 2007 report by the Keystone Group estimated an overnight cost of $2,950/kW for a new nuclear plant.75 With the addition of interest, this estimate translates to between $3,600/kW and $4,000/kW. Similarly, a study by Moody’s Investor Services in October 2007 indicated a range of between $5,000/kW and $6,000/kW for the total cost of new nuclear units (including escalation and financing costs).76 Even Moody’s acknowledged that its cost estimate was “only marginally better than a guess.”77 In the same time period, Florida Power & Light (“FPL”) announced a range of overnight costs for its two proposed nuclear power plants (total of 2,200/MW) as being between $3,108/kW and $4,540/kW. With the inclusion of escalation and financing costs, FPL estimated the total project cost to be between $5,780 to $8,081/kW. As a result, FPL was projecting a total cost of between $12.1 billion and $17.8 billion for just two 1100 MW plants.78 Similarly, Progress Energy estimated a cost of about $10.5 billion for two new nuclear plants with financing costs increasing the total up to $13 to $14 billion.79 Georgia Power has also estimated the cost of its share of the two proposed Vogtle nuclear plants to be $6.5 billion which is about the same as Progress Energy’s estimate for the cost of its two new nuclear plants.80 In fact, some companies, including DM_US:21858167_1 13 Duke Energy, have refused to make public the estimated costs of their proposed nuclear power plants.81 A. Are Historical Nuclear Plant Construction Costs Predictive of New Plant Costs? The nuclear industry has a very poor track record in reducing plant construction costs and avoiding cost overruns. Based on data in a study by the Congressional Budget Office, the actual costs of 75 of the nuclear power plants in the United States exceeded the original estimated costs of these units by over 200%. The following table shows the overruns experienced by these 75 nuclear plants.82 Construction Starts Average Overnight Costs Utilities’ Projections Actual (Thousands Number of (Thousands of of dollars per MW) Overrun Year Initiated Plants dollars per MW) (Percent) 1966 to 1967 11 612 1,279 109 1968 to 1969 26 741 2,180 194 1970 to 1971 12 829 2,889 248 1972 to 1973 7 1,220 3,882 218 1974 to 1975 14 1,263 4,817 281 1976 to 1977 5 1,630 4,377 169 Overall Average 13 938 2,959 207 Stated differently, the average actual cost of the plants was about triple their estimated costs. These systematic cost overruns had a number of serious consequences. First, only half of the nuclear power plants were actually built and frequently ratepayers had to bear millions of dollars of sunk costs for abandoned projects. Second, the cost of power for DM_US:21858167_1 14 completed nuclear plants became much more expensive for ratepayers than had been originally claimed. Finally, out of control construction costs caused severe financial problems for many of the utilities that were building them. For example, Public Services Company of New Hampshire went bankrupt as a result of financing difficulties associated with the Seabrook nuclear plant. Similarly, the Washington Public Power System defaulted on $2.25 billion in municipal bonds in 1983 after it failed to complete two nuclear plants. Construction cost data related to ongoing nuclear plants similarly portends cost overruns and schedule delays. For example, the Olkiluoto 3 Plant in Finland is currently several years behind schedule and the current estimated completion cost has risen 50% (over $6 billion).83 Similarly, construction of the China Taiwan Plant is $5.4 billion over budget and “more than five years later than planned.”84 Construction of a new nuclear plant in France began in early 2008 but that project was temporarily halted in May 2008 due to quality concerns.85 The industry’s poor track record in estimating nuclear construction costs and the significant uncertainties associated with building new nuclear plants strongly suggest that actual new plant construction cost will be much higher than currently estimated. For example, even if there were only a doubling of the construction cost (i.e., 100% overrun), a new nuclear plant would cost $15-20 billion or more for only one unit. Of course, a cost overrun of only 100% would be significantly lower than historical average cost overrun. DM_US:21858167_1 15 B. New Nuclear Construction Cost Factors Although the cost of a new nuclear plant is routinely estimated by “overnight costs,” plant engineering and construction sometimes stretches over a decade, when a number of unpredictable events that raise construction costs can occur. For example, prices for required commodities – copper, steel and concrete – continue to significantly fluctuate. In these circumstances, industry experts have warned about uncertainties of new nuclear power plant cost estimates. For example, Moody’s Investor Services concluded that: “all-in-fact-based estimates require some basis for an overnight capital cost estimate, and the shortcomings of simply asserting that capital costs could be “significantly higher than $3,400 per kilowatt” should be supported by some analysis. That said, Moody’s cannot confirm definitive estimates for new nuclear costs at this time. Moody’s can assert with confidence that there is considerable uncertainty with respect to the capital cost of new nuclear and coal fired generating technologies….”86 Moody’s ultimately concluded “as a result, we believe the ultimate costs associated with building new nuclear generation do not exist today – and that the current cost estimates represent best estimates, which are subject to change.”87 There are several reasons for the dramatic increase in the estimated costs of new nuclear power plants. They relate, in large part, to the fact that a new nuclear power plant has not been constructed in the U.S. for more than 30 years, and that there is no current DM_US:21858167_1 16 detailed engineering for intended U.S. nuclear designs. Without such specific information, there is no reliable data that the original equipment manufacturer (OEM) and engineering, procurement and construction contractor (EPC) can use to completely define cost and schedule risks. The dramatic increases in estimated costs for today’s new generation of nuclear plants result primarily from intense worldwide competition for the resources, commodities and manufacturing capacity needed to design and construct the new facilities. For example, there are only two companies that have the heavy, forging capacity to create the largest equipment/components in the new nuclear plants – Japan Steel Works and Creusot Forge in France.88 Pressure vessels – at the core of a nuclear reactor -- can be made in several pieces. However, most utilities now want vessels forged in a single piece. Welds can become brittle and leak radiation (older reactors slated for U.S. license extensions have their welds vigorously checked before approval). Weld-free construction can decrease the time a reactor is shut down for safety inspections, saving the operating company money. The United States Department of Energy estimates that only enough manufacturing capacity exists to build eight U.S. nuclear projects between 2010 and 2017.89 For example, Japan Steel Works (“JSW”) can currently forge only 4 to 5 reactor vessels per year.90 Although JSW expects to increase its capability to 8 or 9 forgings by 2010, it already has a full order book through 2016. 91 The demand for heavy forgings DM_US:21858167_1 17 will also be significant because the nuclear industry will be waiting in line for the material alongside the oil, petrochemical and steel industries. As discussed previously, another factor impacting nuclear construction costs is the dearth of nuclear procurement capacity in the United States. The Chairman of the Nuclear Regulatory Commission (“NRC”) has remarked publicly (in early 2007) that it appears now there will be a great reliance on overseas companies to manufacture nuclear plant systems and components.92 This reliance on foreign firms will undoubtedly increase manufacturing lead times as well as create delays required to inspect foreign- made components. The heavy reliance on overseas suppliers and manufacturers will also contribute to increased plant costs resulting from the continuing weakness of the United States dollar relative to foreign currencies. Another important challenge facing new nuclear plant construction is material price escalation. As of June, 2008, steel was twice as expensive as it was 4 years ago.93 There have also been substantial cost increases in the four key metals (copper, nickel, zinc and aluminum) used in the manufacture of major nuclear plant forgings. For example, as of June 2008, pricing for copper increased five-fold over the past four years.94 Labor costs have been similarly increasing. For example, since 2000 there has been a 27% nominal change in average hourly earnings for both construction labor DM_US:21858167_1 18 generally and for non-construction utility labor.95 These increased labor costs have outpaced inflation by over 4% for the same period.96 Moody’s has summarized the increased risks associated with the international competition for power plant resources as follows: Dramatic increases in commodity prices over the recent past, exacerbated by a skilled labor shortage, have lead to significant increases in the overall cost estimates for major construction projects around the world. In the case of new nuclear, the very detailed specifications for forgings and other critical components for the construction process can add a new element of complexity and uncertainty. As noted previously, labor is in short supply and commodity costs have been extremely volatile. More importantly, the commodities and worldwide supply network associated with new nuclear projects are also being called upon to build other generation facilities, including coal as well as nuclear, nationally and internationally. Nuclear operators are also competing with major oil, petrochemical and steel companies for access to these resources and thus represent a challenge to all major construction projects.97 C. Challenges from the “First Wave” of Nuclear Plant Construction The “first wave” of domestic nuclear construction spanned 25 years. During that time, the fledgling commercial nuclear industry faced a variety of technical, commercial and practical challenges. These challenges included: No proven commercial nuclear designs (beyond naval reactors); Two-phased licensing process – the “construction permit/operating license” approach resulted in significant engineering changes as intervenors in the licensing process raised new issues. This process DM_US:21858167_1 19 contributed to an inadequately defined design scope that precluded establishing a design benchmark necessary to manage plant construction. “Project Specific” designs – the design of each nuclear plant was a combination of preference changes initiated by the plant owner, changes resulting from the licensing process and input/preferences from equipment manufacturers and contractors who had a commercial design interest. It was not until late in the last nuclear construction cycle that the concept of “Reference Plant” gained any industry usage. Unrealistic schedules – the lack of a “Reference Plant” design and standardization of design prevented development of reliable baseline schedules. The “bid to win” mentality also prevalent in the last cycle of nuclear construction promoted overly aggressive schedules that lacked meaningful third-party review. The concept of an “integrated project schedule” that coordinated engineering, procurement and construction activities was not common. Instead, nuclear plants were constructed by “area” and “elevation” with limited interfaces with engineering and procurement. This scheduling approach allowed construction activities to dominate in circumstances where engineering and procurement were often the actual schedule “drivers.” Limited owner involvement – contract risk allocation primarily involved reliance on multiple prime contractors to timely complete the nuclear plant. The absence of sufficiently qualified and experienced owner teams resulted in a “let the contractor do its job” approach. The lack of benchmarks for performance, coupled with scarce owner resources, contributed to limited accountability for contractor mismanagement. Poor contract administration – the utility’s usual overall strategy to allocate substantial risk to the multiple prime contractors fostered a lack of specificity in commercial contract terms. Although the utility oversight of technical issues (e.g., quality control) was high, the utility staff’s ability to administer the construction contract’s commercial terms was often limited to payment-related actions. This poor contract administration coupled with a lack of appropriate contract language resulted in poor execution of key contract actions, including schedule and cost control, the change order process and identification and resolution of performance problems. No infrastructure to support manufacturing commercial components – the development of domestic capacity for certified nuclear equipment manufacturing was a slow process. D. New Nuclear Project Delivery Systems The past must not be prologue for new nuclear construction. The “first wave” of domestic nuclear power plant construction was plagued by significant regulatory hurdles, DM_US:21858167_1 20 schedule delays and cost overruns. The central issue unifying all construction overruns faced in the “first wave” is delay. The risk of delay is particularly problematic in the current market because neither the owners nor the lenders are in a position to hedge the risk of delay to the extent necessary to attract investment. The challenge for the construction industry is to develop project delivery methods and related contract terms that will maximize cost and schedule certainty. Such methods will be necessary to meet project finance requirements and to obtain necessary state regulatory approvals. As the new nuclear renaissance begins to gain momentum, there are several project delivery methods and other strategies that will help promote cost and schedule certainty. 1. Standardization Of Design As discussed above, the “first wave” of nuclear construction was plagued by designs highly customized by site. The nuclear steam supply system (“NSSS”) designs were either site specific or grouped into “classes” as designs evolved. The designs for the Balance of Plant (“BOP”) were also highly customized by project. The concept of “Turnkey” or “Reference Plant” designs only became prevalent near the end of the “first wave” of nuclear construction. In contrast, today’s nuclear-build strategy includes the commitment by many utilities around the world to a standard design for the entire plant. The United States domestic market is also leaning toward turnkey projects.98 The nuclear industry is considering building four new reactor designs in the United States: Advanced Boiler Water Reactor (ABWR); Evolutionary Pressurized Water Reactor (EPR); Westinghouse AP1000; DM_US:21858167_1 21 General Electric Extra Simplified Boiling Water Reactor (ESBWR). Such standardized designs offer a variety of advantages, including: reducing overnight capital costs of the plant; allowing shorter construction schedules that reduce indirect costs and interest expense during the construction; assuring reliable components and designs to maintain high plant availability; and reducing operating and maintenance costs to simplify design and safety features. The NRC has pre-approved the design for the ABWR and AP1000. Applications for pre-approval of the other designs are currently being reviewed by the NRC.99 The design standardization includes not only engineering but also construction methods, testing and operation. For example, the AP1000 design entails construction of 350 modules.100 The construction of the modules will occur offsite; an approach which minimizes cost and supports a 36-month construction period.101 The benefits of modular construction include not only a standard design but also well-defined material requirements, multiple transportation options and easier application for site-specific requirements. Although the design standardization approach appears sound, there is no construction and operating experience in the United States or anywhere in the world with the AP1000 and ABWR designs. 2. Shared Risk Project Delivery Systems The “first wave” of nuclear plant construction often utilized either a “fast track” or multiple prime contractor approach. Such project delivery systems allowed construction to begin before design was complete. This approach also appeared to be a better mechanism to control contractor profit and overhead markups. DM_US:21858167_1 22 The disadvantages of this approach are apparent given the track record of substantial cost overruns and delay in the “first wave” of nuclear construction. They range from a requirement for substantial additional utility staff to manage the project to less cost and schedule certainty. Without a central contractor with responsibility for overall project management, there were also substantial claims and “finger-pointing.” a) Fixed Price Features Contract negotiations for new nuclear projects are in an early phase. For the technical, regulatory and financing reasons identified above, the current preference is to use an EPC contract with a multi-faceted payment structure. Of course, the project owners favor firm/fixed pricing for substantial portions of the project. As a practical matter, however, a reasonable approach to risk allocation is to apply firm/fixed pricing only to well-defined portions of the work such as major equipment purchases. This pricing method usually has no escalation. Alternatively, escalation can be tied to industry indices or calculated utilizing a fixed percentage method. This approach offers the additional advantages of eliminating or better quantifying any risks or contingencies as well as allowing better cash flow management. b) Target Pricing Alternatively, owners are contracting directly with major equipment vendors. This approach allows the owner to meet licensing requirements, “lock-in” price and delivery for long lead time components and avoid the EPC contractor’s mark-up on equipment cost. However, the owner also must have the necessary resources and experience to manage the interfaces between the major equipment vendors and EPC contractor. A second element of EPC contract pricing is “Target Pricing.” This method generally applies to parts of the work that are less defined but generally understood. For DM_US:21858167_1 23 example, installation of construction commodities (e.g., concrete, piping and electrical work) could be handled on a target pricing basis. Contractors are generally knowledgeable about the labor production (i.e., estimated manhours) necessary to install commodities and the related risks are better known. The challenge for Target Pricing is establishment of the initial Target Price itself. The reasonableness of this Target Price depends, in large part, on the specificity and completeness of the work scope and accuracy of the work quantities that comprise it. This risk can be minimized with the use of standardized design and also “lessons learned” from construction of plants utilizing that design. A related issue is the mechanism for adjusting the Target Price. This commercial term is often the subject of intense negotiation. As a general matter, the EPC contractor should not be entitled to an increase in the Target Price for causes within its control, e.g., labor production, material ordering and delivery. As a practical matter, however, the current lack of labor skilled in nuclear construction may dictate that certain causes of cost overruns (e.g., worker availability) be a “shared risk.” Under such circumstances, the Target Price may include some “contingency” amount. Similarly, costs resulting from procurement bottlenecks resulting from limited nuclear vendors and contractors may result in an increased Target Price. Circumstances surrounding challenges within the State and Federal permitting/licensing process must also be considered in adjusting the Target Price. A common strategy in connection with the Target Price method is to include incentive factors for the contractor to work within the original Target Price. Incentive factors can include schedule compliance, as well as other quantifiable indicators of contractor performance. c) Time and Material Pricing It is inevitable that the cost structure for new domestic nuclear projects will include “Time and Materials” pricing. This method is appropriate and necessary for DM_US:21858167_1 24 work that is not undefined and otherwise outside the contractor’s control. This work could include regulatory support and testing/commissioning of the units. A central issue to “Time and Materials” pricing is the establishment and visibility of the time and material rates. Very often such rates are established without a thorough understanding of the contractor’s actual costs. One approach to increasing transparency of “time and material” rates is the use of fixed multipliers for contractor overhead and other indirect costs. Alternatively, the parties can limit the staffing and other overhead costs that will be subject to “Time and Material” rates. d) Scope Definition Fundamental to the proper application of all pricing methods is a well-defined scope of work. This goal can be achieved, in part, through standard designs. Prudent owners may also use performance-based specifications, to the extent possible, to shift risk as well as incentivize contractors to minimize costs. This goal can best be achieved if the owner’s staff is sufficiently robust or supplemented by experienced construction professionals to properly and fully vet the work scope. Such staff and consultants can also advise the owner on direct procurement and “supply only” procurements that can better define the EPC contractor’s scope of work and otherwise control construction costs. c) Changes Provisions Another important “lesson learned” from the “first wave” of nuclear construction is the need for a well-defined change order clause. This remedy must operate within a complete and accurate design baseline. The owner must also be able to order extra work either mutually or unilaterally. This approach will avoid a circumstance where the contractor and owner dispute a specific work item, and this dispute delays or otherwise impacts progress. Finally, an accurate work scope baseline and well-defined change order clause can eliminate or at least minimize “cumulative impact” claims. DM_US:21858167_1 25 3. Schedule Considerations The history of the “first wave” of nuclear plant construction revealed substantial delays in project completion. Data from the start of nuclear plant construction in 1966- 1977 revealed: average construction period – 9.2 years; longest construction period – 23 years 6 months; shortest construction period – 3 years 4 months102 EPC contracts for new nuclear plants must include rigorous requirements for developing and updating the project schedule. The minimal requirements should include: an integrated project schedule, including engineering, procurement and construction activities; regulatory activities; resource-loaded cost information necessary for cost monitoring; and a jointly agreed upon schedule baseline for purposes of schedule control. A “lesson learned” from the “first wave” of nuclear power plant construction is the importance of an integrated schedule. The new plant project schedule should include not only engineering, procurement and construction activities but also their interrelationships and restraints. Engineering activities and cost should be expressed at a level of detail that allows for accurate monitoring. If the owner is separately procuring major equipment, the schedule specification for the EPC contract should also include necessary coordination and integration responsibilities. The EPC contract must also address remedies for schedule delay. For example, the contract’s “Force Majeure” provision should state the specific causes of schedule delay, e.g., regulatory delay, that constitute “Force Majeure.” Reference to “causes DM_US:21858167_1 26 beyond the contractor’s control” and other general “Force Majeure” language should be minimized. As a practical matter, however, it may be necessary to include more general schedule language to cover causes of delay such as worker unavailability. Finally, the EPC contract should contain remedies for the owner, including acceleration and schedule recovery rights, in the event of unexcused EPC contractor delay. In drafting the EPC contract for new nuclear construction, careful attention should be paid to the issue of delay liquidated damages. A “lesson learned” from the “first wave” of nuclear plant construction is the issue of responsibility for delay liquidated damages can create an adversarial relationship. An equally important consideration is that the owner’s delay-costs (e.g., staff cost, cost of capital and replacement power) can be substantially greater than any potential delay liquidated damages. The risk of delay liquidated damages for a new nuclear plant may also cause the EPC contractor to include a substantial contingency amount in the fixed price portion of its contract price. Under these circumstances, the use of schedule incentives may be appropriate and conducive to incentivize a contractor’s compliance with schedule requirements. Such incentives could include a “grace period” for minimal delay and a sliding scale for bonus/penalty calculations. 4. Additional Important Contract Clauses In light of the uncertainty surrounding the new regulatory process and the other factors potentially impacting the cost and schedule of new nuclear construction plants, both the EPC contractor and owner should consider additional contract clauses to control cost and schedule risk. These clauses include: a. Termination for the Owner’s Convenience – the owner should be able to terminate the EPC contract for its own convenience. This right should cover circumstances such as the owner being unable to obtain the COL or any other government approval that may be required in connection with the plant or any change in law or other government approval that results in the owner determining not to proceed DM_US:21858167_1 27 with the construction of the plant. Typically, the EPC contractor’s remedy for a convenience termination is payment for all costs incurred, including applicable general and administrative expenses and pro rata profit plus its costs to cease operations, including cancellation charges and other demobilization expenses. This clause should also give the owner the right to accept delivery of completed or incomplete equipment. b. Termination by the Contractor – the contractor should also have the right to terminate the agreement for a variety of changed circumstances, including: an order of the governmental authority that requires the project to be permanently stopped; the owner’s failure to obtain the COL or issue the Notice to Proceed; owner insolvency (unless the owner has provided security for payments); and an inability to agree upon the Contract Price or Contract Schedule. c. Payment – the EPC contract should separately set forth provisions governing Fixed Price, Target Price and Time and Materials payments. Typically, Fixed Price payments are based upon agreed milestones as set forth in the project schedule. Time and Materials payments should be periodically made based upon invoices that include contractually specified cost and other data. It is important that the owner’s staff include sufficient personnel knowledgeable in construction cost accounting to timely process these invoices. Target Price payments should be made on a periodic basis and include a reconciliation of amounts paid to date and any requests for Target Price adjustment. The timely adjustment of the Target Price is essential to avoid over or under payment with resulting potential impact on work progress. Like with other major infrastructure projects, the owner’s ability to manage cash flow depends upon an agreed schedule for all payments. Therefore, the EPC contract should require the contractor to provide a detailed cash flow estimate, in quarterly periods, of all contract payments and updates to these estimates at quarterly or other DM_US:21858167_1 28 intervals as directed by the owner. The contract should also include a mechanism for matching required payment dates with any updated schedule and cash flow estimates. d. Limitations of Liability – EPC contracts currently being negotiated for new nuclear plants address limitations of liability in two ways. First, there is generally a bar to consequential damages. Second, both parties’ maximum total liability should not exceed an agreed percentage of the Contract Price (although such liability amount usually does not apply to such items as insurance proceeds, claims that arise from fraud or willful misconduct and a party’s indemnity obligations.) e. Dispute Resolution – the EPC contract should include a provision requiring the expeditious resolution of any claim. This provision should set forth specific requirements for a “claim” and require negotiations as a condition precedent to triggering formal dispute resolution. Such clauses often include some kind of mediation (often using senior management of the parties) prior to litigation. IV. CONCLUSION The “critical path” for the construction of new nuclear plants is clearly obtaining federal loan guarantees. As David W. Crane, the CEO of NRG explained, “Without the loan guarantee, I think it will be very difficult for the first wave of plants to move forward.”103 Congress, however, has so far set a limit of $18.5 billion of loan guarantees for new nuclear plants. Using a current estimate of $7-9 billion per unit, this total loan guarantee amount will not extend very far. In fact, using currently estimated construction costs, this result would be unchanged even if Congress were to triple the level of loan guarantees to more than $50 billion. A parallel “critical path” to new nuclear construction is the untested regulatory process. The NRC has committed to shortening the time between the submission of a DM_US:21858167_1 29 utility application and the receipt of a license to construct and operate a new plant. However, various intervenors may view this process as their only opportunity to influence nuclear permitting. This process will also be complicated if there are design certification amendments. A related problem is the ability of the NRC, as a practical matter, to handle multiple reactor certifications at the same time it is evaluating many site permits. The industry has learned several “lessons” from the “first wave” of nuclear construction. However, the implementation of standard designs and new project delivery systems must account for the increased cost and schedule risks resulting from the international competition for power plant resources. 1 NEI, U.S. Nuclear Power Plants, General Statistical Information, available at http://www.nei.org/resourcesandstats/nuclear_statistics/usnuclearpowerplants/ (last visited 12/23/2008). 2 Business Case for Early Orders of New Nuclear Reactors, Executive Overview (Oct. 1, 2002), available at http://www.ne.doe.gov/home/bc/ExecOverviewNERAC100102.pdf. 3 NEI, U.S. Capacity Factors by Fuel Type (2007), available at http://www.nei.org/filefolder/US_Capacity_Factors_by_Fuel_Type_2.ppt (last visited 12/23/2008). 4 Energy Information Administration, Official Energy Statistics from the U.S. Government, available at http://www.eia.doe.gov/cneaf/nuclear/page/nuc_reactors/reactsum.html (last visited 12/23/2008). 5 Business Case for Early Orders of New Nuclear Reactors, Executive Overview (Oct. 1, 2002), available at http://www.ne.doe.gov/home/bc/ExecOverviewNERAC100102.pdf. 6 U.S. Department of Energy, Nuclear Power 2010, Office of Nuclear Energy (January 2006), available at http://www.gnep.energy.gov/pdfs/NP2010.pdf. 7 See, 10 C.F.R. Part 52. 8 Energy Policy Act of 2005, Pub. L. 109-58, 119 Stat. 594 (2005). 9 See, 10 C.F.R. Part 50. 10 Shoreham Nuclear Power Plant on New York’s Long Island was completed and ready for operation in 1984, nearly twenty years after its construction was first announced and over ten years after its originally scheduled completion date. Once finished, at a price tag of $6 billion, Shoreham’s operating license could not be approved until an emergency evacuation plan was submitted and approved by Governor Cuomo. The plan was never approved, and the plant was decommissioned in 1994. See, e.g., Dismantling of the Shoreham Nuclear Plant is Completed, N.Y. Times, Oct. 13, 1994, at B6; Dan Fagin, Lights Out at Shoreham, http://www.newsday.com/community/guide/lihistory/ny-history-hs9shore,0,563942.story; Energy Information Administration, Nuclear Power: 12 Percent of America’s Generating Capacity, 20 DM_US:21858167_1 30 Percent of the Electricity, (March 5, 2003), available at http://www.eia.doe.gov/cneaf/nuclear/page/analysis/anasum .html; In the Matter of Citizens for an Orderly Energy Policy, Inc. v. Cuomo, 582 N.E.2d 568, 568 (N.Y. 1991) (providing a brief history of the Shoreham Plant). For an in-depth review of the Shoreham Plant, see David P. McCaffrey, The Politics of Nuclear Power: A History of the Shoreham Nuclear Power Plant (1991). 11 See, 10 C.F.R. Part 52. 12 Nuclear Regulatory Commission, Backgrounder: Nuclear Power Plant Licensing Process (July 2005). 13 Thomas F. Armistead, New Realities Bring About a Construction Climate Change, ENR, September 18, 2006, at 30, 31. 14 See, 10 C.F.R. Part 52.12-39 (2008). 15 10 C.F.R. Part 52.26 and 52.33. 16 Thomas F. Armistead, New Realities Bring About a Construction Climate Change, ENR, September 18, 2006, at 30, 31. 17 Nuclear Regulatory Commission, Backgrounder: Nuclear Power Plant Licensing Process (July 2005). 18 See 10 C.F.R. Part 52.39, 52.63, and 52.98. 19 Energy Policy Act, § 1702. 20 Id. 21 See Mike Schoen, Does nuclear power now make financial sense? MSNBC.com (Jan. 26, 2007), available at http://www.msnbc.com/id/16286304/. 22 I.R.B. 2006-18 (May 1, 2006), available at http://www.irs.gov/pub/irs-irbs/irb06-18.pdf. 23 Id. 24 Energy Policy Act, § 638(c)(1)(A). 25 Energy Policy Act, § 638(c)(1)(B). 26 Energy Policy Act, § 638(d). 27 Samuel W. Bodman, Energy Secretary, Secretary Bodman Announces Federal Risk Insurance for Nuclear Power Plants & Touts Robust Economy (Aug. 4, 2006), available at http://www.energy.gov/print/3886.htm. 28 See supra, note 10. 29 March 2006 Gallup Poll, available at http://www.pollingreport.com/enviro.htm. 30 See, e.g., Thomas F. Armistead, New Realities Bring About a Construction Climate Change, ENR, September 18, 2006, at 30, 32, available at http://enr.construction.com/features/powerIndus/archives/ 060918a-1.asp. 31 April 2007 CBS News/New York Times Poll, available at http://www.pollingreport.com/energy.htm. DM_US:21858167_1 31 32 Id. 33 March 2006 Gallup Poll, available at http://www.pollingreport.com/energy2.htm 34 Mark Holt & Carl E. Behrens, Congressional Research Service, Nuclear Energy in the United States (Updated July 23, 2003), available at http://www.policyalmanac.org/environment/archive/nuclear_ energy.shtml. 35 See Nuclear Energy Advisory Committee, Nuclear Energy: Policies and Technology for the 21 st Century (November 2008), available athttp://www.ne.doe.gov/pdfFiles/rpt_NEPoliciesTechnologyfor21st Century_Nov2008.pdf. 36 Construction Costs To Soar For New U.S. Nuclear Power Plants, Standard & Poor’s, Ratings Direct, New York, October 15, 2008. 37 Thomas F. Armistead, New Realities Bring About A Construction Climate Change, ENR, September 18, 2006, at 30, 36. 38 Energy Policy Act, § 954. 39 Thomas F. Armistead, New Realities Bring About A Construction Climate Change, ENR, September 18, 2006, at 30, 36. 40 Construction Costs To Soar For New U.S. Nuclear Power Plants, Standard & Poor’s, Ratings Direct, New York, October 15, 2008. 41 Mycle Schneider, The World Nuclear Industry Status Report 2007, November 2007, at 14, available at http://www.energiasostenible.org/upload/the_world_nuclear_industry_status_report_en%202007.pdf 42 Id. 43 Nuclear Regulatory Commission, Backgrounder on New Nuclear Plant Designs (June 2008). 44 Construction Costs To Soar For New U.S. Nuclear Power Plants, Standard & Poor’s, Ratings Direct, New York, October 15, 2008. 45 Standard & Poor’s, Ratings Direct, How the NRC’s New Licensing Process Will (and Won’t) Smooth the Way for Nuclear Plant Construction, February 7, 2008, available at http://www2.standardandpoors.com /spf/pdf/events/art3util2008.pdf. 46 Id. 47 See 10 C.F.R. Part 52 (2008). 48 Standard & Poor’s, Ratings Direct, How the NRC’s New Licensing Process Will (and Won’t) Smooth the Way for Nuclear Plant Construction, February 7, 2008, available at http://www2.standardandpoors.com /spf/pdf/events/art3util2008.pdf. 49 Nuclear Regulatory Commission, Backgrounder on Nuclear Plant Designs (June 2008), available at http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/new-nuc-plant-des-bg.html. 50 NRC’s Workforce and Processes for New Reactor Licensing Are Generally in Place, but Uncertainties Remain as Industry Begins to Submit Applications, U.S. Government Accountability Office Report to Congressional Committees, September 2007, pp. 21-27. In addition to possible hang-ups in the NRC permitting process, utilities must comply with state environmental regulations and may face opposition DM_US:21858167_1 32 from public advocacy groups, state legislators and other public officials. The Code of Federal Regulations requires a duly noticed public hearing for all Early Site Permits and COL Applications, 10 C.F.R. Part 52.21 and 52.85, providing these groups with ample opportunity to intervene and oppose the construction of any new nuclear plant. Nuclear Regulatory Commission, Backgrounder on Nuclear Power Plant Licensing Process (July 2005), available at http://www.nrc.gov/reading-rm/doc-collections/fact- sheets/licensing-process-bg.html. 51 Department of Energy, DOE to Send Proposed Yucca Mountain Legislation to Congress (March 6, 2007), available at http://www.energy.gov/news/4385.htm. 52 Id. 53 Nuclear Waste Policy Act of 1982, 42 U.S.C. §§ 10101 et seq. 54 42 U.S.C. § 10222(a)(5)(B) (2000). 55 Id. 56 By 1995, the DOE announced that it had become apparent that neither a repository nor an interim storage facility would be available by the statutory deadline of January 31, 1998, and that the Department would not begin disposing of SNF until 2010 at the earliest. Once it became clear that the DOE would not meet its obligation, the utility companies filed suit for breach of the standard contract. To date, 66 such claims have been filed. 57 Office of the Press Secretary, White House (July 23, 2002), President Signs Yucca Mountain Bill, available at http://www.whitehouse.gov/news/releases/ 2002/07/20020723-2.html. 58 See, e.g., DOE, Yucca Mountain Project Office Identifies Cliente as Preferred Corridor for Construction of Rail Line to Serve Repository, December 23, 2003, available at http://www.ocrwm.doe.gov/info_library /newsroom/documents/corridor_pr.pdf. 59 See, e.g., Public Citizen, Yucca Mountain, available at http://www.citizen.org/cmep/energy_enviro_ nuclear/nuclear_power_plants/nukewaste/yucca/; Chris Rizo, Nevada AG Makes Case Against Yucca Mountain Project, LEGALNEWSLINE.COM, December 22, 2008, http://www.legalnewsline.com/ new/218147-nevada-ag-makes-case-against-yucca-mountain-project. 60 Quarterly Progress Report to Congress, U.S. Department of Energy Office of Civilian Radioactive Waste Management, 2nd and 3rd Quarters FY 2008, available at http://www.ocrwm.doe.gov/info_library/ program_docs/quarterly_reports/Quarterly_Report_2nd_and_3rd_FY_2008.pdf. 61 Office of Nuclear Energy, The U.S. Generation IV Fast Reactor Strategy, Department of Energy, 1, 5 (December 2006). 62 Office of Nuclear Energy, The U.S. Generation IV Fast Reactor Strategy, Department of Energy, 1, 5 (December 2006). 63 Department of Energy, GNEP Fact Sheet: Why Do We Need Advanced Fuel Separation Technology (February 6, 2006). 64 Arjun Makhijani, Atomic Myths, Radioactive Realities: Why Nuclear Power Is a Poor Way to Meet Energy Needs, 24 J. Land Resources & Envtl. L 61, 69 (2004). 65 Scott R. Helton, The Legal Problems of Spent Nuclear Fuel Disposal, 23 Energy L.J. 179, 200 (2002). DM_US:21858167_1 33 66 GNEP is built largely on recommendations from the National Energy Policy, which include: (1) the United States should reexamine its policies on fuel recycling methods, and (2) the United States should collaborate with international partners to develop “cleaner, more efficient, less waste-intensive, and more proliferation resistant” reprocessing and fuel treatment technologies. National Energy Policy, at 5-17. 67 For the fuel management program, the DOE proposes a leasing approach, whereby fuel suppliers (developed nations) would provide fresh fuel to fuel users (developing countries) for their conventional nuclear power plants. The supplier takes responsibility for the final disposition of the spent fuel in a manner consistent with nonproliferation policies. The program expects that participation will only occur if the fuel user nations have assurances that their demands will be met. At the core of this system is an international fuel bank to make up these assurances. The United States has so far committed 17.4 tons of highly enriched uranium for this purpose. GNEP Fact Sheet, A Reliable Fuel Services Program, www.gnep.energy.gov. 68 Nuclear Energy Advisory Committee, Nuclear Energy: Policies and Technology for the 21 st Century (November 2008) p. 16, available at http://www.ne.doe.gov/pdfFiles/rpt_NEPoliciesTechnologyfor21st Century_Nov2008.pdf. 69 See, e.g., Nuclear Power’s Missing Fuel: Why Wall Street is Skeptical of Backing a New Round of Proposed Nuke Plants, Business Week (July 10, 2006) (“Between 1975 and 1989, the average period required to complete a plant soared from 5 years to 12. The bill for a group of 75 first-generation plants totaled $224.1 billion (in current dollars), 219% more than estimated . . . .”). 70 Nuclear Plant Cost Overruns, NEW YORK TIMES, Jan. 18, 1984. 71 U.S. Nuclear Revival Begins with Restart of TVA’s Oldest Reactor: Site of One of Worst Accidents Restored for $1.8b, The Boston Globe (May 6, 2007). 72 World Nuclear Association, The New Economics of Nuclear Power, June 2005. 73 Federal Energy Regulatory Commission, Increasing Costs in Electric Markets, June 19, 2008. 74 An overnight cost estimate is what the plant would cost if it could be built “overnight”. Overnight cost estimates are regularly used in the nuclear industry. hey do not include escalation or financing costs. 75 Nuclear Power Joint Fact-Finding, the Keystone Group, June 2007. 76 New Nuclear Generation in the United States, Moody’s Investor Services, October 2007. 77 Id..at page 11. 78 Direct testimony and exhibits of Steven D. Scroggs on behalf of Florida Power & Light in Docket No. 07-0650, October 2007. 79 “Power Market Developments – the American Way”, Nuclear Engineering International, June 18, 2008 at page 24. 80 “New Wave of Nuclear Plants Faces High Costs”, Wall Street Journal, May 12, 2008, page B-1. 81 “Nuclear Power Plant Construction Costs”, Synapse Energy Economists, Inc., July 2008. 82 This table was taken from the May 2008 report by the Congressional Budget Office, Nuclear Power’s Role in Generating Electricity, at page 17. 83 The New York Times, November 15, 2008. DM_US:21858167_1 34 84 Id. 85 International Herald Tribune, November 20, 2008. 86 New Nuclear Generation in the United States, Moody’s Investor Services, October 2007 at page 8. 87 Id., at page 10. 88 Nucleonics Week, February 15, 2007 at page 13. 89 Power Magazine, The Nuclear Options, January 2009. 90 Chicago Tribune, June 1, 2008. 91 Nucleonics Week, February 15, 2007 at page 13. 92 Id. 93 Increasing Costs in Electric Markets, Federal Energy Regulatory Commission (June 2008). 94 Id. 95 Id. 96 Id. 97 New Nuclear Generation in the United States, Moody’s Investor Services, Inc., October 2007 at page 9. 98 Standardized Plants, Impact on New Nuclear Build, W. Gardner, The Nuclear Power Congress, December 2008. 99 “AREVA filed application with NRC for certification of US-EPR design,” Nucleonics Week, December 13, 2007, p.5. 100 William Gardner, “Standardized Plants: Impact on New Nuclear Build,” Nuclear Power Congress, December 2008. 101 Id., at page 13. 102 James Carter, “Effective Planning and Execution Strategies for New Nuclear Building,” Nuclear Power Congress, December 2008. 103 Nuclear Tangled Economics, Business Week, June 26, 2008. DM_US:21858167_1 35