First Quarter 2008

Building Confidence in Licensing New U.S. Nuclear Plants

When NRG Energy and its partners submitted a combined construction and operating license (COL) application last September to build two new reactors next to the existing pair at the South Texas Project (STP) site, many hailed the event as a major accomplishment for the nuclear energy industry.

It was the first application for a new nuclear plant in the United States in nearly three decades. The Nuclear Regulatory Commission received three more COL applications for new nuclear plants through the end of 2007 and expects to receive about 15 more this year. Now the real work begins.

Companies face the challenges of the new NRC licensing process. Although the agency’s new procedure for licensing commercial reactors was revised to remedy the problems encountered by the last generation of nuclear plants, it remains untested. Demonstrating stability and certainty in the new process is a critical step toward successfully completing new reactors. For the companies involved, the work has already begun—ensuring that they have approved designs, that the NRC will accept their project when completed and that the review proceeds in an efficient manner. Companies also must maintain the confidence of the financial community and other stakeholders as the licensing process unfolds.

“We’re bullish on the idea of building new nuclear plants, and we’re anxious to prove the new licensing process,” said Steve Winn, executive vice president of NRG Energy. NRG’s plan is to bring the first reactor on line in 2014 and the second in the following year.

The new NRC licensing process is intended to help reduce the risk borne by companies applying to build new plants. The industry worked with the NRC to develop the new process so that most regulatory issues are resolved before construction begins. In addition to the new COL process, companies can obtain an early site permit, which grants pre-approval for a new plant location. So far, three companies have received these permits, which could accelerate the licensing of a new reactor.

The new process also offers more opportunities for public participation at various steps. Public input up front could help avoid issues and resolve legal challenges that delayed projects and ballooned reactor costs during the 1980s and early 1990s. Now these disputes can be settled before work starts on a new reactor.

Overall, the industry’s reaction to the new licensing process has been quite favorable, but complications can always arise.

“Some say it was risky to be the first plant to go through the licensing process. I believe it is much riskier to be the fifth plant through the process,” Winn said. He and others explained that although they believe the NRC is well-prepared for the first few applications, the agency could face resource issues as it reviews subsequent applications. The NRC formally accepted the NRG application in late November, meaning the review has begun.

NRG also reduced the risk of its application by using a reactor design—GE’s Advanced Boiling Water Reactor (ABWR)—that the NRC has certified and already has been built in Japan. Winn said the fact that “the plant was 100 percent engineered” was an important factor for the company and for its investors.

NRC certification of the reactor design is a significant step forward. The Westing-house AP1000 design received certification in 2006. GE applied for certification of its newer design, the Economic Simplified Boiling Water Reactor (ESBWR), in 2005. AREVA applied for certification of its EPR design last December. Mitsubishi Heavy Industries also applied for certification of its reactor design in December.

The NRC has proposed a new regulation that would require companies to study the ability of reactor designs to withstand the impact of a commercial aircraft. The industry supports the proposal for new designs: “We believe that all new plants being licensed should address aircraft impacts,” said Adrian Heymer, NEI senior director of new-plant deployment.

Heymer said that aircraft impact assessments should be a part of certifying a new plant design. For a design that has already been certified, the decision on amending the certification to assess aircraft impacts is a voluntary one that depends on whether the COL applicant wishes to perform the assessment or if the designer wishes to file an amendment to the design certification.

Standardized Designs Mean More Efficient Reviews
Today’s construction process differs markedly in another respect. Companies will build only a few different reactor designs. Existing plants feature different designs from one location to another, which made the regulatory agency’s work that much more difficult. The reactors under consideration now use only a few different designs.

For its part, the industry has helped improve the process by developing a design-based licensing approach, through which companies that are using the same reactor design can pool information to standardize much of the application, likely streamlining the review after the first few applications of each design are approved. NEI sponsors a working group based on each reactor design.

“The design-centered approach is one of the most effective ways to improve the efficiency of the licensing process,” said Bryan Dolan, vice president of nuclear plant development at Duke Energy. Duke submitted an application in December to build two AP1000 reactors at a site in Cherokee County, S.C.

According to NEI’s Heymer, design-based approach means that applications using the same design will share up to 70 percent of the information, reducing the resources and time required for both applicants and the NRC. The remaining 30 percent of each application will focus on site-specific information and other data particular to that project. As a result, the regulatory review will be able to focus more on the unique safety aspects of each project, Heymer noted.

This is at least partly the result of the quality and scope of information companies provide in their license application. “How we approach quality assurance is much different from the way we did it in the 1970s and 1980s. It is far more meticulous,” Heymer said.

The NRC has hired more technical staff and has received additional funding to deal with the influx of new-plant applications. With five applications submitted and more expected, the agency is girding itself for the additional work. “All of this means that the NRC is probably the busiest we have been in our history,” Chairman Dale Klein recently told a group of students at North Carolina State University.

Despite the agency’s aggressive preparations, many expect bumps in the road with multiple reviews taking place concurrently. “The NRC has demonstrated a real desire to work with the industry to improve the licensing process … but it has not dealt with the number of applications of this magnitude in a long time,” Dolan said.

One concern focuses on what happens when a company completes a new reactor. As the project nears completion, the NRC must verify the company has built the reactor according to design and to the specifics of the application. This NRC verification program is called the inspection, tests, analyses and acceptance criteria (ITAAC). Although it may be some years before any project faces ITAAC, the industry is working to ensure a common understanding of what will be required.

Addressing Investors’ Concerns
Maintaining investor confidence in a new-plant project that will span many years is another concern. Companies have responded to this by allocating funds and other resources to projects on a step-by-step basis. Duke Energy, for example, has filed applications in North Carolina and South Carolina for approval to incur project costs through 2009. Still, constraints on supply have prompted some companies to order major components now regardless of their future decisions.

One of the difficulties that companies face in financing major nuclear plant projects is this: The cost of the projects is large relative to the market capitalization of the companies planning to build them. The financial community understands that challenge and is supportive of the way companies are structuring their investment. “Companies have made prudent decisions about how to stage their investments in ways that are appropriate to the risk they are assuming,” said Jeffrey Holzschuh, vice chairman at Morgan Stanley.

The federal loan guarantee program, which provides government backing for the financing of clean-energy projects, including new nuclear, is critical for new projects. The loan guarantee program was authorized in the Energy Policy Act of 2005. The legislation also included a form of insurance that will compensate companies if projects are delayed by the licensing process or litigation.

In reality, the number of years before an investment in a new nuclear facility will show returns is one of the major concerns for investors. “The biggest risk in licensing is time,” Holzschuh said.

The industry is working to reduce the length of time between the decision to pursue licensing a new plant and when operations begin from 10 years to seven years, according to NEI’s Heymer. Finding efficiencies and addressing shortcomings in the licensing process is one way to shrink the time required. Aggressive project management—pre-ordering components, increasing staff and detailed planning—is another way. But the key, say some industry executives, is that the earlier you begin work on a project, the sooner you see results.

“Given the time required to build a new plant and complete it by 2014, we were prompt in beginning to address these challenges in 2004,” said Marilyn Kray, president of NuStart Energy Development, which, in partnership with the Tennessee Valley Authority, submitted a license application in October for a new reactor at TVA’s Bellefonte site in Alabama.

“Now we have to address work force issues to ensure we have the trained staff to build and operate the new plants,” Kray said. “We also need to ensure that we will have the components and commodities necessary to build new reactors.”

More than any other factor, say industry leaders, it is important that companies cooperate to increase stakeholders’ confidence in the new-plant licensing process. The NRC also must look for ways to streamline the licensing process without reducing its effectiveness. Companies need to share their experience with others that are using the same reactor design. Cooperation also is necessary in financing new plants. Ultimately, this cooperation will minimize the challenges that individual projects encounter as they become part of the expansion of the U.S. nuclear power sector.