With NRG Filing, DOE Moves Nuke 'Risk Insurance'

26 September 2007
The Energy Daily
Vol. 35; Issue 185 English
Copyright © 2007-2008Access Intelligence, LLC.

BY JEFF BEATTIE

By filing the first application to build a new U.S. nuclear plant, NRG Energy Inc. has become first in line for an array of federal financial incentives for construction of new reactors, including an unusual federal "risk insurance" program that compensates companies if a plant start-up suffers certain legal or regulatory delays.

And the Energy Department wasted little time in getting the ball rolling on the federal incentives by releasing Tuesday a "conditional agreement" that it will sign with qualified companies seeking the risk insurance, which is meant to cover late-stage delays for which the nuclear plant developer is not at fault.

DOE's action came one day after NRG Energy submitted a combined construction and operation license application (COL) with the Nuclear Regulatory Commission seeking permission to build two, 1,350-megawatt boiling water reactors at the South Texas Project nuclear facility at Bay City, Texas.

The risk insurance program is one of several forms of financial aid that Congress recently enacted to reinvigorate the U.S. nuclear industry, which virtually stopped launching new reactor projects after the 1979 accident at Three Mile Island nuclear plant in Pennsylvania.

The risk insurance is specifically aimed at compensating companies that have invested billions of dollars and have a new nuclear plant nearly built, but are blocked from going on-line due to unanticipated court or regulatory delays.

Those types of delays sank several reactor projects in the 1980s, as companies decided they could no longer swallow costs while waiting to begin producing electricity and revenues.

But while the risk insurance program is designed to address those concerns--and reassure investors in new reactors--there are questions about what events would trigger federal payments. For example, DOE will have to sort out whether holdups in new reactor projects are somehow linked to incomplete work on the part of the developer, or are truly the result of regulatory or legal delays beyond the project developer's control.

And in a press release accompanying the new agreement, DOE made clear that it might find fault with NRC actions in implementing the risk insurance program. The press release said the types of hindrances that would trigger the risk insurance program include "delays associated with the NRC's reviews of inspections, tests, analyses and acceptance criteria, as well as certain delays associated with a pre-operational hearing or litigation in federal, state or tribal courts."

More common business risks, such as employment strikes and weather delays, are not covered by the program.

Additionally, a DOE spokeswoman stressed Tuesday that companies do not even become eligible for risk insurance until construction has begun and the project has received all federal and state permits--thereby ensuring that the reactor builder has done its job clearing regulatory hurdles.

Even so, antinuclear groups have leaped on DOE's new-reactor incentives as excessive and unwarranted.

" NRG Energy already has been quoted in the media...as saying that 'the whole reason' the company is considering new nuclear reactors is taxpayer subsidies provided by Congress and the Bush administration," said the Nuclear Information and Resource Service. "Without taxpayer support, no utility would build a new atomic reactor, and no financial institution would invest in a new reactor."

Once the NRC reviews and accepts NRG Energy's COL application, the New Jersey-based power producer will become eligible to sign DOE's conditional agreement outlining how the risk insurance would work. Importantly, that does not mean NRG Energy is guaranteed to get the risk insurance. DOE can sign a firm risk insurance contract with a company only after it has begun reactor construction, crossed several federal and state regulatory hurdles and satisfied other conditions. As a result, DOE may sign risk insurance conditional agreements with numerous companies who might never progress far enough to actually become eligible for the federal protection.

Still, being first in line produces enormous advantages for NRG Energy, which--as the first merchant developer of a U.S. nuclear plant--can ill-afford to pass on any financial backstop it can get its hands on. By contrast, all existing U.S. nuclear plants were built by regulated utilities that could pass on most costs to captive ratepayers, subject to state approvals.

The federal risk insurance is available only to the first six companies that begin reactor construction and meet other contractual obligations with DOE. And the level of coverage available is double--$500 million versus $250 million- -for the first two companies that qualify, compared to the third through sixth companies under the wire. While more than a dozen energy companies have in recent months laid out plans to file COL applications, only NRG Energy has done so thus far.

Baltimore-based Constellation Energy Group and UniStar Nuclear--a partnership of Constellation, French reactor vendor Areva and French utility EDF--submitted a partial COL application July 13 for a potential new reactor at Constellation's Calvert Cliffs plant on the Chesapeake Bay.

The Constellation-UniStar partial COL covers environmental issues only, but under NRC rules, the rest of the COL application must be submitted within six months of the initial July 13 submission date. Constellation-UniStar has supplemented the partial COL twice since submitting it, and NRC staff told NRC's commissioners in late August that it awaiting Constellation-UniStar's plan for additional submissions before it will continue reviewing the COL.

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