No easy road for U.S. nuclear new build

Last December, Southern Nuclear had plenty to celebrate on New Year's Eve. The U.S. Nuclear Regulatory Commission had just approved the safety certification for the Westinghouse AP1000 reactor, setting the stage for a decision on February 9, 2012, to issue reactor licenses to build two of them.

As Southern began mobilizing the full scope of its construction activity at its Vogtle site in Georgia, two issues arose that appeared inevitable based on what we know about the nuclear energy industry in the second decade of the 21^st century.

First, the federal government continued to drag its feet on fulfilling its commitment to complete the final term sheet of the $8.3 billion loan guarantee for the project. Second, anti-nuclear groups launched a campaign to stop the construction activity.

Southern's Vogtle project

Southern's chief executive officer Thomas Fanning is not a man to put all of his eggs in one basket. In response to reports that the Department of Energy might not approve favorable terms on the credit risk premium for an $8.3 billion loan guarantee, he said that the utility has the ability to go to capital markets without it.

The issue at hand is the cost of the "risk premium," which is the fee the utility must pay the government in return for the loan guarantee. A fee of between 1-2 percent of the amount covered ($83-166 million) is a lot of money, so every point counts.

In addition to working out a rate to charge the utility, the DOE has to contend with political pressure from Congress over the now ill-fated Solyndra loan that cost the government over half a billion dollars. It puts any new decision for any type of loan guarantee under a microscope.

David Frantz, the acting director of the DOE loan program, told a House Appropriations Committee hearing in March that he expects the agency to close on the loan guarantee. However, Alex Flint, vice president of government affairs at the Nuclear Energy Institute, told Platts on March 28 that he worries the agency may not meet that commitment. He said that the Office of Management and Budget (OMB), which shares authority for approval of the loan guarantee with the DOE, "is not an enthusiastic supporter of the program."

Flint added that the formula used by OMB "is flawed" and will result in a fee that is too high.

Another issue is that the way the collateral for the loan guarantee is calculated creates issues for the multiple equity partners on the Vogtle project. They want to limit their liability to their equity stake in the project. The government is seeking deeper pockets.

Another opening for contentions

An environmental group that wants to stop the construction of the Vogtle site reactors has won a partial victory in U.S. district court. The Southern Alliance for Clean Energy won a ruling that will disclose some details of the DOE's loan guarantee credit subsidy fee information for the $14 billion project.

Federal District Court Chief Judge Royce Lambert also criticized the DOE for denying the original Freedom of Information Act request. He said in his ruling that the DOE had failed to provide adequate justification for withholding the documents.

The Southern Alliance is also one of nine environmental groups that expects to ask the U.S. Court of Appeals in Washington, D.C., to halt construction of the Vogtle project while other courts consider previous legal challenges to the NRC's action to grant the reactors a license. The NRC rejected the groups' petition challenges to its February 9 decision.

The groups said that the NRC failed to adequately address safety issues that emerged from the Fukushima crisis. The NRC said it had done so and that reactors under construction would be held accountable for future safety orders based on their application to specific designs.

This is a key issue for Southern, which points out that any halt to construction would be costly in terms of schedule delays. Also, the utility worries that design changes mandated by the NRC could drive up construction costs.

NRC Chairman Gregory Jaczko, who was outvoted by 4-1 on the licenses for the Vogtle reactors, said on March 31 that the review of the licenses for two similar AP1000s planned to be built by Progress Energy in Florida could be delayed if he has his way.

He wants all of the Fukushima safety related changes to U.S. reactors, including new starts, in place before any more licenses are issued by the agency.

The other four commissioners have rejected this position, saying that the agency can issue new safety orders whenever necessary and that there is no need to hold up new licenses.

Progress Energy is also in the midst of a merger with Duke Energy, which could change the project's schedule or possibly end it depending on economic conditions and other financial and market issues for the new combined firm. The closing date for the merger has been postponed once and may be delayed again if state and federal energy regulatory agencies don't sign off on it.

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Dan Yurman publishes Idaho Samizdat, a blog about nuclear energy, and is a frequent contributor to ANS Nuclear Cafe.