1. Nuclear Construction Summit:
Meeting the Challenges for
Developing and Financing a Nuclear Power Plant
PAUL M. MURPHY
Senior Counsel
Bechtel Power Corporation
Washington, D.C.
October 26-27, 2009
1

2. Overview
Development and financing challenges that are
unique to nuclear power projects
Improving the prospects for financing a nuclear
power plant
Can the market solve these challenges on its own?
Role of government in facilitating the development of
nuclear power in the United States
2

3. Development and financing challenges that are
unique to nuclear power projects
3

4. What makes nuclear power unique?
Scale Regulatory Environment
Cost Fuel Cycle
Development / Construction
Period Site Security
Safety International Features
Public Perception / Public Treaty Regimes / Legal
Relations Framework
Cross-Border
Non-Proliferation
Interdependence of the Nuclear
Industry
Impact of Success/Failure
Being Part of the “Nuclear Club”
Commitment to Excellence
4

5. Nuclear Financing Concerns
Primary Concerns for Financiers:
Long development / construction periods
High capital costs
Regulatory uncertainty
First-of-a-kind risk
Safety culture
Operational Success
Human Resources and Supply Chain
Sustainability of government commitment
Fuel cycle concerns
Environmental responsibility
5

6. Financing Concerns – Long Development /
Construction Periods
How confident are you in predicting the future?
How far out are you willing to go?
How much are you willing to bet?
Key: How do things change over time?
6

7. Financing Concerns: High Capital Costs
What is the source of funding for a project?
What is the debt / equity split?
Who is providing the standby support?
• Contingent Debt?
• Contingent Equity?
Can a project be project financed?
It has never been done in nuclear !
What is the impact on the credit rating of the
developer?
7

8. United States Perspective
Market Values of Companies
Utilities Planning Billions
Plants
Exelon $32.8
Southern $25.5 Utilities are small
FPL $22.0 compared to the multi-
Duke Energy $20.5 billion dollar plant
Dominion $20.4 investment
Entergy $15.7
Progress Energy $10.7 Building a single new
NRG $7.7
nuclear plant is a
“bet your company”
Constellation $6.7
proposition
SCANA $4.3
8

9. European Perspective
Market Values of Companies
Representative Billions Utilities abroad are larger
European Utilities
compared to the multi-
E.ON $74.6 billion plant investment
EDF $71.9
GDF Suez $65.8 Building a single new
Iberdrola $48.9 nuclear plant might not be a
“bet your company”
RWE $48.3 proposition, but capacity
ENEL $39.8 constraints still remain
9

10. Oil & Gas Perspective
Market Values of Companies
Representative Oil Billions Note: non-US companies
& Gas Companies
are based on ADRs.
ExxonMobil $351.4
Royal Dutch Shell $191.6
BP $171.9
Chevron $154.0
Total $148.3
10

11. Financing Concerns: Regulatory
Uncertainty
Prior history of regulatory problems
Uncertainty of new process
11

12. Evidence of U.S. Nuclear Revival
Energy Policy Act of 2005
Congress Supports nuclear energy as a
major component of national
energy policy
DOE
Nuclear Power 2010 program
Cost sharing initiative between
industry and government for new
deployment
Utilities ESPs and COL applications for
new reactors
12
12

13. The Energy Policy Act of 2005
13
13

14. Transmission
Insuring Reliable
Diversity
Infrastructure Investing in Delivering of Fuels
Jump Start
Nuclear
New Plant
Construction R&D
14
14

15. Nuclear
New Plant
R&D
Construction
Loan guarantees Next generation nuclear plant
Risk assurance Nuclear hydrogen production
Production tax credit Advanced fuel cycle initiative
Price-Anderson Nuclear engineering program
Medical isotopes
15
15

16. The Licensing Process
16
16

17. Old Process—Two-step licensing process (10 CFR 50)
Operating Operating
Construction Build
License License Operation
License
*
Plant
Proceedings * Issued
*
* Opportunity for intervention, hearings, and delay
15 Years
17

18. New Process—Combined licensing process (10 CFR 52)
New Process Combined licensing process (10 CFR 52)
ESP
Early Site ITAAC
COL
Permit
* Verification of
Combined Inspections,
Construction and Build Tests,
Operating Analysis, and Operations
Plant
D.C. License Acceptance
Criteria
Standard
Design
**
*
Certification
* Opportunity for public comment
** Opportunity for hearing
9 Years
18

19. New U.S. Licensing Process
Early Site Permit (ESP)
1
2 3
Design Certification Combined Construction
and Operating License
(COL)
19
19

20. Early Site Permits
Site approval obtained
1 before a utility decides
to build a new plant
Utility “banks” site up
to 20 years
Decision made, design
chosen later
Reduces risk to a utility
20

21. Design Certification
2
Provides NRC’s
advanced approval
of a reactor design
Lengthy delays avoided
before site preparation
and construction begins
21

22. Combined Construction and
Operating License
3
One license for building
and operating a new
nuclear power plant
Early focus of public
comment
Intended to provide
greater regulatory
certainty
22

23. Financing Concerns: Regulatory Uncertainty / Sustainability
of Government Commitment
Prior history of regulatory problems
Uncertainty of new process
Reality: We live in a democracy.
Will the support continue?
Can the nuclear industry go it alone?
23

24. Financing Concerns: First-of-a-kind Risk
Tension between improvements in technology and
first-of-a-kind risk
Banks like certainty
Banks like to see a track record
On time
On budget
Through first fuel reload
By technology
Caution: What is really FOAK?
24

25. Financing Concerns: Human Resources
and Supply Chain
Atrophy precedes the “nuclear renaissance”
Do you have the people?
How experienced are the people?
Where is your project in the queue?
How many of these can really be done at the same time?
25

26. Financing Concerns: Other Issues
Safety Culture
Operational Success
Environmental Responsibility
Spent Fuel
Decommissioning
Emissions Considerations
26

27. Improving the prospects for financing a nuclear
power project
27

28. Improving the prospects for financing a nuclear
power plant comes down putting together a good
project
Putting together a good project comes down to
… picking a strong team
… achieving the proper risk allocation among the parties
involved in the project
28

29. Parties Involved In a Nuclear Power Project
ECAs Government
Regulation & Financial Treaty Commitments
Licensing Commitments & National Law
Commercial
Banks
Financing Spent Fuel
Multilaterals Government Management
Entities
Decommissioning
Public
NSSS
Suppliers
PROJECT Offtakers
Fuel
Supply
Operators
EPC
Contractor
Labor Owners Human
Capital
Equipment Subcontractors Consultants Risk Allocation?
& Material
Suppliers 29

30. Putting Together a Good Project
From a financing perspective, things to consider
include:
Market being served (regulated vs. unregulated)
Quality of the project team (owner, operator, NSSS
supplier, EPC contractor, etc.)
30

31. Putting together a good project: Market
being served
Regulated
Supportive PUC
Cost of service regulation
Rate base recovery of development/construction costs
Experience with nuclear power
Balance sheet financing
• Avoiding single asset risk
Caution: Do not expect a blank check from the PUC.
31

32. Market Structure of Nuclear Generation
U.S. began a transition to deregulated market in mid-1990s
Generation essentially equal in deregulated versus regulated
markets
Nuclear generation operates well under both systems
WA ME
MT ND
MN VTNH
OR MA
NY
ID SD WI CT RI
MI
WY PA
IA NJ
NE OH MD DE
NV IN
IL
UT
CO
WV
VA Regulated
CA (1) KS MO KY
TN
NC
Deregulated
OK
AR SC
AZ NM
AL GA
MS
LA
TX
FL
32

33. Putting together a good project: Market
being served
Deregulated
Market Demand
Market Pricing
Presence & Quality of PPAs
• Tenor
• Pricing
• Offtaker
33

34. Quality of the Project Team
Has the technology been built?
How much of a track record is there for the technology?
Who are the suppliers and contractors?
What have they done?
Who is their project team?
Who is the operator?
Is the operator experienced?
Who is the developer?
What experience does the developer have in putting together this
type of project?
Does it have a financial / economic model that works?
• Both debt service and equity rate of return !
34

35. Show me the money !
What are the sources of financing?
Balance Sheet
Project Finance ???
DOE Loan Guarantee Program
Export Credit Agencies
Standby Support
35

36. Improving the Prospects of Financing
Nuclear Power Projects
Nuclear vs. Other Major Infrastructure Projects
Nuclear projects share many similar risks with other large
infrastructure projects (high cost, long construction
period, etc.)
• BUT: How such risks are “scored” might still be very
different
Nuclear projects do have “unique” risks (fuel cycle, NPT,
cross-border damage, “emotional” issue, etc.)
36

37. Improving the Prospects for Financing
Nuclear Power Projects
No history of project finance for nuclear power –
Why?
Remember, “project finance” is a term of art
Too much risk (historical problems of overruns of
schedule and budget; completion risk due to government
intervention)
There will not be “textbook” project financing for nuclear
any time in the near future
But, basic project financing structures can be
supplemented to create a viable financing structure
• Key example: DOE Loan Guarantee Program
Note: somebody still has to take completion risk, in terms
of “completion cash”
37

38. Improving the Prospects of Financing
Nuclear Power Projects
Further thoughts on Financing:
Over time, risk allocation will change
• Need for a track record
• Track record is based on technology and country
• Note: Different contracting structures could be considered at different
stages of the project
However, at initial stages, governments will have to shoulder more of
the risks
• Getting “over the hump” is really a problem for Owners and
Governments to solve (based on the long term aspect of nuclear
projects)
Any new regulatory process is an unknown
“Lessons Learned” will be a key element of success
• Need to emphasize the positive developments that have arisen from
historical problems
38

39. Can the market solve these challenges on its own?
39

40. Market Failure
Current conditions of financial markets
Conservatism / no “benefit of the doubt”
Flight to quality
Nuclear renaissance
Size of utilities
Unwillingness of any of the parties to take completion risk
Carbon externalities
Conclusion: Need for active government involvement
40

41. Life Cycle CO2 Emissions Analyses
1200
1041
1000
Tonnes CO2-equiv/GWeh
800
622
600
400
200
17 18 46 14 39 15
0
Coal Natural Nuclear Hydro Biomass Wind Solar Geo-
Gas PV thermal
41

42. Emissions Considerations
Emissions considerations will serve to encourage
developers to turn towards nuclear power
Carbon policies will help make the economics of
nuclear power more favorable, relative to gas and
coal, than at present
What about carbon credits for nuclear?
42

43. MIT “Update on the Cost of Nuclear
Power”, May 2009
Technology Nuclear A Nuclear B Coal Gas
Capital Cost
($2007/kW) 4,000 4,000 2,300 850
Fuel
0.67 0.67 2.60 7.00
($2007/mmBtu)
Weighted
average cost of 10% 7.8% 7.8% 7.8%
capital (WAAC)
Levelized Cost
8.4 6.6 6.2 6.5
(¢/kWe)
Levelized Cost
(¢/kWe) with 8.3 7.5
$25/tCO2
43

44. Innovative Financing for Nuclear
Power Plants
Conclusion: Ultimately, it has to be a viable project
Economics must work
Participants need to be dependable
There is no silver bullet here.
• Innovation will be in how risk is perceived, allocated, and
mitigated. “Innovation” will come from risk allocation, not new
structures
• Conditions will change over time
Don’t Forget: This is a 60 year asset
Low operating costs
High reliability
Strong profitability post-completion
Refinancing opportunities
44

45. Role of government in facilitating the development of
nuclear power in the United States
45

46. Key Provisions
New Nuclear Plant Construction
EPACT
Provisions Key Attribute Comments
No.
Loan guarantees 1703 80% of project cost Allows nuclear plant developer to:
Increase leverage
Reduce financing costs
Production tax 1306 $18/MW hr 6,000 MW eligible
credits $125M/1000 MW per year
Risk insurance 638 Delay protection Protection up to 6 reactors
(Standby Support) from licensing or $500M for 1st 2 plants
litigation $250M for next 4 plants
Price-Anderson 602 Nuclear liability Extension to 2025
insurance
46

47. New Build Landscape
UniStar
AmerenUE Nine Mile PPL
Calloway EPR—1 Unit Bell Bend
EPR—1 Unit EPR—1 Unit
DTE
Fermi
ESBWR—1 Unit
UniStar
Calvert Cliffs
EPR—1 Unit
Dominion
TVA North Anna
SCE&G ESBWR—1 Unit
Blue Castle Design Bellefonte V.C. Summer
Units—TBA AP1000—2 Units AP1000—2 Units Progress Energy
Harris
Luminant AP 1000—2 Units
Comanche Peak
USAPWR—2 Units Duke
Lee
AP1000—2 Units
STP
South Texas
ABWR—2 Units SNC
Entergy
Grand Gulf Vogtle
Entergy Design Units—TBA AP1000—2 Units
River Bend
Design Units—TBA Progress Energy FPL
Levy County Turkey Point
AP1000—2 Units AP1000—2 Units
47

48. Closing Thoughts – Recent News
Last year, 19 applications were submitted from power companies
seeking federal loan guarantees to build nuclear power plants -- a
number much higher than current funding could support.
The applications are for construction of 21 new reactors at 14
different U.S. power plants. The estimated total construction costs
for all of the projects is $188 billion and the plants would add
28,800 megawatts of generating capacity, according to DOE.
$6500/kW = $188B / 28,800MW
Available DOE Loan Guarantee Money: $18.5B
48

49. Emissions Considerations
US National Research Council Study (by
Congressional Request): Hidden Costs of Energy:
Unpriced Consequences of Energy Production and
Use
“Because these effects are not reflected in energy prices,
government, businesses and consumers may not realize
the full impact of their choices."
"When such market failures occur, a case can be made
for government interventions - such as regulations, taxes
or tradable permits - to address these external costs."
49

50. Concluding Thoughts
This is not easy.
Industry needs help
Current DOE Loan Guarantee authorization is not enough
But, simple math tells us that it has to be done.
By 2030 (by source):
10.4% increase in US energy demand (Energy Information
Administration’s Updated Annual Energy Outlook 2009)
33% increase in world energy demand (EIA’s International Energy
Outlook 2009)
US: 252,000 MW; 11,000 MW/year; 0.89% growth/year (EIA; 2008 as
base year)
US: to meet emissions reductions goals in Waxman-Markey climate
bill …
50

51. New Power Plant Capacity Necessary To Meet
Waxman-Markey CO2 Goals – EIA Analysis
New Capacity by 2030 Electric Fuel Shares in 2030
(Gigawatts) (Percent)
Nuclear 96* 33.0
Coal 19 17.9
Gas 42 13.5
Coal w/CCS 69 10.9
Biomass 32 8.3
Hydro 2 6.6
Wind 68 5.5
Gas w/CCS 11 1.4
Geothermal 3 0.9
Petroleum 0 0.9
Other 0 0.6
Solar 13 0.5
Total 355 **
* 96 Gigawatts of nuclear plants equals 69 new nuclear plants (based on average new plant size of 1.4 GW)
** Assumes shutdown of fossil plants, spurring greater build than base case of 252,000 MW
Energy Information Administration, "Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy
and Security Act of 2009" 51

52. Thank you very much.
Paul M. Murphy
Senior Counsel
Bechtel Power Corporation
301-228-7530
pmmurphy@bechtel.com
52