Platts 12th Annual Nuclear Energy Conference – Overall impressions

During the period of February 16-18, I attended the Platts 12th Annual Nuclear Energy Conference. For a number of reasons, I’ve been remiss in sharing some of my observations and thoughts about the conference. I wrote this up several weeks ago, but things move slowly in nuclear energy so most of it is probably still quite timely.

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Cautious, uncertain, pragmatic optimism was perhaps the prevailing mood during 12th Annual Platts Nuclear Energy Conference. Yes, I know those adjectives present a mix of emotional states.

That is what happens when you gather a few hundred nuclear industry people together at a time when there are recent and near future operating plant closures; unknown regulatory burdens piled on in reaction to a distant event; palpable excitement about dozens of projects pursuing advanced reactors; steady but slower than desired progress in plant construction; seemingly unbeatable competition; a political tug-of-war regarding clean power planning; intriguing blue sky ideas from ARPA-E; and positive, but inadequate steps forward to address a long-recognized need to revise non-applicable regulatory requirements.

One of attendees took away the idea that the industry is disappointed that the Supreme Court has put a stay on implementing the Clean Power Plan. My impression from the people who mentioned the CPP was that they were mostly complaining about the way the implementation delay added one more uncontrollable uncertainty to an already challenging situation for decision makers.

Most of the attendees agreed that the plan, as issued, does little to encourage investments in existing nuclear plants, provides incentives for new plants that are delayed by at least half a dozen years after required investment decisions, and does too much to promote profitability of unreliable power sources that may not be available when customers need electricity.

There were several discussions about the future prospects for natural gas. Some attendees professed their faith in the Energy Information Agency’s (EIA) price projections. They are bewildered when confronted with history.

In 1970, the same agency predicted 1000 nuclear plants by 2000. In 1999 it predicted low natural gas prices for the foreseeable future.

EIA believers were unable to address the potential effects of the 75% reduction in active drilling rigs during the past 3-4 years, or the future impact of tight financing for dozens of highly leveraged exploration and production companies.

A number of presenters and audience members seemed to agree that the recent U.S. economic and energy consumption statistics prove that we have permanently decoupled prosperity from energy consumption. They think that the electrical power industry needs to adjust to flat or even slowly shrinking markets for its vital product.

A few, however, recognized the value of promoting increased electrification in transportation, space heating, and industrial process heat as part of a path towards a cleaner, less costly, and more flexible energy supply system. They just aren’t sure who is supposed to lead those promotional efforts.

Too many people used the phrase that makes me cringe “the U.S. needs a national energy policy.” I’ve been hearing that since the winter of my first year of middle school in 1971. That year, parts of the U.S. Northeast were hit with natural gas shortages that closed schools and businesses.

Our country’s strength rides on its diversity, adversarial judicial system, and competitive free enterprise system. Energy is too big of a business with too much opportunity for technological advancement for us to ever agree on a national energy policy.

One of the more important conference talks was provided by Commissioner William Ostendorff. He has served since April 2010 and is nearing the end of his second term, which expired June 30, 2016.

For the first question after his talk, Darius Dixon of Politico asked Commissioner O if he was going to seek reappointment. For the first time in public, Ostendorff announced that he was proud of his service and what the commission had accomplished during the past six years, but that he had already accepted a new position as a Distinguished Visiting Professor of National Security Studies at the U.S. Naval Academy, his alma mater.

After learning of his future plans, I reviewed his speech and realized that he would be a tough opponent at a poker table. There was no hint in that talk of any future activities other than what the Commission was doing to fulfill its assigned mission and to prepare for its future in interesting times.

Commissioner Ostendorff then described how the commission was reviewing 26 combined license applications when he arrived, but is now only reviewing six.

“Clearly, the industry has changed. Shale gas, declining electricity demand, energy efficiency, lack of a carbon tax… All kinds of factors in which many of you are expert. I’m not. This dynamic over the last two years has caused, appropriately, the commission to embark on a plan to look at “what is the right size for the agency, our agency, the NRC. We ramped up for the Nuclear Renaissance, it has not materialized. Proper fiscal stewardship of resources, taxpayer and licensee dollars demands that we reduce our agency size. So this backdrop of industry status has led to what we call project AIM.”

He then went on to describe the actions the agency is taking to do better work with fewer people and to shed some work that they have traditionally done.

With almost the next breath, he described how the agency has successfully awarded two new design certifications, three early site permits, seven combined licenses and completed a long drawn out Part 50 operating license at Watts Bar unit 2.

Those experiences have provided the agency with a contingent of people experienced with new reactor licensing. If those individuals and teams are nurtured, having completed the full process at least once will enable them to improve review performance for additional combined licenses, small modular reactor licensing and advanced reactor licensing.

He described how the commission has accepted a staff recommendation to prepare a rulemaking that would create consequence-based criteria for Emergency Planning Zones.

They would be based on a mechanistic source term for small modular reactors and advanced reactors. That means designers would not be forced into assuming that their reactor cores could magically be dispersed past all engineered barriers. Instead, they could show how material properties, physics and chemistry contain potential releases.

Applicants will be able to prove, using modeling or testing, how their reactors can limit consequences even with smaller EPZs.

The commission is planning to establish a 39-month standard for reviewing high quality license applications for light water SMRs.

He also showed a slide of three non-light water reactors that were once licensed in the U.S. and how those proved that the agency was capable of licensing non-LWR power plants. Every one of the plants pictured (Fermi, Peach Bottom 1 and Ft. St. Vrain) had been licensed by the Atomic Energy Commission before 1970.

He described the actions being taken — with limited resources — to prepare for advanced reactor licensing. As a gesture to show the priority of those efforts, the commission has requested $5 million in FY2017 for non light water reactor advanced reactors. Justifying that small budget item required numerous meetings with appropriations committee staffs and with OMB.

Aside: This fact is one of the reasons why I believe that an independent agency should have a budgetary process that is not linked to the politically charged annual budget process. The current process puts policy determination into the hands of accountants at OMB. End Aside.

He issued a plea for the many different groups who currently claim to speak to the NRC for the advanced reactor community of interest to coordinate their requests, even while acknowledging the impossibility of unanimity.

When answering a question about regulatory costs, he acknowledged that plants are robustly (emphasis in original) protected against security threats and that both the agency and the industry had woefully underestimated costs for requirements implemented in reaction to 9-11. He stated that the NRC is at risk of following a similar pattern with cybersecurity but was unwilling to offer any specifics on regulations that might be relaxed to lower cost burdens.

I asked if a similar trend had happened with rules issued post Fukushima and were all of the requirements really needed for safety. He said, emphatically, yes, and that great care was taken to make sure that the implementation was done in a thoughtful way, wasn’t overkill, and was needed to ensure safety going forward.

My sources tell me that the reported costs ignore some of the related costs uncovered during implementation, do not include provisions for long term maintenance, training, and on-call staffing, and most importantly, do nothing to increase the ability of the plants to generate electricity. With just modest amounts of luck, none of the equipment installed or put into the seismically isolated buildings will ever be used.

There has been a noticeable, but small step increase in average annual CAPEX following Fukushima. In the years prior to that event, most of the incremental capital was spent on projects that resulted in power updates and increased annual electricity sales.

I anticipate that an industry group with access to the cost details of the Fukushima Frenzy will release them for public scrutiny and comment. I think those all-cost, no-return investment requirements may be a factor in the plant closing decisions.

I followed up with Commissioner O several days after the event to clarify a few points and perhaps to plant a few seeds for consideration.

We discussed the specifics about his arrival status of reviewing applications for 26 individual units and the current review status seven current applications. We agreed that the impression of a Renaissance that never arrived is a little too stark.

Most of the applications arrived in a short burst of excitement following the passage of the Energy Policy Act of 2005. Its set of numerically limited, but reasonably generous, incentives set off a race where only the early finishers would be rewarded. It’s no surprise that many entrants quit once it became clear that they were out of the money.

Of the initial 26, seven have now received completed combined licenses; their reviews are no longer in progress. Seven more (two at Turkey Point, two at W.S. Lee, two at Levy County, and 1 at North Anna) are still under active review. At least one more project still has an active environmental review in progress, even though the rest of the project has been suspended.

Many of the awarded COLs and some of the projects under review are still in the wait and see mode, but they have the reasonably short turnaround option to begin moving forward as uncertainties in markets, financing, emissions regulations, final construction costs for Vogtle and Summer and other factors are resolved.

Commissioner O and I also discussed the importance of the Agency’s efforts to document as many lessons learned about the licensing processes as possible. He agreed that the agency understands no knowledge management system is perfect and knows that there is real value in retaining individuals who have gained operating experience with the current licensing system.

It is incumbent on people that care about new large LWR projects, SMRs and advanced reactors to help the agency focus on retaining key people. Without some squeaky wheels who emphasize the importance of readiness for new application review and new construction supervision, it will be too easy for the agency to focus on the demands from current licensees to reduce head count.

Executive agencies like the NRC are in a difficult position to prepare for future demands. They can be classified as “whining” or “empire building” if they look ahead to line up appropriate resources.

They need people that plan to engage their regulatory services to press Congressional representatives and appropriate members of the Executive Branch (Secretary of DOE, the Office of Management and Budget, the President etc) to furnish adequate and timely resources.

Energy market dynamics and technologies have changed since the 1980s when David Stockman recommended that the NRC be mostly funded by fees on existing nuclear plants. So have society’s concerns about air pollution, water pollution, ocean acidification and global climate change.

The NRC has an assigned responsibility to the public to be an expert in the safety aspects of the reasonably mature reactor designs that have been attracting new investor interest. It’s difficult for me to use the phrase “advanced reactor” to describe systems like Prism, HTGRs, and certain molten salt designs. They represent more than a half a century of innovation, development and testing. They’re innovative and have a different business model than large light water reactors, but their technologies are hardly mysterious. They’re in all the best textbooks and taught in all of the best university programs.

The nuclear industry faces uncertain times, but much of the responsibility for resolving uncertainty rests within the people who are thinking, planning and leading. They cannot simply wait and see; the competition isn’t passive and isn’t going away anytime soon.