ELECTRIC ENERGY MARKET, REGULATION & INVESTMENT NUCLEAR AS A REEMERGING RESOURCE OPTION: FACTORS DRIVING INTEREST IN NEW NUCLEAR Charles W. Whitney Duane Morris LLP Atlanta, Georgia June 12, 2008 2007 Duane Morris LLP. All Rights Reserved. Duane Morris is a registered service mark of Duane Morris LLP. Duane Morris Firm and Affiliate Offices New York London Singapore Los Angeles Chicago Houston Hanoi Philadelphia San Diego San Francisco Baltimore Boston Washington, D.C. Las Vegas Atlanta Miami Pittsburgh Newark Wilmington Princeton Lake Tahoe Ho Chi Minh City Duane Morris LLP A Delaware limited liability partnership Why Nuclear Why Now? 2
NUCLEAR THEN Three Mile Island Chernobyl 1980, 1981-1982 Recession WPPBS Default 3 Last 20 Reactors NUCLEAR THEN $3,000 - $4,000/Kilowatt 1973 Watts Bar - Last Plant Ordered and Built 4
NOW AND FUTURE Factors Affecting Nuclear Increased Capacity Factors Public Opinion Safety Need for Capacity Climate Change Coal Cloud Natural Gas Prices Energy Policy Act of 2005 5 100 90 U.S. Nuclear Industry Capacity Factors 1971-2007 91.8* 80 70 60 50 40 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 Preliminary Source: Global Energy Decisions / Energy Information Administration - Updated 4/08
U.S. Electricity Production Costs 1995-2006, In 2006 cents per kilowatt-hour 10.0 8.0 2006 Coal - 2.37 Gas - 6.75 Nuclear - 1.72 Petroleum - 9.63 6.0 4.0 2.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Production Costs = Operations and Maintenance Costs + Fuel Costs Source: Global Energy Decisions Updated: 6/07 Perspective on Public Opinion 8 Perspective on Public Opinion prepared for Nuclear Energy Institute December 2007
0.08 0.10 0.04 0.03 0.04 0.07 0.05 0.07 0.04 0.05 0.01 9 Perspective on Public Opinion prepared for Nuclear Energy Institute December 2007 Significant Events at U.S. Nuclear Plants: 0.90 Annual Industry Average, Fiscal Year 1988-2006 Significant Events are those events that the NRC staff identifies for the Performance Indicator Program as meeting one or more of the following criteria: 0.77 0.45 0.40 degradation d g d of important t safety equipment; a major transient or an unexpected plant response to a transient; degradation of fuel integrity, the primary coolant pressure boundary, or important associated structures; a reactor trip with complications; an unplanned release of radioactivity exceeding the technical specifications or regulations; operation outside the technical specification limits; other events considered significant 0.25 0.26 0.21 0.17 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Source: NRC Information Digest, 1988 is the earliest year data is available. Updated: 11/07
U.S. Demand DEMAND GROWTH 2005 3,666 billion KWH 2030 5,168 billion KWH* 43 GW Retired 292 GW New Capacity Needed d *Energy Information Administration Annual Energy Outlook 2008 11 NUCLEAR NOW CLIMATE Electric Power Emissions 2003: 2,279 million M/T 1,904 million M/T were from coal Coal = 84% of CO 2 emissions, 51% of total MWh generated To maintain status quo (with nuclear at 72% of non-emitting supply) U.S. would have to build 50,000 MWe of new nuclear capacity 12
Hydroelectric 6% Petroleum Liquids and Coke/Other 2% Renewable Energy* 2% Nuclear 19% Coal 49% Natural Gas and Other 22% *Renewable energy broken down as wood and waste [54%], wind [31%], geothermal [14%], and solar [1%]. Source: EIA Electric Power Monthly, February 2008 [actuals through November 2007]. Standard & Poor s 2008 13 Insight April 2008 14 Source: Nuclear Energy Institute
NUCLEAR NOW DESIGN Simplified Design for Reduced Capital Costs Reductions in equipment and bulk quantities allow major savings in plant costs and construction schedules 50% fewer safety-related valves 36% fewer pumps 83% less safety-related pipe 56% less seismic building volume 87% less cable 15 Ease of Construction NUCLEAR NOW CONSTRUCTION Significantly reduced components and bulk materials Over 250 structural and systems modules, allowing shop fabrication and parallel site/shop construction Three -year construction schedule from first concrete pour to core load Construction visualization integrating the time dimension into the 3-D model High degree of design completion 16
17 Surge in Natural-Gas Price Stoked by New Global Trade Further Gains Likely Despite 93% Spike; Bidding With Japan By ANN DAVIS and RUSSELL GOLD Wall Street Journal - April 18, 2008 18
CHALLENGES Safety Spent Fuel Storage Terrorism Capital Costs Labor Availability Foundry Capacity Uranium Reserves 19 CAPITAL COSTS Critical Issue for Owners Recent Asian Plants +/- $2,000/kW (over night) Delay/Interest Economy of Scale/Design/Construction France PWR s 1,300/$1,550/kW Advanced Reactor estimates are $4,000-5,000/kW (including completing design, engineering and licensing of Alpha Plant) 20
New Wave of Nuclear Plants Faces High Costs By REBECCA SMITH May 12, 2008 - Wall Street Journal A new generation of nuclear power plants is on the drawing boards in the U.S., but the projected cost is causing some sticker shock: $5 billion to $12 billion a plant, double to quadruple earlier rough estimates. NRG Energy Inc. hopes to add two units to the South Texas Project nuclear site. 21 Capital Costs January 18, 2008 Source - Atlanta Journal-Constitution 22
NEI New-Plant Communications Update January 30, 2008 * * * * * SCANA Corp. s South Carolina Electric & Gas Co. and Santee Cooper announced last week that they will defer their application to the NRC for a combined operating license for a new reactor at the Summer nuclear plant site, Reuters news service reported Jan. 25. In light of rising costs for all major infrastructure projects, the companies are studying the costs of alternate generation options, said spokesman Robert Yanity. He said the companies still support nuclear energy, but we need to make sure it is the right option. MidAmerican Nuclear Energy Co. has decided it will not pursue development of a nuclear power plant in Idaho because of cost issues, the company said in a statement posted on its Web site. We continue to believe that nuclear energy must be an important part of the nation s energy future. However, consumers expect reasonably priced energy, and the company s due diligence process has led to the conclusion that it does not make economic sense to pursue the project at this time, said President Bill Fehrman. 23 24
Sticker Shock Ballooning Project Costs Recent utility rate eases and project updates illustrate the rising cost of equipment, materials and construction services for U.S. utility infrastructure. Big Stone II: Otter Tail Power Co.... utilities initially expected to spend $1.2 billion coal-fired power plant increasing costs for materials and labor... estimates place the total cost for Big Stone II at $1.6 billion. Duke Cliffside: In June 2006, Duke Energy... two 800-MW coalfired units.... Five months later, Duke revised the cost estimate to $3 billion. Later,... single 800-MW unit would be about $1.8 billion, or $2,250/kW. 25 PUBLIC UTILITIES FORTNIGHTLY December 2007 Ballooning Project Costs (cont d) OG&E Red Rock: In September 2006, Oklahoma Gas & Electric Co. revised its cost estimate for the 950-MW Red Rock coal-fired power plant from nearly $1,700/kW to more than $1,900/kW, a 12-percent increase in just nine months,... Westar Deferral: In December 2006, Westar Energy announced it would defer its plans for a new 600-MW coal-fired plant due to significant increases... from $1 billion to about $1.4 billion since the plant was first announced in May 2005. 26 PUBLIC UTILITIES FORTNIGHTLY December 2007
Ballooning Project Costs (cont d) FutureGen: DOE announced earlier this year the projected cost for one of its most prominent clean-coal coal demonstration projects, FutureGen, had nearly doubled. Initial costs for the integrated gasification combined cycle and carbon-sequestering project were estimated at $950 million. But... project's price increased to $1.7 billion. Boston Transmission:... 345-kV lines. In an August 2004 filing the project would cost $234.2 million... increased by $57.7 million, or almost 25 percent, GB and MC PUBLIC UTILITIES FORTNIGHTLY December 2007 27 PUBLIC UTILITIES FORTNIGHTLY December 2007 Renewables Conventional Technology Technology Specifications Wind Solar trough Biomass (wood waste) Geothermal Natural Gas combined cycle Pulverized coal IGCC PRB Nuclear Plant Capital cost ($/kilowatt) 1,700 4,000 2,500 3,500 700 2,438 2,925 4,000 Capacity factor 33% 25% 85% 90% 65% 85% 80% 85% Heat Rate (mil. BTU/MWh) - - - - 7,000 8,700 9,400 - Total levelized costs ($/MWh) 71 280 97 76 68 58 65 89 *These cost comparisons do not assume carbon regulation and are exclusive of any subsidies, such as nuclear guarantees or the PTC, given the uncertainty over these programs. These estimates are based on median cost information, although there may be instances, such as for base load coal plants, in which capital costs for some recent projects have been higher. Notes: Cost estimates exclude the benefits of subsidies, including the production tax credit. Thermal generation costs exclude any estimates of carbon capture expenses. Natural gas combined cycle costs assume gas price of $7/mil.BTU.IGCC PRB = Integrated gasification combined cycle using Power River Basic Coal. MWh = Megawatt hour. 28 Insight April 2008
29 Nuclear Energy Institute Fact Sheet 30 Nuclear Energy Institute Fact Sheet
31 Nuclear Energy Institute Fact Sheet 32 Nuclear Energy Institute Fact Sheet
33 Nuclear Energy Institute Fact Sheet 34 Nuclear Energy Institute Fact Sheet
STATE LEGISLATION Florida Louisiana Mississippi North Carolina South Carolina Pay As You Go for Nuclear Construction 35 STATE LEGISLATION Florida Georgia Louisiana North Carolina South Carolina Recovery of Development Costs 36
tttttttttttttttttt 37 Nuclear Energy Insight April 2008 New Plant Applications Surge Toward Expected Total of 19 A surge in applications for nuclear powerplant construction and operating licenses (COLs) has begun at the Nuclear Regulatory Commission. Nine applications have been submitted since July, and NRC expects 10 more this year, for a total of 19 plants and 29 units with a capacity of nearly 39,000 MW. Almost all this activity now is based on the Energy Policy Act of 2005, says Steve Winn, CEO of Nuclear Innovation North America LLC, Princeton, N.J., a company formed by NRG Energy Inc. and Toshiba * * * * * * 38 By: Thomas F. Armistead Engineering News-Record April 28, 2008