Did NRC Delays Kill GE Nuclear?

Did NRC Delays Kill GE Nuclear?
Would the last U.S. nuclear reactor supplier please turn out the lights

For thirty years, GE’s goal was to be Number 1 or Number 2 in their markets, or get out. Today GE Nuclear is Number 3 in nuclear reactor design and sinking fast. Loss of the Economic Simplified Boiling Water Reactor (ESBWR) will force it lower. GE has no good options today, given GE Capital’s distress. If it follows past practice, GE will exit nuclear energy. Then GE will have been the last U.S.-owned nuclear reactor plant supplier. Congress alone can correct the U.S. regulatory framework before others follow the same path.

GE’s Nuclear Problem
General Electric (GE), the last major U.S. nuclear plant vender, is on the ropes with their new ESBWR design. A slow economy, other business problems, and recent utility ESBWR cancellations all hurt GE. Licensing reviews now threaten GE’s laudable passive-safe nuclear design. Though GE has other energy businesses, a GE write-down comes at a poor time. A year ago, GE said that although its energy business was small, it was a growing fraction of its portfolio. Now that GE Capital is in trouble, selling-off nuclear assets bodes ill for GE. Although anti-nuclear voices hope to put a stake through the heart of America’s last reactor supplier, consequences aren’t so clear.

With a market value of nearly $200 billion, GE employed roughly 320,000 at the start of 2008. Of that, GE Nuclear accounted for 36,000 employees, with annual sales of $30 billion. GE Capital financed $20 billion more in nuclear sales. Developments that threaten GE Nuclear bear further examination; collapsing auto, finance and other industries make timing worse. Even the best stimulus package in Washington won’t be effective if it can’t staunch financial hemorrhaging and stop heavy industry like GE from leaving the U.S.

Regulatory Burden
Complex rules and regulations layered processes deeply, making nuclear regulatory reviews lengthy, and tedious. Ponderously slow nuclear design reviews that do not meet new generation needs emerge like an anchor from the 1970’s. For nearly forty years, nuclear energy in the U.S. has been on the skids. Rising costs from litigation and delays made it prohibitively expensive. Then Three Mile Island unsuspectingly brought the U.S. NRC to a critical review role, delaying more than ever before. Antagonizing nuclear generation programs, they damaged U.S. development prospects. The new administration staunchly opposes nuclear construction. They seek to replace nuclear generation with wind or solar, regardless of trends in countries like France, Korea and Japan.

Encouraged with the best nuclear safety intentions, by submitting its safer new ESBWR design for review, GE got on the wrong side of the nuclear safety review process. Dubbed the “economically-simplified” (ES), its passive-safe boiling water reactor (BWR) sits in the throes of new licensing delays. That design review process creates schedule uncertainty. Uncertainty in finance is a bad thing. Electric utility ESBWR buyers saw delays put their prospective Congressional loan guarantees at risk and pulled the plug.

NRC design review pace cost GE loan guarantees authorized by Congress to make new construction viable. Without loan guarantees, new nuclear plant costs as high as $24 billion made a two-unit ESBWR[i] simply too high for licensees to bear, alone. Ironically, the U.S. government itself - in the NRC - causes high construction costs that require loan guarantees. France’s EDF is building its Areva-designed Evolutionary Power Reactor (EPR) in Flamanville, Normandy, at a cost of 4 billion euros ($5.2 billion). Although France has higher labor costs, the same expertise as here in the U.S will build those units, with more efficient regulatory processes.

Impending Collapse?
Recently, GE’s CEO Jeffrey Imelt treated its nuclear subsidiary like an annoying child. At only $50 billion of $170 billion in total revenue, energy operations were a small part of overall GE value. Then problems at GE Capital caused GE stock price to plummet from $38 to $12. GE Capital financed GE equipment sales, and a plummeting economy hurt it. Today, GE Capital is in turmoil, and cannot perform its primary function - financing GE sales. GE cannot support their new nuclear business - they lack the money, and financial loss risk is simply too great. The weak economy doubly weakened GE Capital. Now, its nuclear design core problems bode ill. Will Congress let another industry icon go belly-up? Would GE Nuclear’s sale cost the U.S. its nuclear leadership, as well as our last nuclear business? Some argue that happened many years ago. While the French and Japanese embraced nuclear technology, antinuclear footage played over and over on TV in the U.S. destroyed our vision.

In 1954, the Navy’s Admiral Rickover built submarine reactors and captured the American public’s imagination, our ideal of ingenuity. With Congress, President Eisenhower brought in a new era with “Atoms for Peace,” their nuclear energy program. Of America’s original nuclear pioneers, GE alone survived. Westinghouse, Combustion Engineering and Babcock & Wilcox exist today as subsidiaries of foreign companies. Antinuclear sentiments, delayed project cost overruns, inadequate oversight, lax operations and Three Mile Island[ii] all contributed. Losing America’s last domestic nuclear supplier now poses grave U.S. economic risks. Could America let that happen, and remain a nuclear leader, especially with other burdens industry placed recently on the American taxpayer?

GE Capital’s demise only worsened financial difficulties over the past three months. In light of slow nuclear reviews, lack of urgency, and acceptance of the slow processes at the U.S. NRC, GE exhausted the financial resources needed to keep their ESBWR license moving. Delays that threw GE’s license into uncertainty caused committed clients to withdraw. Over the past two months, Exelon, Entergy, and Dominion withdrew their ESBWR applications. Entergy was the last to ask the NRC to drop GE from its COL[iii] license application. Unless Congress acts quickly to challenge NRC’s guidelines, forces will remove GE Nuclear from passive-safe reactor design. Without Congress action, NRC rules will result in a disastrous decision.

Would fewer nuclear suppliers create better nuclear design development prospects? Could nuclear plant design move overseas, entirely? Will more bailouts, further losses, or even waning Congressional interest in its Next Generation Nuclear Plant (NGNP) follow? Should the U.S. allow transfer of its nuclear leadership overseas? Utilities could convert their nuclear fleets to wind and solar, regardless of past Congressional intent. Even the mighty U.S. Navy could return to ships powered by sail, sustained by Washington’s dollars and its overwhelming push to be green. Considered ridiculous only yesterday, these possibilities have real substance today, and could follow without debate tomorrow.

Oversight of nuclear energy by Congress has been limited. Yet letting nuclear leadership pass overseas without debate is not in the American public’s interest. The time has come for direct Congress involvement. Nuclear lethargy threatens to sink the boat built by Admiral Rickover, as economic woes increase our welfare roles, demand more bailout money and tolerate indecisive or bad decisions. Meanwhile, overseas others move forward quickly. Is it better, perhaps, to send work abroad where minds are open, than fetter U.S. citizens with this burden. We could finally give away the energy resource U.S. taxpayers paid to develop. While only fitting that nuclear energy should follow steel, autos, manufacturing, and chemical production overseas, as some might think, the American Public deserves to know.

Assets at risk
Delays approving new licenses should present long-term concern. Design licensing problems hamstring not only industry, but also government. The Department of Energy (DOE) now seeks a new hydrogen-based reactor technology, the Next Generation Nuclear Plant (NGNP). Underlying new plant construction’s problems are high nuclear costs, federal loan guarantees, and the need to qualify new construction techniques for those projects. Ironically, loan guarantees that Congress provided[iv] to stimulate nuclear construction will likely be the death knell for the last U.S. supplier. Slow license review progress on the EBWR disqualified it for Federal loan guarantees. Private lender insistence on Federal delay insurance signaled its demise. The irony is that the delays that Congress sought to insure against with guarantees have already begun. Moreover, the first victim will be the last U.S. nuclear reactor supplier, GE.

Other suppliers’ design submittals aren’t as far along as GE’s. Areva’s Evolutionary Power Reactor (EPR) started two years after GE; Mitsubishi Heavy Industries (MHI) started even later. However, to participate on NRC’s schedule, applicants must have a U.S. partner. Financial commitments demonstrate support. Areva, Westinghouse (Toshiba), and MHI all have partners. Furthermore, GE’s Hitachi-built ABWR and Mitsubishi’s APWR (formerly designed by Westinghouse) enjoy commercial operation and construction overseas. Westinghouse/Toshiba’s AP-1000, designed with an approved license in the United States, remains in construction in China despite the world’s economic recession. Financially weak, GE cannot support U.S design reviews that depend totally on promises and good faith efforts, backed only by GE Capital. Congress must decide whether the last American nuclear designer deserves its support now, and whether that is palatable to the public.

Like Areva, Westinghouse has plants under construction in China[v] and enjoys Toshiba financial support. Licensing its ESBWR GE faces an uphill battle. Word on the street is that NRC does not like GE submittal quality or demeanor.[vi] Nonetheless, resolving NRC’s concerns takes time. With the last U.S. utility partner’s cancellation, NRC’s Office of New Reactors, a weak parent company financial position and DOE’s NP 2010 program guarantees - all have forced utilities to cancel their ESBWR orders. Last week’s cancellation effectively shutdown GE. With no U.S. utility partners, NRC will shutdown GE design reviews, regardless of ESBWR design quality, safety or review progress. Without support to license here in the states, GE must cancel or sell the ESBWR.

In the past, owners sold off B&W, Westinghouse and Combustion Engineering to foreign interests. Areva, Toshiba, Hitachi, or even MHI would probably acquire those assets. (Areva, a French-owned designer, enjoys government financial support.) Any nuclear supplier needs the long-term commitment and resources to weather U.S. regulatory process development costs - or the capability to take nuclear sales overseas. Countries like France and Japan have already done that, building their designs at home and in Korea, Taiwan and China. Designs built abroad enjoy strategic advantage over U.S. licensing processes. Regulators also rebuffed buyers like Warren Buffet’s Berkshire Hathaway/MidAmerican Energy in buyout efforts. Buffet saved Constellation with a temporary cash infusion in the Market crash last year, but regulators forced Constellation’s sale to France’s Electricite de France (EDF) and Areva - the highest bidder.

In contrast with the U.S., countries overseas view nuclear development optimistically. While the U.S. may be destined to return to the sail power of yesteryear, others see green value in new nuclear generation: more reliable, more dependable and less capital intensive than the wind - all with no carbon emissions. Perhaps relinquishing our naval nuclear legacy to committed defenders overseas is only way to save our tattered nuclear industry. Neither Congress nor the new administration would block the sale of GE Nuclear to the highest bidder, overseas.

NRC’s Chairman even suggested that supplier internationalization[vii] would benefit the U.S. nuclear market. However, with GE’s exit, only international nuclear reactor suppliers will remain! Without a U.S. reactor manufacturer, U.S. nuclear regulations will move abroad following international standards and license groups, like International Atomic Energy Agency (IAEA).

War on Regulatory Complacency
The law requires preventing bias, but delays of any sort - government-induced, complacency, ignorance, complex processes, or lack of engineering expertise also warrant Congressional action. Economic consequences damage U.S. competitiveness and strategic energy interest. What good does creating new U.S. jobs do today, when regulatory burdens destroy more jobs tomorrow faster than Congress can ever create them? Bearing the costs of resolving nuclear safety issues, U.S. suppliers bear most regulatory burden, helping push them overseas. Look at history; U.S. taxpayers and ratepayers bore the costs of shutting down twenty cancelled U.S. nuclear projects in the 1980’s over construction, encouraged by licensing delays. LWR regulatory concepts applied to the high-temperature gas reactor also killed that era’s best prospect for safer nuclear designs. Although commendable in their intent, effective regulatory improvements need practice. U.S. nuclear regulatory process improvements have achieved too little, too late or not at all.

Continuing slow nuclear design will cost the U.S. more jobs lost, another bailout, and loss of last U.S.-owned supplier. Economic Recovery Act monies will not help companies in distress, like GE. Congress should allocate money to improve U.S. regulatory processes. While the NRC added roughly 1000 new employees over the past two years, they still need to improve license processes to speed new design reviews. Other options need consideration, too. When NRC’s Chairman Klein asked Congress for supplemental funding[viii], Congress ignored his request - in light of the continuing budget resolution. In economic crisis now, Congress has allocated monies for many other lesser projects. Still ignoring our U.S. nuclear legacy, turning the Chairman away empty-handed again on technicalities would be sadder, or even tragic.

Improving process effectiveness to reduce regulatory burden warrants focus today. Past Government Accountability Office (GAO) audits, though well-intended, missed the point - regulatory effectiveness. The U.S. NRC hasn’t tried processes like the Department of Commerce’s Baldrige Application; few at NRC perceive their critical need. In contrast, the Army Research and Development Center (ARDEC) in Picatinny, New Jersey is one Federal agency that performed quality-based effectiveness review. Congress should follow former President Kennedy’s lead and initiate efforts to improve government agencies, declaring war on economic complacency. Then Congress could ask the NRC to perform the Baldrige Process challenge!

Regulatory Uncertainty
Uncertainty in schedules certifying the ESBWR resulted in cancellation decisions. Both Entergy and Dominion claimed that their decision did not reflect ESBWR design criticism. Dominion stated, "We believe ESBWR…technological advances…keep it very attractive..." Entergy said, "This action simply reflects the fact that we have not been able to come to mutually agreeable terms and conditions with GE for potential deployment of an ESBWR." Unlike other certified designs, the ESBWR still must go a long way to achieve license certification. GE Capital can’t accept the financial risk that NRC will take four more years to finish license reviews.

Today Part 52[ix] licensing accepts lengthy reviews, despite faster performance forty-years ago. Reviews today take longer than Admiral Rickover used to develop the entire design-construct-test-run schedule for the USS Nautilus, in 1952. Furthermore, nuclear design improvements stem from Navy design foundations. Nearly sixty years support light water reactors (LWR) safety analysis. A half-century and thousands of reactor-operating years later, designer reviews progress at a glacial pace. Independent reviewers suggest there are faster ways to complete reviews of iteratively-improved LWR designs. Because greater uncertainty based upon regulatory status created potentially large loan guarantee program payouts, ESBWR projects fall into higher risk categories. Congress intended to protect our industry against government schedule delays by insuring project owner recipients. Even before the program started, however, regulatory delays eliminated the safer ESBWR. Ironically, in its attempt to promote safety, NRC reviewers guaranteed the very outcome they least sought. By slowing regulatory reviews and increasing their total project cost, they analyzed safer new designs to death. GE played the good guy, complying with laborious NRC processes, reviews and delays, never questioning schedules or impact on cost. They also lost.

Schedule uncertainty in industrial projects creates huge costs. Time drives costs; the time value of money for delay on a finished $10 billion project costs billions - depending on interest rates. Delays ended U.S. nuclear prospects in the 1980’s. Owners and their lenders who cannot predict how long a project will take to complete cannot predict its final costs. Interest expenses keep growing, along with other expenses like equipment rent, salaries for the design management team, work site services, regulatory fees… Whether owners and their constructors make progress or not, delays raise costs. Delayed nuclear projects in the past raised costs many times their original estimates, and regulatory burden’s associated delays contributed. The U.S. remains poised to repeat this tragedy, today. Despite Energy Policy Act of 2005 assurances, NRC Part 52 licensing, and congressionally authorized insurance (e.g., DOE’s NP 2010)[x], delays appear to be the order of the day, again. The first new nuclear cancellations, ironically, are safer designs that should lead the way. GE Nuclear is the first victim of new nuclear delays.

Regulated utilities painfully remember past lessons, including schedule delay costs. Their lenders remember those important lessons, too. They will not subscribe to endless projects with open-ended funding, no schedules, founded on meaningless cost projections with no guarantees. Customers care how much their power costs - utilities learned that from Public Utility Commissions (PUC’s)[xi]. They disallowed nuclear construction project “wasted” costs. Lenders now know that without the public’s blessing, regulators will not let their lenders - or borrowers, utilities - roll construction costs into the rate base. They suspect that “green energy” can easily turn red, once industry and ratepayers see real green energy costs hit their constituent’s bottom lines and pocketbooks.

At least two years behind GE’s ESBWR, Areva’s EPR and Mitsubishi’s APWR prospects survive. For Areva, its owner - the French government - has a plant under construction in Finland, commitments to build one in France and others around the globe. Areva will also build a French EPR at less than half the cost of building an EPR here in the United States. Other bids in Turkey and construction in China, makes their cost case argument compelling. Although not yet certified here, sales momentum around the globe for Areva’s EPR is increasing. Mitsubishi likewise remains poised for the long haul, even though their applications have just began. The real problem GE faces is a lack of total commitment. Lack of single-minded focus on their nuclear work - and the ESBWR - keeps them from pressing the NRC hard for schedule performance. Without overseas sales to support them, there’s little they can do.

Those who oppose nuclear plants claim that government assistance shows the nuclear renaissance is doomed to fail. They also know that regulatory delays kill any privately financed construction project. Look no further than the nuclear collapse in the 1980s - promoted by regulatory delays and their cost burden. Regulatory delays caused those financial losses that resulted in financial collapse. Ratepayers (and taxpayers) bore - and still bear - the cost of that collapse. Can the U.S., after a trillion dollars invested[xii], let that happen again? Congress alone is in a position to act. [END]

By: J.K August, PE
CORE, Inc
jkaugust@msn.com
303-425-7408/303-507-5272
[i] Florida Power and Light.
[ii] The nuclear industrial accident, March 28, 1979, in Harrisburg, PA.
[iii] Combined License Application, under Part 52 (Subpart C).
[iv] The U.S. Department of Energy (DOE) developed the Nuclear Power 2010 initiative (e.g., NP 2010) in accordance with the Energy Policy Act of 2005.
[v] AP-1000, for Advanced Passive, 1000 MWe net
[vi] Other submittals show NRC “requests for additional information” (RAI’s) are resolved statistically mostly by clarification; a few make changes to license design materials - less than 25%. Substantive changes in design are almost nil: around 5%.
[vii] Institute of Nuclear Power Operations (INPO), Atlanta, November, 2008
[viii] Senate’s Environment & Public Works (EPW) Subcommittee Hearing on Clean Air and Nuclear Safety July, 2008
[ix] Code of Federal Regulations, Part 52 (10CFR52): LICENSES, CERTIFICATIONS, AND APPROVALS FOR NUCLEAR POWER PLANTS
[x] To determine how best to invest $18.5 billion dollars in Congressional loan NP 2010 project guarantees, DOE NP 2010 ranked project viability using uncertainty. However, NP 2010 project design planning preceded the current economic crisis.
[xi] PUCs regulate public utilities, forcing them to be accountable for due diligence decisions that pass along costs to ratepayers in utility charge ratebases.
[xii] Total cost of all U.S. nuclear power development costs, including all commercial and U.S. Navy reactors, AEC administrative costs of the Atoms for Peace Program, DOE (including ERDA) development costs, and costs of U.S. Nuclear Regulatory Commission 1976-2009: $961 billions (2005 dollars).