Civil Nuclear Credit Program in the Bipartisan Infrastructure Bill

Pillsbury Winthrop Shaw Pittman LLP

The $6 billion program will help keep financially struggling nuclear power plants in competitive electricity markets online, with a goal to avoid an increase in greenhouse gas emissions.

TAKEAWAYS

  • The Senate-passed bill authorizes and appropriates $6 billion over four years ($1.2 billion annually) to the Department of Energy to help financially struggling nuclear power plants stay online.
  • In order to participate in the credit auction, reactor owners or operators must first certify the reactor through an application process which considers factors such as the cost needed to keep the reactor online, avoided air pollution, and the source of the reactor’s uranium.
  • Once certified, reactors must then submit sealed bids to the Department of Energy requesting credits on a price per megawatt-hour basis. The Secretary of Energy will then use an auction process to allocate credits to as many certified nuclear reactors as possible over the four-year period.

On August 10, 2021, the U.S. Senate passed the Infrastructure Investment and Jobs Act (IIJA) by a bipartisan vote of 69–30. In addition to funding for roads and bridges, the $1.2 trillion infrastructure package establishes a civilian nuclear credit program, authorizing and appropriating $6 billion over four years to assist nuclear power plants which are at risk of ceasing operations due to economic factors. While the program is aimed more at supporting specific at-risk units rather than broad industry support, the program could still be a boon to nuclear power plants in competitive electricity markets which have struggled in recent years to remain economically viable. However, a number of factors could raise concerns about the program, and reactors which are interested in receiving credits should act quickly to ensure they are prepared to apply once the IIJA becomes law.

Establishment of the program

The bill directs the Secretary of Energy to establish the civil nuclear credit program, under which Department of Energy will evaluate reactors which are at risk of ceasing operations, certify reactors for program eligibility, and then allocate credits to certified reactors over a four-year period. To become a “certified reactor” eligible for the program, a reactor must be located in competitive electricity market and be certified by DOE. DOE’s certification process must consider: (1) the economic circumstances of the reactor (e.g. operating costs, losses, and bulk power prices); (2) an estimate of the increase in air pollutants if the reactors were shut down; (3) information on the uranium used by the reactor; and (4) the reactor’s plan to sustain operations at the end of the four-year period.

Certification is only to be provided in circumstances where the Secretary determines that the reactor is expected to cease operations due to economic circumstances, air pollutants would increase, and the Nuclear Regulatory Commission has reasonable assurance of the reactor’s continued safe operation. Further, the IIJA directs the Secretary of Energy to not only consider information on where the reactor’s uranium is produced, converted, enriched, and fabricated, but also mandates that during the certification process the Secretary give priority to reactors which use “to the maximum extent possible,” fuel which was sourced, enriched, converted, and fabricated in the U.S.

Once a reactor has been certified, the bill directs the Secretary to receive sealed bids from the reactor owner or operator stating the price per megawatt-hour of credits they wish to receive. The credit must be capped at the reactor’s projected annual operating losses—inclusive of market risk—and also contain a commitment to provide a specific amount of megawatt hours over the four-year period. DOE will then evaluate the bids via an auction process. While the specifics of the auction have yet to be determined, the bill requires the DOE to develop a bid evaluation process with other applicable agencies, with the requirement to allocate credits to as many certified reactors as possible.

The bill also directs the Secretary to periodically audit reactors receiving credits, and to provide for recapture of the credits in the event the reactor ceases operations or fails to operate at a loss in the absence of the credits.

Applications to certify reactors will be due 120 days after the bill’s passage. While the bill provides room for a periodic extension of the program, it also mandates that no further credits may be allocated after September 30, 2031.

Analysis

While the program is aimed at supporting specific units needed for the energy transition, rather than broad industry support, the program could be a boon to eligible nuclear power plants in competitive electricity markets, which have struggled in recent years to remain economically viable. However, elements of the program are likely to be controversial and potentially raise concerns.

First, although DOE is required to consider certain factors, the bill does not establish objective metrics. The weight DOE could assign any particular factor is unclear, as is the metrics for evaluating the individual factors. The bill establishes minimum requirements for eligibility (expectation of shutdown, increase in air pollution, and reasonable assurance of safe operation) but does not require the Secretary to certify a reactor that meets the criteria for program eligibility. This broad and undefined authority could raise concerns about the potential for politicization of the certification process.

A second section of the bill the industry should be aware of is the emphasis on the reactor’s uranium source as a factor in certification. The bill not only requires the Secretary to consider information on where the reactor’s uranium is produced, converted, enriched, and fabricated, but also mandates that during the certification process the Secretary give priority to reactors which use “to the maximum extent possible,” fuel which was sourced, enriched, converted, and fabricated in the U.S.

Third, under the bill, a reactor’s certification application also must factor in all projected payments from state programs such as zero-emission credits or clean energy contracts when calculating its operating loss, unless the civil nuclear credit program would serve to reduce those state program payments. This provision could unduly penalize states that have been proactive in passing bills to keep struggling reactors operational.

Finally, the actual credit awarded to the certified nuclear reactor owner or operator will be allocated on a dollar per megawatt-hour basis for a committed amount of megawatt hours over the four-year period. The credit will be capped at the reactor’s average projected annual operating losses submitted in its application for certification. Thus, owners and operators should consider all operational and market risks contributing to annual operating losses when first submitting the reactor application. Further, if the reactor does not operate at an actual annual loss, the Secretary is authorized to “recapture” the paid credits.

Conclusion

Overall, the IIJA puts a significant investment, $6 billion, towards maintaining the existing nuclear fleet with a focus on avoiding emissions. Indeed, recent economic studies have estimated the Civil Nuclear Credit Program could result in an abatement of 82-116 million metric tons of emissions annually.

The bill is now set to be considered by the House, which may reject the bill, pass it as is, or pass it with further amendments. The IIJA is part of Senate Majority Leader Schumer’s two-track strategy to pass “hard” infrastructure spending in the IIJA and other additional social and clean energy programs through a second budget reconciliation bill. Speaker Nancy Pelosi has indicated she will not bring the IIJA to a vote until House Democrats vote to pass the $3.5 trillion budget reconciliation bill, but she has agreed to take a vote on the IIJA at least by September 27, 2021. While there are no specific provisions for nuclear in the budget reconciliation bill, it currently has a Clean Electricity Payment Program (CEPP) designed to promote all zero-carbon energy sources.

Utilities with nuclear plants in competitive electricity markets should pay special attention to how the statutory amendments proposed in the infrastructure bill play out during House negotiations and may wish to lobby their representatives to shape the outcome of the legislation. Pillsbury has seasoned nuclear and public policy attorneys who can assist with such efforts.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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