The US Department of Energy (DOE) announced on April 19 that it is now accepting sealed bids from reactor owners and operators to receive initial credits under the Civil Nuclear Credit Program (CNCP). Concurrent with this announcement, DOE issued guidance to assist applicants in preparing the sealed bids.

DOE is limiting initial applications to owners or operators of reactors “that are projected to cease operations imminently and with a high degree of certainty,” with the hope that providing funding will prevent premature permanent cessation of operations. Recipients of initial awards must demonstrate to DOE that the reactor is projected to operate at an average annual operating loss in the very near term without the credits. Applications must be submitted electronically through DOE’s website by 11:59 pm MDT on May 19. As these credits will offer a lifeline to some of the existing reactor fleet, reactor owners and operators should closely review the guidance to ensure that they provide all the requested information and are able to qualify for the maximum amount of funds possible.

DOE’s announcement is the last of the government actions necessary to begin issuing the credits after the NRC recently announced it would use the Reactor Oversight Process to determine whether there was “reasonable assurance” that the reactor would continue to operate in accordance with its current licensing basis and that it poses no significant safety hazards, as required by the legislation establishing the CNCP. DOE is expected to notify entities that they been conditionally selected for a credit as soon as 30 days after the date of submission of sealed bids, or by June 20, with the final award selection and execution on October 1. DOE also expects to begin a second credit award cycle that will begin this fall; this second award cycle will not necessarily be limited to reactors that are at risk of permanent cessation of operations.

The Civil Nuclear Credit Program

Congress created the CNCP as part of the Infrastructure Investment and Jobs Act (the Act), appropriating $6 billion in total for the credits, with $1.2 billion allocated for fiscal year 2022. Credits awarded to a reactor owner or operator will be disbursed over a four-year period and recipients may reapply to receive additional credits after the four-year period ends, subject to available funding. DOE intends to provide credits to as many reactors as possible under the program.

To receive credits under the program, a reactor must first be certified by the secretary of energy as eligible to participate in the program. Earlier this year, DOE determined that it needed to evaluate seven criteria for potential CNCP recipients to fully implement the Act:

1. The reactor competes in a competitive electricity market.
2. The reactor is projected to cease operations due to economic factors.
3. An increase in air pollution emissions is likely to occur if the reactor were to stop operating.
4. The applicant provided a plan to sustain operations after the four-year award period without future credits or with a reduced level of credits.
5. The applicant, to the extent known, provided the source of the fuel for the reactor over the four-year period of the credits, including conversion, enrichment, and fabrication sources.
6. The NRC has reasonable assurance that the reactor will continue to operate within its current licensing basis and poses no significant safety hazards.
7. Other criteria identified by the secretary.

DOE’s Guidance

DOE’s publication of its guidance on April 19 lays out the full scope of the program and the specific criteria that DOE will use to evaluate an application. In support of their applications, DOE is requiring applicants to provide detailed information addressing all the criteria. From a financials perspective, applicants must provide information on the amount of committed generation a plant has, the projected revenue from the plant, and projected major capital costs, as well as the requested credits that they will receive. DOE also is requiring that applicants provide detailed information on plant operating revenue from the sale of electricity and other services, expenses, as well as operational and market risks. The information provided must demonstrate that the plant will operate at an average annual operating loss during the four years the credits will be provided. DOE promises to keep the information provided confidential and protect it from public disclosure to the extent possible.

For the initial award cycle, an applicant must also submit documentation it has made a “public filing on or before November 15, 2021 . . . announcing its intention to permanently cease operations . . . on or before September 30, 2026.” This public announcement may not have been withdrawn or contradicted and must have addressed “specific and verifiable market conditions” that have occurred or will occur by September 30, 2026. DOE defines public filings as including Certifications of Permanent Cessation of Operations filed with the NRC, Form 10-Ks or 10-Q filings with the Securities and Exchange Commission (SEC), or filings with state regulators. Applicants must also participate in a competitive power market, receiving 50% or more of total revenues from these markets.

Applicants must provide a “detailed plan to sustain operations at the conclusion of” the initial four years after receipt of the CNCP credit—i.e., for this initial award cycle, from October 1, 2022, through September 30, 2026. The Certification Application must also include the source of the reactor’s uranium and where it is or will be processed, including information on the countries of origin. Last, applicants must “use best efforts to maximize” procurement of uranium and conversion, enrichment, and fabrication into fuel assemblies from US sources. However, most licensed US uranium mines are on standby, and the only US conversion facility is not scheduled to reopen until early 2023. The resumption of US uranium production in the near term may also help dampen the effects of any future ban on Russian uranium imports, which we recently discussed.

DOE’s guidance also fleshed out DOE’s expectations for “other” criteria on which it will evaluate application. Specifically, DOE is requiring applicants to address: (1) workforce and labor considerations; (2) diversity, equity, inclusion, and accessibility issues; and (3) environmental justice considerations. For the workforce and labor considerations, DOE is requiring applicants to provide a brief description of their plan “to provide their workforce with high quality jobs, the free and fair opportunity to join a union, and family supporting wages.” Applicants are also directed to submit a Diversity, Equity, Inclusion, and Accessibility plan, as well as “a brief description of existing community engagement plans . . . and identify additional community engagement activities related to the continued operation of the facility, including any targeted outreach to environmental justice communities or underserved populations.”

Once a reactor owner or operator submits an application, it must be ready to respond to any request for supplemental information by DOE with five business days of receipt. Failure to respond within five business days will disqualify the application from further consideration.

DOE’s Evaluation Criteria

In making awards, DOE expects to allocate the credits via a “pay-as bid” auction, allocating credits to as many reactors as possible. To determine who will receive credits, bids will be ranked according to a “Adjusted Bid Credit Price” which is the product of an adjustment factor (calculated by subtracting from 1 the product of the “Average Domestic Fuel Content” multiplied by 0.05) and the average desired credit price submitted by the utility. DOE will award the total requested credits to the lowest rated bidder and continue the process until all bids are fully allocated with or there are insufficient credits remaining to fully allocate to the next bid. Any unallocated credits will be retained by DOE and may be allocated in future years.

DOE will publicly announce the reactors that are granted credits, along with the number of credits allocated and the average price per MWh. A reactor that submitted a bid but was not awarded a credit will not be announced. If fewer than three reactors are certified for an award, DOE may negotiate with the utility to determine whether or if to award any credits.

In the credit agreement that DOE plans to enter into with the awardees, DOE reserves the right to recapture any credits if a reactor terminates operations within the four-year award period or if it does not operate at an annual loss in the absence of the allocation of the credits. DOE plans to use the payment certificates that must be submitted to DOE by selected reactors as well as audits or any other information that may be received. This recapture may include the requirement that the awardee disgorge any portion of payments previously received if there was a “material misrepresentation” of the status of operations or economic condition of the reactor. DOE will also require it have the right to consent to assignment of the credit to any other entity, at DOE’s sole discretion.

Morgan Lewis will continue to monitor developments regarding the roll out of the credit program.