New Projects, Nuclear

Politics Aside, Challenges Remain

Issue 3 and Volume 113.

By Brian Schimmoller, Contributing Editor

As the Obama Administration and the new Congress settle into office, one issue both entities will have to address is how they will support (or not) new nuclear plant development. Early signs are cautiously favorable, but incomplete. While political actions are necessary and important, many other challenges face the new build that demand resolution. Several conference sessions at NUCLEAR POWER International in December addressed these challanges.

Financing is the day-glo elephant in the room when it comes to the new nuclear build: too big to ignore, too complicated to resolve. Alan Mawdsley with Bechtel discussed the various project financing options, spanning sponsor equity, commercial bank debt, capital markets, export credit agencies, federal loan guarantees and sovereign credit for developing countries. Because of the possible expanded role for export credit agencies (ECAs) in financing new nuclear plant, Mawdsley touched on some changes to repayment options through ECAs.

Under current rules through the Organization for Economic Cooperation and Development, repayment is limited to 15 years after completion, or 20 to 21 years door-to-door. ECAs are also required to charge a Special Commercial Interest Reference Rate (SCIRR), which is 0.75 percent above the standard interest rate charged by ECAs. Financing for local costs is limited to 15 percent of the export contract value.

Recent developments include potential co-financing by Japanese and French entities with the Department of Energy for new nuclear builds in the U.S. ECAs are also considering a potential extension of the 15-year repayment terms, elimination of the 0.75 percent interest surcharge and mortgage-type level payment amortization.

Bob Temple, Deputy General Counsel and Assistant Secretary for CPS Energy, San Antonio’s municipal electric and gas utility, described CPS’s rationale for its involvement in the new nuclear units being developed at South Texas Project. A “shared” win for its engineering/procurement/construction contract is essential to project success, said Temple. But in the current environment, the market for a firm, fixed-price contract at project start is not favorable. Margins demanded by contractors will not be reasonable and, if the contract is low-balled, the contractor will be back to renegotiate through force majeure, changes to law and so on.

In place of the time-and-materials contract, Temple suggested that nuclear developers pursue an EPC contract comparable to contracts used for conventional power plants. For example, start with a term sheet and fashion a larger contract around the agreed-upon terms. This approach enables participants to allocate risk to the party best able to manage it. He proposed developing a price using an “open book” methodology, fixing the fee, contingency and administrative cost as early as possible. By sharing the upside of good performance with the contractor, the chances for delays and litigation are minimized. Using this approach, Temple believes it is possible to fix terms early and fix price at the start of construction, after much of the engineering is complete and have greater certainty around project price and schedule.

Any discussion of current challenges in the nuclear industry would be incomplete without addressing workforce issues. Chris Morecroft with Progress Energy outlined the changing demographics of the nuclear workforce and the emerging “creative” steps that may be required to staff nuclear companies in the future. In a marked shift from the past 10 to 20 years, nuclear plants face the near certainty that they will have to deal with less experience and higher turnover. More employees will be coming directly from college or other industries and more employees will be willing to switch companies for better opportunities. Morecroft cited the results of a forthcoming survey by the North American Young Generation in Nuclear, which found that 20 percent of those surveyed were actively seeking new employment and more than 10 percent were considering new employment outside the nuclear industry. Notably, more than 50 percent of the respondents indicated they would be willing to relocate for employment.

The survey also identified the greatest perceived barriers to “doing your job well.” Highest on the list were cumbersome processes/procedures, work overload, inadequate training, and organizational issues. To combat these barriers, Morecroft emphasized the need for enhanced knowledge management, more effective use of operating experience, streamlined procedures and targeted training. He also touched on the need for more liberal employee retention efforts, development of portable qualifications for experienced hires and ramped-up efforts to identify and re-hire former employees.

Glenn Campbell with Bechtel said rather than requiring that a particular type of work activity be conducted in a single, centralized location, Bechtel is following a more distributed work scope model. Work occurs where it can be done most effectively and efficiently. Bechtel has also instituted a basic Nuclear 101 training program to overcome the fact that “we’ve skipped an entire generation” in terms of nuclear education, said Campbell. To encourage retention, Bechtel is implementing well-defined rotation programs to expose its new employees to a range of nuclear industry activities and is also offering competitive compensation and incentive packages where warranted. And in a high-profile nod to the importance of mentoring, Bechtel assigns seasoned industry veterans whose only job is to mentor less experienced colleagues.