Company stumbles have Energy Dept., Capitol Hill worried about $450 million nuclear program

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Concern is growing at the Energy Department and on Capitol Hill about a combined $450 million of commitments made to two companies building next-generation nuclear reactors.

The Energy Department entered into separate, five-year cost-share agreements with Charlotte, N.C.-based Babcock and Wilcox and Portland, Ore.-based NuScale last year in hopes of getting their designs for a new type of reactor licensed by the Nuclear Regulatory Commission.

But last month, Babcock and Wilcox notified investors it couldn't find a majority stakeholder for the project, known as Generation mPower, three months after saying it wanted to reduce its role from majority owner to a 10 to 20 percent share. The company said it is now considering scaling back funding for the reactor, which is slated to operate at the Tennessee Valley Authority's Clinch River site in Roane County, Tenn.

That was a red flag for the Energy Department.

Peter Lyons, the assistant secretary of nuclear energy at the department, expressed concern about the Babcock and Wilcox news during a closed-door budget meeting with various groups earlier this month. Lyons said he needed to talk to the company about its plans, according to Autumn Hanna, senior program director with spending watchdog group Taxpayers for Common Sense.

"Pete Lyons seems like he was expressing some frustration with that during the budget briefing," Hanna told the Washington Examiner. "It doesn't seem like they're trying to hide that fact."

The House Energy and Commerce Committee is looking into Babcock and Wilcox's struggles. Senate appropriators are paying attention as well.

"I would say that appropriators are sitting up for this," a Senate GOP aide told the Examiner, later adding, "The sense is that things are not in a good place with DOE."

The Energy Department didn't comment on Lyons' remarks or on Babcock and Wilcox's situation. It said it stood behind the program, which hopes to push the technology through the licensing stage and then let the market decide the rest.

"Certainly this is a new technology, but we are committed to our technical licensing support program," spokeswoman Niketa Kumar told the Examiner.

The licensing program is focused on light water small modular reactors, which are intended to be much smaller — generally, a capacity ranging between 50 and 300 megawatts — than the large reactors operating around the world.

The Obama administration has touted the technology, which it sees as a way to reduce carbon emissions that contribute to climate change. It also contends the $450 million program -- Congress appropriated $113 million of it in fiscal 2014, $43 million above President Obama's request -- will help U.S. companies get a head start on the international market.

The NRC expects its first applications for licensing from Babcock and Wilcox to come this year. And, if the designs clear that process and can produce an operating facility by 2025 at the latest, the DOE will have accomplished its mission.

Still, the DOE does have some wiggle room if things get rocky (Hanna, of Taxpayers for Common Sense, argues it has too much room). Cooperative agreements like the ones the agency struck with Babcock and Wilcox and NuScale have contractual milestones — if they're not met, the department can back out.

The Energy Department declined to comment as to whether that was an option it was considering.

"The department is committed to the [small modular reactor] program and we remain in close contact with the awardee, including on the cooperative agreement milestones," Kumar said.

Detractors call the federal program a boondoggle, saying there's no market for the technology.

Hanna pointed to Babcock and Wilcox's inability to score a majority stakeholder -- NuScale isn't setting the world ablaze either, having brought on services firm Enercon to take an equity position in its project earlier this month -- as evidence.

Its proponents say the reactors are attractive because they don't impose the heavy up-front costs of larger models. They also possess passive safety features, meaning they can shut down without an operator or electricity during emergencies, and can be stored underground.

"Small modular reactors represent a new generation of safe, reliable, low-carbon nuclear energy technology and provide a strong opportunity for America to lead this emerging global industry,” Energy Secretary Ernest Moniz said when the department announced the NuScale deal in December.

But those outside the administration and the nuclear sector have one question: What industry?

There are few players in the light water small modular reactor space. Westinghouse, which had applied for the cooperative agreement with DOE, is winding down its operations. That leaves Holtec International as the only U.S.-based company without a DOE contract working on light water small modular reactors.

Few are looking to invest in nuclear technology when utilities and industrial consumers can build natural gas-fired generation for a song.

On top of that, the cost per kilowatt-hour for small modular reactors is prohibitive — Peter Bradford, a former NRC commissioner, said costs would need to fall between 20 and 25 percent to be competitive, but that companies haven't been able to achieve that. Boosters say cost issues could be remedied by placing multiple reactors near each other, but NRC regulations prohibit monitoring more than two from the same control room.

"The fundamental problem here is that there's no foreseeable market," Bradford told the Examiner.

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Zack Colman

Staff Writer
The Washington Examiner