Tom Houghton September 20, 2005

1. Creating the Business Environment for New Nuclear Plants:Financing, Regulatory, Workforce, and Manufacturing/Supplier Issues Tom Houghton September 20, 2005

2. Momentum Toward New Plants • Proven performance, safety • Improved regulatory oversight, licensing • Need for Power and other benefits • New License Process being tested • Barriers: • Financial • Regulatory? • Workforce • Manufacturing/Suppliers

3. Nuclear Plant Output:Growth During the Last Decade Equivalent to 23 new 1,000-megawatt power plants Billion kWh Year Source: EIA – Updated 11/04

4. Industry PerformanceIs Consistently Excellent 90.7% in 2001 91.9% in 2002 89.6% in 2003 90.5% in 2004* *NEI Estimate for first three quarters of 2004 Source: EIA & NRC

5. Oil 5.53 Gas 5.77 Coal 1.8 Nuclear 1.72 U.S. Electricity Production Costs(in constant 2003 cents/kWh ) Source: Federal Energy Regulatory Commission/EUCG

6. Emission-Free Sources of Electricity Source: U.S. Energy Information Administration

7. The Need for New Generation • US needs 300,000+MW of new generation by 2025 • Baseload needed after 2010 • Increased environmental controls raise siting and cost problems for fossil fuel plants • US industry needs low cost energy to sustain global competitiveness • A diverse and balanced generating portfolio • Non/low-emission base-load generation • Nuclear -- lowest cost base-load generating option

8. Reduce US Dependency on Foreign Suppliers • 1,000MW capacity combined cycle plant operating at 90% capacity factor • Natural gas fired ~ 77 billion cu.ft/yr. • Oil fired ~ 12 million barrels/yr • By 2015 10% - 15% of US natural gas supplies will be from non-North American sources • Nuclear can help stabilize natural gas demand, lower costs, improve price predictability, and reduce dependency on foreign suppliers

9. New Nuclear Plants? • None ordered for 30 years • Reasons • Poor industry project management • Design/Construct-As-You-Go approach • Unreliable and prolonged construction • Massive financial impact for some companies • Inefficient, unpredictable & unmanageable licensing process • Until mid ‘90s an anemic operating record

10. Industry Project Management Problems -- Addressed • Industry initiatives to improve economic competitiveness • Applied lessons learned from problematic construction projects • Standardization • Intensive planning using standard practices • Modularized construction • Computerized design and scheduling • Outages reduced ~ 30 days • Benchmarking

11. Licensing Problems Being Addressed • 1989 – 10 CFR Part 52 • Introduced a new licensing process for new nuclear plants • ITAAC (Inspections, Tests, Analyses and Acceptance Criteria) • Provides more information earlier with more opportunity for public comment and input • Resolves issues and contentions earlier • Reduces uncertainty • Requires increased planning and project discipline

12. How Does The NewLicensing Process Work? Three-part process: • Early site approval • Design certification • Combined license for construction and operation

13. Early Site Permits • Site approval obtained before company decides to build • Company “banks” site up to 20 years • Decision made, design chosen later • Greater certainty in moving forward

14. Design Certification • Advance NRC approval for standardized plant designs • Lengthy delays avoided before site preparation, construction • Four designs approved to date

15. Combined Construction and Operating License • One license for operating, building plant • Option for referencing certified design, early site permit or both • Early focus of public comment on plant ownership, organization, operations • Greater regulatory certainty, bolstering financial certainty

16. Public Comment Opportunity: Old Licensing Process Construction Permit Application * Construction Operating License Application Operating License Issued * Operations * Public Comment Opportunity

17. Public Comment Opportunity: New Licensing Process Early Site Permit * Construction ITAAC satisfied * Combined License * Construction Operation Design Certification * * Public Comment Opportunity

18. NEI 2006 Business Plan

19. Sustaining Nuclear Infrastructure 3-5 year Goal Provide industry leadership and coordination in identifying and addressing the critical nuclear workforce, fuel, and physical (manufacturing/ supplier) infrastructure needs that will: • Support continued safe, reliable and economic operation of current plants, • Ensure that physical and human resources are available for new plant design, licensing, construction and operation, and • Maintain investor confidence in the industry and its future

20. New Plant Objectives & Goals • Start construction of at least one new commercial nuclear power plant in 2010 • Start construction on at least three additional plants, including at least one merchant plant by 2012

21. NEI New Plant Task Forces

22. Financing Issues • Significant changes in electricity industry since 1970s • Many companies not operating in cost-of-service • Wall St. uncertainty over unproven licensing process • 2% - 5% Premium for first new plants • Large capital projects diminish financial performance metrics – earnings per share, etc • Innovative approaches to financing large capital projects • Consortium approach • Financial structure & incentives to overcome first-of-a kind costs and perceived licensing uncertainty • Loan guarantees, accelerated depreciation, tax credits,…

23. Financing: Industry Requirements • Investment stimulus • Offset higher cost of first units • Ensure first new plants are economically viable • Mitigate earnings dilution • Provide required returns to debt investors (8-9%) and shareholders (15%) • Investment protection • Protect project developer against delays due to factors beyond project developer’s control

24. The Energy Policy Act of 2005 • Price-Anderson Act renewed for 20 years • Crucial for new plants to proceed • Antitrust review eliminated • Nuclear Security • New rulemaking for Design Basis Threat • Force-on-Force • Personnel and Training • Exempts nuclear industry from implementing DOL training guidelines • Saves millions of dollars in addition to what has already been done to meet NRC requirements

25. The Energy Policy Act of 2005 • Loan Guarantees up to 80% of project cost • Self-financing Energy Loan Guarantee Fund • Any innovative energy technologies that “avoid, reduce, sequester air pollutants or anthropogenic emissions of greenhouse gases” • Either pay cost of guarantee upfront or over life of project • Could save $ 300 million in interest costs • Standby Support for New Reactor Delays • Financial/lost sales for delays beyond control of owner • Regulatory Failures • Litigation • 100% cost of delay up to $500 million for first two plants • 50% cost up to $250 million for plants 3-6

26. Production Tax Credit of 1.8¢ / kwh • Places nuclear on equal footing with renewables • For 6000 MW of capacity from new nuclear power plants for their first eight years of operation • Pro rated between new plants based on Secy Energy allocation • = Allocation in MW/nameplate MW* 1.8¢ * KWH generated • Example: 750MW allowance/1000MW plant could receive 1.35¢ * KWH generated • Limited to $125 million/ 1000MW allocated • Example: a 1350MW plant with a 1350MW allowance could receive up to $169million • 1350MW * ($125M/1000MW) = $168million

27. Decommissiong Funds • Eliminates distinction between qualified and non-qualified funds • Amounts collected prior to 1984 were non-qualified • Can now be expensed over life of plant • and earnings taxed at 20% vs. 35% • Represents about $1.3 billion in industry savings • Also eliminates distinction between “cost-of-service” and merchant plants • Will allow new plants to deduct payments into decommissioning fund • Net Present Value of funds needed: $108million

28. Authorizes $ 2.7 Billion for Nuclear Research and Development • Advanced fuel cycle initiative to evaluate recycling and transmutation • University science and engineering support • Nuclear Power 2010 Program • Generation IV reactor initiative • Next generation nuclear-hydrogen cogeneration ($1.25 billion) • Demonstration of hydrogen generation at two existing nuclear plants ($100 million)

29. Current Deployment Status • 3 ESP applications progressing • Permits to be issued in 2006/7 • AP 1000 on track for being certified • GE ESBWR submitted in August 2005 • Framatome EPR DC submittal in 2007 • DOE signed agreements with three consortia • Detailed design & preparation of COL applications • Dominion & 2 NuStart COL submittals late 2007

30. Regulatory Process & Technical Issues • ESP • Environmental finality • Seismic ground motion methodology and high frequency • ITAAC process and Construction Inspection Program • Industry & NRC comprehension of Part 52 process • Contents of a COL application (NEI 04-01)

31. Time-to-Market • First applications • ESP 33 – 36 months • Design Certification 36 – 60+ months • COL 27 – 48+ months depending on whether application references DC and/or ESP • Nth applications • COL 22 months – 36 months • Does the applicant reference ESP? • Environmental reviews controlling factor • COL issuance to commercial operations 48 - 54 months

32. Workforce Issues • 50% of workforce will retire in the next decade • Knowledge retention a major issue • Shortages in engineers & health physics • Hiring now to ensure knowledge and experience is transferred before 2015 • Major concern in shortages of skilled trades • Health physics technicians, I&C, welders • National program with Dept. of Labor, unions, schools, universities & community colleges to ensure sufficient skilled workers are available

33. 2001 Survey Predicted Need for 90,000 New Workers

34. 2001 Survey Predicted Insufficient Number of Degreed HPs and Nuclear Engineers

35. 2003 Survey Indicated Challenges Potential Retirees: ~16,000 (28%) General Attrition ~10,000 (18%) 1. Potential Retirees are defined as employees that will be older than 53 with 25+ years of service, or older than 63 with 20 years of service, or older than 67 within the next five years. Source: NEI Nuclear Staffing Survey

36. Workforce Deliverables • Report on workforce needs through 2020 • Expand state and federal funding for workforce programs • Conduct senior leadership development on strategic issues, policy interactions, and communications • Implement supplemental staffing action plan • Coordinate nuclear focus at three national recruiting events • Increase NEI participation on visiting committees of engineering schools

37. Physical Infrastructure Issues • Qualified suppliers of nuclear equipment, components, materials and commodities • Fabrication capability and capacity for forging large components such as reactor vessels • Long lead times for major components • Adequate supplies of commodities (e.g., SS pipe, specialty metals) • Modular construction capabilities • Transportation • Competition for scarce resources should worldwide demand for reactors surge • Political and economic risks of offshore production

38. Physical Infrastructure Deliverables • Establish industry task force to frame physical infrastructure issues (8/3/05) • Conduct analysis of key components/commodities • Based on vendor construction schedules/lead times • Apply plant order scenarios to determine demand • Conduct analysis of current suppliers vs. planned needs for new construction • Demand scenarios • Global demand • Other US infrastructure demand (Power plants/Refineries • Develop integrated strategy to address physical infrastructure issues

39. Conclusion • NEI is moving forward on many fronts to support new plant deployment • Regulatory • Financial • Workforce • Manufacturing and Supply