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Nuclear Generation Divestiture-Factors that Drive the Value of Nuclear Assets. January 31, 2001 . Morgan, Lewis & Bockius LLP. Agenda - Factors That Drive The Value Of Nuclear Assets. How Has The Industry Anticipated And Responded To Restructuring And Divestiture?
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Nuclear Generation Divestiture-Factors that Drive the Value of Nuclear Assets January 31, 2001 Morgan, Lewis & Bockius LLP
Agenda - Factors That Drive The Value Of Nuclear Assets • How Has The Industry Anticipated And Responded To Restructuring And Divestiture? • Review Of Alternative Structures And Industry Models • Once Divested, How Can Assets Be Restructured To Extract Value? • Structure To Accommodate Transition To GenCo • What Are The Key Issues Associated With GenCo Formation? • Review Of Major GenCo Issues
How Has The Industry Anticipated & Responded To Restructuring And Divestiture? • Alternative Structures • Service Company (SERVCO) • Operating Company (OPCO) • Operating Company With Power Pooling (POOLCO) • Generation Company (GENCO)
Service Company (SERVCO) • Key Characteristics • Performs agreed-upon scope of services for owners or members • Expenses shared pro-rata by owners or members • Maintains risks and benefits of cost-of-service rate structure • Not an NRC licensee • No transfer of nuclear asset ownership
Service Company (SERVCO) • Models • Utility Services Alliance • NMC (prior to formation of OPCO) • Southern Services (prior to formation of SONOPCO)
Operating Company (OPCO) • Key Characteristics • Provides operating services for owners or members • Expenses shared pro-rata by owners or members • OPCO is NRC licensed operator • Maintains risks and benefits of current cost-of-service rate structure • Plant staff may be employees of OPCO or owners/members • Owners take unit-specific output • No transfer of nuclear asset ownership
Operating Company (OPCO) • Models • STPNOPCO • Wolf Creek NOPCO • Southern Nuclear / Entergy Nuclear / FENOC • NMC
Operating Company With Power Pooling (POOLCO) • Key Characteristics • Provides operating services to owners or members • Expense shared pro-rata by owners or members • OPCO is NRC-licensed operator • Maintains risks and benefits of cost-of-service rate structure • Plant staff may be employees of OPCO or owners • Power output is pooled and taken pro-rata (hedges prolonged outage) • Expenses borne by each member according to “ownership share”
Operating Company With Power Pooling (POOLCO) • Models • None
Generating Company (GENCO) • Key Characteristics • Plant(s) are owned and operated by GENCO • Can be EWG or part of registered company structure • Power output can be dedicated to owners or market or both • Ownership share determined by valuation formula or mechanism
Generating Company (GENCO) • Models • AmerGen • Exelon • PSEG • PPL • Entergy Northeast
Once Divested, How Can Assets Be Restructured To Extract Value? • GENCO Structure • Formation • Public Ownership
What Are The Key Issues Associated With GenCo Formation? • GENCO Issues That Drive The Value Of Nuclear Assets • Regulatory Approvals • Decommissioning Assurance • Valuation • Financial • Governance
NRC • NRC approval of license transfer/license amendments required. • NRC review and approval of financial qualification (O&M) and decommissioning funding assurance may require: • 5 year projection of revenues and O&M expenses and possible parental guarantees to cover six month outage. • Non-bypassable wires charge, PPA or other assurances.
FERC • Filing under PUHCA for EWG status, based upon state findings, or GenCo is part of registered holding company structure. • FPA • Section 203 approval for transmission facilities or other “jurisdictional” facilities. • Approval of GenCo wholesale power sales contracts.
SEC • GENCO likely to qualify as EWG; if not, SEC approval required if transferring utility is part of registered holding company structure.
DOJ/FTC • Hart Scott Rodino (HSR) review to examine impact on competition in relevant markets for generation, transmission, and sale of power and purchase of nuclear fuel and services.
State PSCs • State approval required for transfer. • State determinations required to support EWG status. • State must find EWG status will: (1) benefit customers, (2) be in public interest, and (3) not violate state law. • State approvals required for PPA’s between GENCO and Former Utility Owners. • State order to collect non-bypassable charge for decommissioning and pay to trust held by GENCO.
Decommissioning Assurance • Assurance through wires charge (or prepayment, PPA, surety, parental guarantee)
Valuation • Present value of net cash flow • Price projections/operating cost estimates/output/remaining lifetime • Major capital additions, life extension, power uprates • Decommissioning funding • Freeze versus periodic adjustments • New members
Financial • GenCo not exempt from financial assurance review (O&M assurance and 6 months outage coverage) • Limitations on asset transfers from bond indentures • Decommissioning tax issues (transfer of qualified fund and future wires charges) • LLC and tax-free transfers • Tax-free formation of GenCo Corp.
Governance • Valuation and board representation • Ongoing controls and supermajority issues (e.g., capital additions, withdrawals, new members, budgets, senior management) • Decision to go public • Capacity and revenue criteria • % of membership required • Renegotiation of current arrangements and minority owner interests
Nuclear Generation Divestiture-Factors that Drive the Value of Nuclear Assets January 31, 2001 Morgan, Lewis & Bockius LLP