Friday, June 26, 2009

Change NRC cost recovery rule for small reactors

A modest proposal to avoid killing off innovative reactor designs due to the expense of design certification reviews

In a widely read OP ED published in the Wall Street Journal on June 25, Bob Metcalfe, a well-known entrepreneur and venture capitalist, complained about the “high costs and astronomical risks” of the design certification process at the U.S. Nuclear Regulatory Commission (NRC).

seedmoneyHe points out there are at least five start-ups, some funded with venture capital, that are facing design certification costs of as much as $50-100 million each. Most of these costs, which the NRC must recover by law, will be driven by the fact that the new designs are not light water reactors. Hence,the NRC will have to spend considerable time moving up a steep learning curve at the applicant’s expense. For investors, that’s a lot of money and a lot of risk and all the while the product is not moving towards a market.

Metcalfe is right, and his complaint needs a solution

Mr. Metcalfe is absolutely right that the NRC's reactor design certification step is likely to be the place where the development of small reactors meets its fate. In an interview I conducted with NRC former chairman Dale Klein (left) June 16 in Atlanta, GA, at the annual meeting of the American Nuclear Society, he said that developers of small reactors will have to meet the same tests for safety as the big baseload plants.

NRC INTERVIEW“To be successful the firms promoting small reactors must do more than make sketches. There are the same serious issues with safety systems and reliability that the vendors of large system have to address. These issues apply with equal vigor under our regulations to small reactors.”

This is consistent with a speech he gave in 2008 when he said that small reactors had the NRC's attention and he called on the nuclear industry to work with the NRC to identify the key issues that would need to be addressed in the design certification process for them

The start-up firms that are developing new nuclear reactors in the range of 100-300 MW simply do not have $50-100 million to pay for NRC's review. Even billionaire Bill Gates, who's foundation is paying for development of a "Traveling Wave" reactor, may find he has limits when it comes to paying for government oversight.

The NRC has an important role in making sure nuclear reactors are safe. Congress needs to look at the cost reimbursement issue and make changes so that innovation in the nuclear industry isn't killed off by the way the NRC gets its funds.

A modest proposal in five easy pieces

There are lots of ideas floating around about what to do about Metcalfe's complaint. Here are five easy pieces for immediate action.

5easypiecesFirst, change the formula by which the NRC recovers costs from small reactors for design certification reviews. Instead of requiring the start-ups to pay for all of the costs, require them to pay for a complete application. In other words, hold them accountable for getting their design docketed by the NRC. This requirement will insure the NRC’s limited time, and stretched to the limit workforce, will not be wasted by stock speculators with kitchen table top sketches. Once the docketed application was in hand, the NRC would turn to a new line item appropriation to pay for most of the design certification costs.

2006_AESilverProof_O_180 Second, establish a line item appropriation to fund the NRC to conduct the design certification reviews of new reactors that are docketed and which meet certain technical criteria. Examples include power (less than 500 MW), the benefits of simplified design and below grade installation, in terms of reduced risk of coolant and core damage accidents, less fuel handling due to longer period of burn up of initial fuel load, and so on.

Third, the message to large reactor vendors, who will complain that this is a subsidy to their competition, is that they are well positioned to help sell and service these reactor designs once they are certified by the NRC.

While this proposal would significantly cut regulatory costs for start-up investors, they still face daunting challenges getting their products to market and that includes building or leasing manufacturing capacity. The large reactor vendors are in a position to form joint ventures with small reactor firms to supply manufacturing capacity and sales/distribution support in return for a combination of equity and profits.

salesFourth, the small reactors should consider forming a trade group to promote their interests which includes legislative proposals like this one. The cost of a lawyer and an engineer in Washington, DC, for a year probably could be had for less than $500,000. These firms should also form technical and regulatory working groups to provide input to the NRC on how it could streamline the current reactor design certification process for their innovative reactors without compromising safety.

Fifth, take the show on the road to the large reactor vendors. Convince them that there are potential profits to be had through joint ventures for manufacturing, sales, and services. Investors in small reactors want the fastest path possible to a return on investment. That means they don’t want to pay for or wait for small reactor vendors to build their own infrastructure or global marketing organizations. For instance, Mr. Metcalfe, the venture capitalist, if he did invest in one of these firms, would want to cash out from his position in five years.

What NRC and Congress can do now

There is also something for the NRC to do. It should start talks now with the small reactor firms and with its congressional appropriations committee to explore an alternative form of funding so that American innovation and export earnings don’t die on the vine because of the current cost recovery law.

Congress SealThe Congressional Budget Office (CBO) should be asked to calculate the cost of the change in NRC’s funding formula and also the benefits in terms of tax revenues from new businesses that would become profitable, along with their payrolls and high economic multiplier effects, once the reactor designs were certified for sale.

Energy Sec. Steven Chu could weigh in with a real commitment to the Next Generation Nuclear Plant (NGNP) making it a test bed for applications for small reactors, e.g., process heat, hydrogen production, as well as electricity. There is also work which is needed on fuel types, materials, and balance of plant, e.g., new types of turbines, that would benefit from government funded R&D. Small reactor vendors could work with the Idaho National Laboratory (INL) through Cooperative Research and Development Agreements (CRADAs) to move their R&D agendas ahead.

This isn’t a complete package, but there ought to be enough ideas for the small reactor start-ups to stop publishing OP EDs and start doing something to advance their interests. Their investors will likely thank them if they do.

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1 comment:

Robert Hargraves said...

Well said, Dan.

There is another strong argument for having Congress fund more of the costs of the NRC. In history we see that agencies funded by entities they regulate are ripe for conflict of interest that makes it difficult to say "no" to a request from a money source.

The most recent example of this is evident in the financial chaos of the current period, caused by crashes in the credit market by correlated securities that were improperly risk-rated by Moodys and S&P. These agencies were (and are) paid by the companies selling the bonds, not by the parties they were supposed to protect -- those buying the bonds. That change to seller funding was made decades ago, but eventually the conflict of interest matured into fraud.

Let's not do this to the NRC.