On February 11, 2022, Department of Energy’s (DOE) Office Nuclear Energy announced the launch of the $6 billion Civil Nuclear Credit (CNC) Program aimed at preserving the existing U.S. fleet of nuclear power reactors and the low carbon power they produce.  The CNC Program was established in the Infrastructure Investment and Jobs Act (Infrastructure Act or the Act), which was signed into law on November 15, 2021.  We summarized the nuclear provisions in the Infrastructure Act, including the CNC Program in a previous blog.

To bring the CNC Program from paper to practice, earlier this month, DOE issued a “Notice of Intent and Request for Information Regarding Establishment of a Civil Nuclear Credit Program” (NOI/RFI).  It provides notice of DOE’s intent to solicit applications to certify nuclear reactors that would be eligible to submit sealed bids for DOE credits.  DOE would then allocate credits to be issued over a 4-year period to owners/operators of certified, at-risk reactors through an auction process.  The NOI/RFI also provides an opportunity for interested parties to submit to DOE a non-binding notice of their interest in submitting a confidential application for the CNC Program, and seeks input from stakeholders on the establishment of a CNC Program including the application, certification, and selection processes through a series of RFI questions.

Responses to the NOI/RFI addressing general program design and bid process are requested on or before March 17, 2022, however because DOE intends to develop initial draft guidance for the certification applications during the general comment period, substantive responses relating specifically to the certification process should be submitted by March 8, 2022 to ensure that this feedback can be used to meet DOE’s expedited schedule.

We walk through an overview of the CNC Program as it is described in the Infrastructure Act and the additional, clarifying information that DOE provided in the NOI/RFI below.

Overview of CNC Program

As specified in Section 40323 in the Infrastructure Act, DOE is directed to allocate credits to “certified commercial nuclear reactors” that are projected to cease operations due to economic factors.  Under the legislation, a “certified commercial nuclear reactor” is a nuclear reactor that competes in a competitive electricity market and that DOE accepts upon application to the Civil Nuclear Credit Program.  After acceptance, the owner/operator of the plant is eligible to submit a sealed bid to obtain the credit.  DOE has indicated that it would like to allocate credits to as many certified reactors as possible.

  • Certification Application.  In certifying an application, a nuclear power plant owner/operator that is applying for the CNC Program must submit information on its business finances, operating costs, payment arrangements from local state entities (including zero-emission credits (ZECs) or other nuclear generation credits), as well as economic and environmental factors applicable to the plant and the source of its uranium fuel.  DOE will protect an applicant’s confidential information and will not make public that an applicant even applied for an award until such time as the applicant receives the award.

Specifically, the certification application must include the following details—

    • Information on the operating costs such as:
      • average projected annual operating loss in dollars per megawatt-hour and the cost of operational and market risks expected to be incurred by the nuclear reactor over the 4-year period for which credits would be allocated;
      • private or publicly available data with respect to current or projected bulk power market prices;
      • any out-of-market revenue streams;
      • operations and maintenance costs, capital costs, including fuel, and operational and market risks.
    • An estimate of the potential incremental air pollutants that would result if the nuclear reactor were to cease operations;
    • Known information on the source of uranium and the location where the uranium is converted, enriched, and fabricated into fuel assemblies for the nuclear reactor for the 4-year period for which credits would be allocated; and
    • A detailed plan to sustain operations at the conclusion of the applicable 4-year period for which credits would be allocated—
      • without receiving additional credits; or
      • with the receipt of additional credits of a lower amount than the credits allocated during that 4-year credit period.
  • Application Selection for Certification.  DOE will certify a nuclear reactor if, after considering the information submitted in the application, DOE determines that the nuclear reactor is: (1) projected to cease operations due to economic factors; (2) air pollutants would increase if the nuclear reactor were to cease operations; and (3) the Nuclear Regulatory Commission (NRC) has reasonable assurance that the nuclear reactor will continue to operate in accordance with its regulations and poses no significant safety hazard.
  • Bidding Process.  Upon receiving notice that a reactor has been certified, the owner/operator must submit a sealed bid that (1) describes the price per megawatt-hour of the credits desired by the certified nuclear reactor, which shall not exceed the average projected annual operating loss; and (2) includes a commitment, subject to the receipt of credits, to provide a specific number of megawatt-hours of generation during the 4-year period for which credits would be allocated.  DOE proposes to establish a process for certified reactors to submit sealed bids for credits with a deadline not more than 30 days following notification of the nuclear reactor’s certification.
  • Application Selection for Credits.  DOE proposes to establish a review process, using a review panel comprised of DOE personnel, who will evaluate the bids and make a recommendation to the Secretary of Energy for selection of certified nuclear reactors to be allocated credits.  DOE proposes to award credits by starting with the most cost-effective bids and proceeding until available funds are exhausted. Money for the CNC Program will be available from 2022 through 2026, and credits may be allocated through 2031.
    • Allocation of credits.  A certified nuclear reactor will receive credits for a 4-year period.  DOE will periodically audit the certified nuclear reactor during the credit period.
    • Recertification.  The owner/operator of a certified nuclear reactor may seek to re-certify the nuclear reactor in accordance with DOE procedures at the end of the 4-year credit period.
    • Limitation.  DOE may not allocate any credits after September 30, 2031, and DOE provides for the recapture of the allocation of any credit to a certified nuclear reactor that, during the relevant period, terminates operations; or does not operate at an annual loss in the absence of an allocation of credits.

Additional Information on DOE’s NOI/RFI

The NOI/RFI provides notice of DOE’s intent to establish and implement the CNC Program.  It  proposes key elements, related rationale to guide its evaluation of applications for certification, and additional information on selection criteria.

DOE proposed a number of elements in the NOI/RFI, implementing and expanding upon provisions in the Act, and which include the following:

  • Acceptance of Applications.  The Infrastructure Act directs DOE to accept reactor certification applications 120 days following the Act’s enactment (i.e., by March 15, 2022), after which time DOE will evaluate and issue a decision on certification within 60 days.
    • Reactors that receive State assistance including State ZECs, State clean energy contracts, or other State program assistance may apply for certification.
    • All non-certified reactors may apply during subsequent annual application periods. DOE proposes that applications for certification should be submitted for each individual reactor seeking credits.
    • An exception is offered if the applicant asserts that there are multiple units at a given site with substantially identical financial situations, operations structures, and costs in which case a single application can be made for multiple reactors.
  • Standards of Analyses and Representation.  Recognizing that the economic factors facing each reactor are specific to each owner and/or operator, and further recognizing that operating and market assessments may be inherently uncertain, DOE proposes to request that applicants for certification make a representation of the economic situation of the reactor.  DOE further explains that it may require applicants to provide their modelling approach, data, or methodology to support their claims of projected ceasing operations.
  • Evaluation of Applications for Certification.  DOE proposes to establish a review process, using a review panel comprised of DOE personnel.  The panel will verify that the applicant has addressed each relevant aspect of certification, consistent with requirements and evaluation criteria as specified in the Request for Application.
  • Credit Allocation and Funds Disbursement.  DOE intends to allocate credits to as many certified nuclear reactors as possible consistent with the intent of the Act.  Each award is intended to cover the 4-year period, with funds distributed annually based on the allocation of credits.  DOE may obligate up to $1.2 billion of appropriated funds in Fiscal Year 2022 for the CNC Program and amounts in excess of $1.2 billion required to fund awarded credits for subsequent fiscal years will be subject to the availability of funds.
  • Audit.  Market and operations circumstances may change over the award period, and the economic loss forecasted in the nuclear reactor’s original bid may, in practice, be over- or underestimated.  DOE intends to conduct a period audit of awardees, requesting a yearly operational and economic report from each awardee to assess any divergences from the projections made at the time of certification and the actual situation in each year with respect to economic circumstances and the status of the awardee’s contractual commitments, such megawatt-hours produced.  The schedule for annual reporting and funds disbursement will be determined by DOE and will consider the awardee’s business processes, the extent possible.
  • Adjustment.  In the event that actual economic performance during the period is such that the nuclear reactor did ‘‘not operate at an annual loss in the absence of an allocation of credits,’’ Section 40323(g)(2) of the Act requires DOE to provide for recapture of  allocated credits.
    • To reduce the need for recapture, it may be appropriate for DOE to create an annual settlement mechanism through which the value of a reactor’s credit allocation would be adjusted based on the bundle of market prices to which it is exposed. Similar to the market indices that State ZEC programs use, applicants may be required to propose an index mechanism or a strike price against which market price values would be netted, or DOE may select a generic index to be applied to all applications.
    • If an indexing mechanism is employed, DOE proposes the index should be tied to economic factors related to the nuclear reactor’s operating profit or loss, and might include, for example, change in energy and capacity prices and benefits received from federal and state programs such as tax credits that reduce economic loss.
  • Recapture.  If an adjustment to allocated credits as described above is not possible despite material changes in economic performance, or if the reactor terminates operations, DOE may recapture the allocation of credits in part or in whole in accordance with the Act.  The Act directs the Secretary of Energy to provide for the recapture of allocation of credits from a nuclear reactor if the nuclear reactor (a) terminates operations; or (b) does not operate at an annual loss in the absence of an allocation of credits.

The Infrastructure Act delineates specific criteria and provides discretion for the Secretary of Energy to define additional eligibility criteria for certification of a qualifying nuclear reactor.  DOE included the following seven categories of application selection criteria in the RFI:

  • Competitive Electricity Market.  The applicant must demonstrate that the nuclear reactor competes in a competitive electricity market.  Under DOE’s interpretation of the Act, a reactor may be deemed to compete in a competitive electric market regardless of whether it is owned by am merchant generation company, a regulated utility, a public power utility, or another entity.  DOE proposes that the applicant describe in detail how it compete in a competitive electricity market based on its exposure to market prices and other factors.
  • Economic Factors.  The applicant must demonstrate that the nuclear reactor is projected to cease operations due to economic factors.  Economic factors applicants should discuss include, but are not limited to, anticipated cost of producing electricity, market pricing, regulated revenues, monetized risk of using reasonable methods for the specific market, which may include impacts of renewables and clean energy mandates, and operation and maintenance costs,  The sum of these factors provides a projection of the average profit or loss associated with the ongoing operation of the reactor.   The application for certification should clearly state what business, operational, and market risk is relevant to the operating unit profitability, and how those risks are monetized.
  • Emissions Impact.  The applicant must provide an estimate of the potential incremental air pollutants that would result if the nuclear reactor were to cease operation. DOE proposes to consider estimates containing assessment of the impact on emissions based on six air pollutants (carbon monoxide, lead, ground-level ozone, particulate matter, nitrogen dioxide, and sulfur dioxide).  Applicants must demonstrate an increase in these emissions if operations of the nuclear reactor were to cease and the power generation were replaced with other types of generation.
  • Post-Support Operations Plan.  The applicant must provide a plan to sustain operations of the reactor after the 4-year award period, either without future credits or with a reduced level of credits.  DOE recognizes that at the time of application for certification, the applicant may not know what level of assistance may be provided through the CNC Program, and that post-support operations plans will be uncertain.  DOE proposes that the applicant include a description of actions that may be taken after the award period, possible changes in the market conditions over the 4-year period, or other anticipated circumstances.
  • Uranium and Fuel Source. The applicant must identify, to the extent known, where fuel for the reactor will be sourced over the 4-year period for which credits may be allocated, including the uranium, conversion, enrichment, and fabrication source. In determining whether to certify a reactor, priority will be given to a nuclear reactor that uses, to the maximum extent available, uranium that is produced, converted, enriched, and fabricated into fuel assemblies in the United States.
  • NRC Assurance.  The Act requires that the NRC has reasonable assurance that the reactor will continue to operate in accordance with its licensing basis and that it poses no significant safety hazards.  DOE intends to rely on input from the NRC.
  • Other Information.  DOE may require an applicant to submit other information that DOE determines to be appropriate in meeting the fundamental objective of the Act, to enable clean and safe energy generation.  Other information may include external and internal impacts to the application that may not be covered in the above-stated certification criteria.

RFI Questions

The NOI/RFI seeks comments regarding all elements of the proposed approach for the CNC Program described therein.  DOE also set forth 12 additional questions for comment.  DOE requests expedited submission of comments on the proposed approach to certification and the specific questions with respect to certification.

RFI responses shall include:

  • NOI/RFI title and reference number;
  • Name(s), phone number(s), and e-mail address(es) for the principal point(s) of contact;
  • Institution or organization affiliation and postal address; and
  • Clear indication of the specific question(s) to which you are responding.

Non-Binding Statements of Interest

In order to provide advanced notice of the number and type of nuclear reactors (i.e., those that are or are not receiving State support) that may wish to participate in the program, DOE is requesting non-binding statements of interest.

NOI Responses shall include:

  • NOI/RFI title and reference number;
  • Name(s), phone number(s), and e-mail address(es) for the principal point(s) of contact;
  • Institution or organization affiliation and postal address; and
  • An organization’s non-binding expression of interest in the CNC Program.

For additional information regarding this development, please contact the blog authors, Amy Roma, Partner, or Stephanie Fishman, Associate.