March 01, 2016

Moving Targets: Nuclear Power as a Component of EPA’s Clean Power Plan

Jeffrey H. Wood, Millicent W. Ronnlund, and S. Michael Madison

Not long ago, many anticipated that regulatory dynamics and market factors would herald a nuclear renaissance in the United States. For its part, the Nuclear Regulatory Commission (NRC) increased staffing levels to handle an influx of anticipated new license applications, and several states and utilities cooperated to make plans for building a fleet of new, state-of-the-art nuclear reactors. Despite signs of rapid growth in the last decade, the renaissance has been slower than anticipated due, at least in part, to market realities resulting from the natural gas boom, the cumulative costs of nuclear regulations, and lingering hurdles related to the disposal of used nuclear fuel.

In the meantime, a policy debate has arisen over the role nuclear power should play in an energy future in America amidst calls by some for substantially reducing greenhouse gas emissions. One prominent forum for this debate has been the Clean Power Plan (CPP) issued by the U.S. Environmental Protection Agency (EPA). Indeed, the administrative record for the CPP suggests an internal struggle within the executive branch—and among stakeholders—concerning nuclear power’s place in the broader context of emission reduction programs, with some in the administration pressing for nuclear energy to be elevated, while others are seemingly inclined to leave nuclear out of the discussion altogether.

A November 2015 nuclear summit at the White House endorsed a “major role” for nuclear power, but the internal debate over the proper role of nuclear power in the CPP had previously led to a proposal that tucked nuclear power into the CPP’s emissions target-setting formula in an odd and somewhat inexplicable manner. As part of the target-setting formula in the originally proposed CPP rule, EPA essentially disqualified reactors currently under construction from helping their host states achieve designated emissions goals. This proposal had the effect of penalizing just three states—Georgia, South Carolina, and Tennessee—where new nuclear reactors are currently under construction or preparing for operation. For states like these that are investing in new nuclear power plants, it was disconcerting, to say the least, to be told that their emissions targets would be substantially more stringent (that is, more difficult to achieve) because those states made the proactive decision to invest early in new nuclear power.

More broadly than just new units, the proposed rule’s target formula also incorporated an unusual “at risk” factor—essentially 6 percent of existing nuclear capacity—that had the effect of modestly increasing the stringency of the targets for states with existing nuclear reactors, while the proposal also largely ignored opportunities and advantages for increased electrical output through “power uprates” at existing reactors. An uprate is the process by which existing nuclear reactors increase the electrical output of the plant by taking advantage of new technologies and efficiencies.

Comments by industry and other stakeholders led to changes in the final rule that better acknowledge the role nuclear power can play in achieving the CPP’s goal of a 32 percent reduction in carbon dioxide (CO2) emissions by 2030 (relative to 2005 levels). See 80 Fed. Reg. 64,662 (Oct. 23, 2015). Whether EPA’s final rule hit the right target legally, on the whole or for nuclear power specifically, continues to be the subject of much debate and litigation. Questions pertaining to nuclear power are bound to be much less significant in the total context of the rule challenges than broader issues, such as EPA’s authority under section 111(d) of the Clean Air Act to regulate “beyond the fenceline” of a fossil plant. For the thirty states that currently rely on nuclear power or may consider doing so more in the future as a means of emissions reduction, however, the CPP rule raises a number of important legal and policy considerations.

Nuclear Power Landscape

Currently, ninety-nine nuclear power reactors are operating at sixty-three different nuclear plant sites across the United States. Nuclear power plants produce about 20 percent of the nation’s electricity and 63 percent of all carbon-free electricity. With many older fossil-fuel power plants coming off-line and energy demand increasing, new nuclear power output should be able to play an important role in the nation’s future energy mix.

In 2014, nuclear power plants had a capacity factor—the ratio of power production over an amount of time to the continuous, full-power operation during the same time—of 91.8 percent, a record-setting number. See NRC, 2015-2016 Information Digest; Appendix A Dataset, (NUREG-1350, vol. 27, August 2015). Nuclear power plants operate for anywhere from eighteen to twenty-four months between refueling periods. In contrast, renewable energy sources such as wind and solar power have much lower capacity factors: around 35 percent for wind, 28 percent for photovoltaic solar, and 20 percent for thermal solar in 2014. See U.S. Energy Information Administration, Electric Power Monthly, August 2015. The practical reality based on these differing capacity factors is that a reduction in the overall output of nuclear power will, in all likelihood, have a corresponding increase in the use of fossil fuels because wind and solar are intermittent and not sufficiently reliable to provide baseload power.

The aging nuclear fleet in the United States further compounds the need for investment in expanding new nuclear power as well as support for relicensing of current nuclear power reactors. Most of the nuclear power reactors in operation today are at least twenty-five years old. In the last four years, five nuclear reactors have been shut down, and electric utilities plan to shut down more reactors in the near future, including the Pilgrim reactor in Massachusetts and the Fitzpatrick reactor in New York. These shutdowns occurred as a result of economic realities associated with costly repairs and extended regulatory safety reviews and the availability of natural gas as an alternative fuel at attractive prices. Even without the loss of other nuclear reactors, to maintain nuclear’s percentage of the energy mix in the coming years, new nuclear investment and initiatives to extend the safe operating life of existing plants are required.

Despite the decline in nuclear power in the United States—by some estimates the percentage of nuclear power nationally has dropped by approximately 1 percent in recent years—many reasons for optimism about its future remain. For example, progress is being made on the back end of the fuel cycle, a long-standing issue unique to nuclear power impacting both existing and new plants. The NRC published the Continued Storage Rule in 2014, finding that spent nuclear fuel can be safely stored above ground in dry casks for the short and long term. 79 Fed. Reg. 56,238 (Sept. 19, 2014). Assuming litigation challenges to this rule are unsuccessful, this determination should remove doubt over the ability of nuclear power operators to safely store their spent fuel until permanent storage can be properly designated. And, while the devastating events at the Fukushima Daiichi Plant in 2011 halted nuclear power production in Japan and raised concerns globally, the resulting regulatory scrutiny and upheaval in the United States has largely subsided now. Since then, the U.S. nuclear power industry has incorporated numerous lessons learned from the incident. Even Japan has begun to bring some of its nuclear power reactors back online. Paul Armstrong, Japan Restarts First Nuclear Reactor Since Fukushima Disaster, CNN (Aug. 12, 2015).

Moreover, advances in technology promise to make nuclear power safer, more efficient, and more economically viable than ever before. New nuclear reactor designs have passive safety features that can maintain reactor core safety for multiple days even in the event of a loss of all off-site power. These new technologies allow for the construction of plants in modular phases, require fewer components and valves, allow for standardization of design, and have a smaller footprint than previous reactors. Globally, 67 nuclear power reactors are under construction, and additionally, 166 more reactors are planned to come online by 2030. Five new nuclear reactors are under construction or preparing to begin operation in the United States. One is at TVA’s Watts Bar facility in Tennessee, where construction recommenced in 2007 after being suspended in 1985, and which is scheduled to begin operating in 2016. The four other reactors utilize the new Westinghouse AP1000 design: two at the existing Vogtle Electric Generating Plant in Georgia, and two at the existing V.C. Summer Plant in South Carolina. Together, these units will provide more than 5,600 megawatts of new, emissions-free electricity.

Most recently, at the November 2015 White House nuclear summit, the Obama administration announced several plans and initiatives to sustain and advance commercial nuclear energy production. Among these initiatives are plans to create a nuclear energy infrastructure database, provide small business vouchers to incentivize research and innovation in new reactor design, establish research and development groups, and support the licensing of small-modular reactors. Office of the Press Secretary, FACT SHEET: Obama Administration Announces Actions to Ensure that Nuclear Energy Remains a Vibrant Component of the United States’ Clean Energy Strategy, (Nov. 6, 2015). Questions remain about the administration’s commitment to actually expanding nuclear power and the effectiveness of these new programs in light of increased regulatory burdens and noncompliance with the nation’s used fuel laws (e.g., the D.C. Circuit recently ordered the administration to stop collecting nuclear waste fees from electricity ratepayers because of a failure of the government to comply with existing disposal mandates). See Nat’l Ass’n of Regulatory Util. Comm’rs v. U.S. Dep’t of Energy, 736 F.3d 517 (D.C. Cir. 2013), rehearing en banc denied, 2014 U.S. App. LEXIS 5200 (2014). Nevertheless, positive sentiments regarding the future role of nuclear power at the summit echoed EPA’s assertions that the CPP “ensures that zero carbon nuclear power will continue to play a prominent and meaningful role in America’s energy mix.” EPA, FACT SHEET: Clean Power Plan—Opportunities for Nuclear Power, (Dec. 3, 2015).

The Clean Power Plan and New Nuclear Construction

EPA’s proposed CPP, issued in June 2014, sought to specify emission guidelines for states to follow in developing plans to curtail greenhouse gas emissions from existing fossil fuel–fired electric generating units (EGUs). See 79 Fed. Reg. 34,830 (June 18, 2014). As proposed, the CPP set ambitious CO2 emission reduction targets for each state based on a litigable theory of EPA’s powers under section 111(d) of the Clean Air Act. The centerpiece of the CPP proposal was a complex formula designed to reflect EPA’s determination for the “best system of emissions reduction.”

The formula in the proposed rule was based on four technical areas termed “building blocks.” The first two building blocks called for emissions reductions “inside the fence line” of existing fossil fuel–fired EGUs. The fourth building block, which took into account the potential of energy efficiency methods to arrive at the state standards, was removed in the final rule. The third building block proposed achieving the reduction in emissions by substituting increased electricity generation from new, zero-emitting renewable energy sources, including new nuclear reactors. This formula was used to establish emissions goals for each state. State goals were determined by dividing CO2 emissions from fossil fuel power plants by a state’s electricity generation from fossil fuel–fired power plants and certain low- or zero-emitting power sources. 79 Fed. Reg. at 34,896.

As it relates to new nuclear reactor construction, the proposed formula included the five nuclear reactors under construction for their respective states as if these reactors had already gone into service and were currently producing electricity. Id. Including these under-construction nuclear reactors in the formula would result in substantially lowering the target emissions rates of Georgia, South Carolina, and Tennessee. In doing so, the EPA effectively proposed denying these three states any additional compliance benefit from these projects. The EPA proposal made reducing emissions to the applicable standards exceptionally more difficult on these states because, as proposed, the emissions benefits achieved by the new nuclear units would have been baked into the targets.

The proposed rule also failed to recognize any laws and policies in these states that promoted the development of new nuclear units. See 79 Fed. Reg. at 34,858. Each state in question has stated policies supporting the continued expansion of nuclear power. Furthermore, each of these states is a member of the Southern States Energy Compact, which has advocated for additional nuclear reactor construction. EPA’s CPP proposal essentially ignored these state laws and policies.

Further increasing the burden on these states, in accounting for the additional electrical output made possible by these under-construction nuclear reactors, the EPA proposal assumed a 90 percent capacity factor for these new reactors. Although such performance is achievable (as demonstrated by the industry in 2014), it came as a result of years of industry experience operating the current nuclear fleet. It will take time to gain a similar level of expertise with new nuclear reactor technology. Early adopters of new nuclear reactor technology should not be penalized for the growing pains associated with implementing a first-of-a-kind technology. A 90 percent capacity factor does not account for unexpected shutdowns or the fact that these new reactors may not run at full capacity at start-up while operators are still testing and calibrating the new plants. In the event that a reactor did fall below the 90 percent capacity factor, a host state would have had to make up that difference in its target emissions reductions from a potentially more expensive source in order to avoid penalties for noncompliance.

This method also treated under-construction nuclear reactors differently from under-construction power facilities utilizing renewables. Unlike under-construction nuclear reactors, renewable energy projects currently under construction were not included in the state goals calculation, effectively making the targets for those states with renewable facilities under construction easier to meet. Because both nuclear and renewables are carbon-free sources of electricity production, many suggested that they should be treated uniformly under the CPP. The states’ decisions to invest in nuclear power, at least in part, can be attributable to predictions of emissions reduction standards and a national energy plan that encouraged investment in new nuclear reactor construction. To penalize states for taking preemptive action through nuclear reactor construction after the fact would undercut the goal of meeting the overall emissions standards. Furthermore, it would increase the burden on the states to further reduce emissions through alternative means.

After receiving numerous comments from interested parties, EPA revised its treatment of under-construction nuclear reactors and removed their operational output from the state goals calculation. 80 Fed. Reg. 64,661, 64,747 (Oct. 23, 2015). In addition, EPA clearly stated in the final rule that new nuclear output realized from these plants will count toward compliance with the CPP. As a result, new nuclear generation will continue to be an avenue through which compliance is achieved. In fact, in states with new nuclear power plants coming online, key decisions about CPP compliance strategies for the state, such as whether to employ a rate-based or mass-based approach, are being driven largely by nuclear-related considerations. According to EPA, new nuclear generation (as well as new renewable generation) provides a direct benefit to states choosing the rate-based approach in the form of emissions reduction credits for the increase in carbon-free energy production. EPA, FACT SHEET: Clean Power Plan, supra.

By treating nuclear power and renewable energy sources consistently (that is, excluding new capacity from the target setting calculation while allowing states to rely on new generation to show compliance with the targets), EPA resolved a key inconsistency in its proposal and helped alleviate one of the major concerns of the nuclear sector in relation to the CPP.

The Clean Power Plan and Existing Nuclear Power

One of the most unusual aspects of EPA’s proposed rule was the 6 percent “at risk” factor for existing nuclear power that was incorporated into the target setting calculation. This factor was intended to account for a purported 6 percent of overall nuclear capacity in the country that EPA believed was at risk of shutting down. There were many flaws with this aspect of the proposal, not the least of which was that any such at risk factor would be essentially zero for many, if not most, existing nuclear power plants, although certainly some reactors—mainly in merchant markets—are facing increasing challenges. Furthermore, this factor was impractical because no nuclear power facility could retire only 6 percent of its production; it is an all-or-nothing situation. This position also failed to account for the fact that the risk of nuclear reactors being shut down varies greatly from state to state. A one-size-fits-all approach was inappropriate, particularly when calculations are performed on a state-by-state basis. Hence, it was not surprising that the final rule removed this factor entirely.

Some have expressed concerns that the final rule left existing nuclear reactors without a central role in the CPP framework. It is true that states receive no direct credit in the final rule based on existing nuclear facilities; however, this concern was mitigated to some degree by other aspects of the final rule. For example, the final rule takes into account “uprates” at existing nuclear reactors. 80 Fed. Reg. at 64,902. As of April 2014, the NRC has approved 154 uprates. NRC, Backgrounder on Power Uprates for Nuclear Plants (April 2014). In prior years, power uprates have significantly increased the carbon-free, baseload electrical production of the nuclear fleet without the construction of additional facilities, although questions remain about the extent to which substantial additional uprates are feasible. Interestingly, at a congressional hearing on September 9, 2015, Representative Ed Whitfield (R–KY) asked NRC Chairman Stephen Burns about EPA’s reference to “nuclear uprates” in the CPP, drawing a concession that EPA had not actually consulted with the NRC about nuclear power uprates or other aspects of the CPP. Joint Hearing on Oversight of the Nuclear Regulatory Commission Before the Subcomm. on Environment and the Economy and Subcomm. on Energy and Power of the H. Comm. on Energy and Commerce, 114th Cong. 44 (2015). NRC’s website currently lists four pending applications for power uprates and also provides a table showing seven “expected applications for power uprates.”

If the CPP ultimately survives judicial challenges and is implemented, it also presents an additional incentive for extending the life of currently operating nuclear units because of the significant impact retiring a nuclear unit would have on a state’s ability to meet its emissions target. The NRC currently has in the works a process for subsequent license renewal, which would allow existing reactors to seek a second renewal extending their operating life from sixty to eighty years. Albert Wong, Preparing for Subsequent License Renewal, NRC Blog, Nov. 6, 2015. Although the NRC’s process for subsequent license renewal is still in its relatively early stages, it bears watching to see how reliance on nuclear power under the CPP may influence renewal decisions going forward.

The Future of Nuclear Power

As with all sources of electricity, nuclear power faces challenges, both financial and environmental. Critics point to lengthy construction schedules and large capital investments as drawbacks to constructing new nuclear reactors. However, the heavy lifting has already been done by the construction projects currently under way, and additional new nuclear power plants are likely to benefit immensely from the construction and licensing experiences of these new units. The new regulatory schemes for constructing nuclear reactors with standard designs and a streamlined licensing method have been tested and refined. Numerous lessons learned have been implemented, and expertise is growing in a construction sector that had been stagnant for decades. Nuclear reactors have a track record of providing low-cost, safe, and reliable electricity. Technological advances, such as advanced reactor designs and small modular reactors that can be constructed off-site, present new possibilities for the continued role of nuclear power for the next century.

In the United States and globally, the reduction of greenhouse gas emissions is seen by some as an imperative step. President Obama has routinely described climate change as the most significant challenge of our time, and his administration has sought to establish aggressive emission reduction goals, while also calling for an “all of the above” approach to energy. At the recent 2015 Paris Climate Change Convention, 195 countries signed an agreement committing the global community to reducing carbon emissions in order to head off the effects of climate change. This Paris Agreement, announced on December 12, 2015, makes no express mention of nuclear power. Adoption of the Paris Agreement, United Nations Framework Convention on Climate Change, Twenty-first Session, Paris, Nov. 30–Dec. 11, 2015 (Dec. 12, 2015). But one thing is clear: without nuclear power, these goals cannot be achieved. The extensions of licenses of currently operating nuclear reactors as well as the construction of new nuclear reactors promise to play a significant role in realizing these emissions reduction goals. Finally, diversification of fuel supply protects against price fluctuation and other market factors that could raise production costs if the fuel supply is too reliant on only a couple of fuel sources.

Whether the CPP is a net positive for nuclear power is debatable, and depending on whether the courts or the next administration reject or modify the plan, the road ahead for nuclear’s contribution to achieving emission reduction targets is certainly not set in stone. It is notable that, despite the connection between the CPP’s emissions goals and nuclear’s no-emission status, EPA’s own data shows no significant increase in nuclear’s share of the nation’s energy mix as a result of the CPP. EPA, FACT SHEET: Clean Power Plan, supra. Nevertheless, the CPP recognizes and rewards the investment of states that took initiative to construct the first new nuclear reactors in the country in decades. That is significant. Further, it recognizes the value of nuclear power’s ability to generate reliable emissions-free, continuous, uninterrupted, baseload electricity—an important acknowledgment that commercial nuclear power is uniquely situated to provide the clean electric production needed for states to meet the CPP’s targets.

Jeffrey H. Wood, Millicent W. Ronnlund, and S. Michael Madison

Mr. Wood is a partner at Blach & Bingham in its Washington, D.C., office, and can be reached at jhwood@balch.com. Ms. Ronnlund is a partner at Blach & Bingham i its Birmingham, Alabama, office, and can be reached a mronnlund@balch.com. Mr. Madison is an associate at Balch & Bingham in is Birmingham office, and cab be reached at mmadison@balch.com.