Nuclear Energy 2016: Status and Outlook

Annual Briefing for the Financial Community

February 11, 2016

Today’s Briefing • Industry performance

• 2015 Recap: Key events and activities

• Creating additional margin:

- by increasing value

- by improving efficiency

• Looking forward: 2016 and beyond

Impacts of Losing A Nuclear Plant

A typical nuclear power plant:

• 400-700 permanent jobs plus equivalent number of indirect jobs in local area to support the plant

• Plant salaries 36% higher than average in the local area

• $16 million per year in state and local taxes

$36.27 $33.76 $44.14

$81.70

$72.81

AverageNuclear Plant

Multi-UnitNuclear Plant

Single UnitNuclear Plant

EIA Dominion IRP Lazard

Levelized Cost New Combined Cycle

Better Deal for Consumers ... Existing Nuclear or New Combined Cycle Gas?

Sources: Existing nuclear costs are 2014 total generating costs (fuel, O&M, capital) from Electric Utility Cost Group. Gas-fired combined cycle costs are levelized costs from (1) Energy Information Administration, Annual Energy Outlook 2015; (2) Dominion Virginia Power 2015 Integrated Resource Plan; (3)

Lazard, Levelized Cost of Energy Analysis, 8.0, 2014.

$87

$61 $68.60

$ per megawatt-hour

Upper end of range

Lower end of range

Industry Performance

0

20

40

60

80

100

1990 1995 2000 2005 2010 2015

Record Capacity Factor in 2015

U.S. Nuclear Plant Capacity Factor • U.S. reactors set record capacity factor: 91.9%

• Nuclear plants generated 798 billion kWh in 2015

• Average refueling outage duration declined again:

2015: 36 days

2014: 37 days

2013: 41 days

Source: Energy Information Administration

* NEI estimate

91.9% in 2015* 91.7% in 2014 89.9% in 2013 86.1% in 2012 89.1% in 2011 91.1% in 2010

• Average generating costs have decreased from peak of $39.70/MWh in 2012 to $36.27/MWh in 2014

• Fuel costs down slightly in 2014, operating costs flat

• Capital spending down significantly

• $6.5 billion in 2014 capex, 26% decrease from $8.7 billion in 2012

7.17

20.92

8.18

Fuel

O&M

Capital

29.23

36.27

44.14

33.76

Snapshot of 2014 U.S. Nuclear Plant Costs ($ per MWh)

2014 Average Generating Costs

2014 Generating Cost

Total generating cost = fuel + capital + operating. Source: Electric Utility Cost Group.

First Quartile

Fleet Average

Single Unit Sites

Multi-Unit Sites

3.3

1.9 1.9

0.4

4.1

1.9 1.6

0.5

4.4

2.3

1.6

0.4

2.6

1.8 1.7

0.4

2.1 1.8

2.0

0.6

Uprates, ExtendedOperation

EquipmentReplacement

Regulatory Other

2010 2011 2012 2013 2014

Nuclear Plant Capital Spending Trends (2014 Billions of $)

Source: Electric Utility Cost Group

Distribution of Capex in 2014

Uprates, Extended Operation 32%

Equipment Replacement 28%

Regulatory 31%

Other 9%

Regulatory CapEx Expected to Moderate Significantly Going Forward

(2014 $ in millions)

$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Fukushima

Nuclear Safety

Spent Fuel

Other

Environmental

Security

Emergency Prep

ALARA

Source: Electric Utility Cost Group

Trends in U.S. Nuclear Operating Costs

$-

$5.00

$10.00

$15.00

$20.00

$25.00

Ave 02-08 Ave 09-14

Do

llars

pe

r M

Wh

(2

01

4 d

olla

rs)

Nuclear Fuel Ops

WorkManagement

Training

Support Services

Operate Plant

Material andServices

Loss Prevention

• Operating costs increased from $18.59/MWh in 2002 to $20.92/MWh in 2014

• Increase not driven by any single category

• Operating costs have declined 4% from the peak in 2011

Source: Electric Utility Cost Group

2015 Recap: Key Events and Activities

New Nuclear Plant Construction

• Watts Bar 2 ready for

commercial operation

around midyear

Fuel assemblies being loaded into Watts Bar 2

• Major project

management

improvements at Vogtle,

Summer projects

- Westinghouse

purchase of

CB&I/Stone & Webster

- EPC contracts restructured

- Litigation resolved

- Fluor managing construction

New Nuclear Plant Construction

Projects with applications for combined construction/operating licenses under review by

the Nuclear Regulatory Commission

Company/Site Design

(# Reactors)

Nuclear Innovation North America: South Texas Project 3 & 4

ABWR (2)

Dominion Resources: North Anna 3 ESBWR (1)

Duke Energy: William States Lee 1 & 2 AP1000 (2)

Duke Energy: Levy County AP1000 (2)

PPL Bell Bend LLC: Bell Bend EPR (1)

Florida Power & Light: Turkey Point 6 & 7 AP1000 (2)

Preserving the Nuclear Option

Preserving the Nuclear Option

• NuScale Power expects to file design certification for its small modular reactor in 4th quarter

• Growing interest in GEN-IV reactors

Fukushima Response Substantially Complete by End of 2016

• U.S. reactors have implemented

post-Fukushima safety

requirements ahead of the NRC’s

schedule

• Significant improvement to safety

• U.S. industry’s FLEX strategy sets

standard worldwide for

preventing fuel damage

Five full sets of emergency backup equipment are stored at the two national FLEX centers in Memphis and Phoenix

Global Market Leadership • Global nuclear market could reach $750 billion over the next

10 years

• U.S. technology among the most innovative – e.g., the only “passive safety” designs

• U.S. nuclear technology is a strategic instrument of U.S. foreign policy

• Participation in the world market enhances U.S. ability to achieve nonproliferation goals, export safety practices

World’s Top Nuclear Markets

Major Referendum in 2015 on U.S. Role in World Nuclear Market

• Export-Import Bank reauthorized

• Nuclear trade agreements with China, South Korea renewed

• Department of Energy’s export control regulations updated

• Joint industry-government nuclear trade missions to India, United Arab Emirates

Source: Nuclear Regulatory Commission

Status of First License Renewal

81 Reactors Approved

6 Reactors Intend to

Renew

11 Reactors Under Review

Status of First License Renewal • Forty reactors have passed

40-year mark

• Approximately 31,000 MW of nuclear capacity will reach 60 years between 2029 and 2035

• Approximately one-half U.S. nuclear capacity will reach 60 years by 2040

Status of Second License Renewal

• NRC regulatory process

stable, well-understood;

existing regulations

adequate

• In November 2015,

Dominion Virginia Power

announced intent to file

second license renewal

application for Surry nuclear

plant

• Decision to renew a second time depends on whether market

conditions justify capital investment required

Creating Additional Margin By Increasing Value

Market Stresses … In Brief

• Low growth (in some cases, no growth) in electricity demand

• Continuing surge in supply of low-cost shale gas • Fuel/technology diversity is taken for granted and

undervalued • State and federal mandates and subsidies for

renewables distort markets • Transmission constraints • Market design issues

- Failure of markets to recognize valuable attributes - Price suppression in energy markets

Solutions Emerging Among the States

• States beginning to recognize need to act - Ohio considering PPA for Davis-

Besse

- New York – Reliability Support Services Agreement for Ginna

- Illinois considering low-carbon portfolio standard, New York developing Clean Energy Standard

• States can also use tools available under Clean Power Plan

Closing nuclear facilities “would eviscerate the emission reductions achieved through the state’s renewable energy programs, diminish fuel diversity, increase price volatility, and financially harm host communities.”

– New York Gov. Andrew Cuomo Dec. 2, 2015

Sources: Velocity Suite; Entergy Research and Analysis A.S.: Ancillary Services; PTC: Production Tax Credits; REC: Renewable Energy Credits

0%

25%

50%

75%

100%

Nuclear ST-Coal NG-CC NG/OilST

NG/OilGT

Wind

Energy

Capacity

A.S.

NY-NE-PJM Revenue Source by Technology

PTC/ REC

Progress in Improving Markets

• Capacity market reforms

- New model in PJM better recognizes important nuclear attribute

- No benefit in markets that have not taken steps to improve

• Energy market reforms

- Accurate “day ahead” pricing is the key for nuclear energy

PJM, Others Moving in the Right Direction • PJM Capacity Performance: Welcome recognition

that attributes must be priced in market

- Rewards resources committed to be available when

needed (substantial penalties if not)

- $1.4 billion to Exelon, $1.1 billion to FirstEnergy

• MISO recently acknowledged concerns about

resource adequacy

• FERC denied ISO-NE proposal to include nuclear in

winter reliability program

PJM Capacity Auctions $/MWd

2016-2017 Original

2016-2017 CP Transition

59.37 134.00

2017-2018 Original

2017-2018 CP Transition

120.00 151.50

2018-2019 CP

RTO EMAAC COMED

164.7 225.42 215.00 Market reforms do work. Additional revenues from PJM Capacity Performance gave short-term reprieve to some nuclear plants in

western PJM. But market reforms to date are not enough by themselves.

Price Formation Must Reflect All Costs

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

1 3 5 7 9 11 13 15 17 19 21 23

Hour ending

Uplift Example: November 8, 2012

Market Price

Market Price + Uplift

~$128K uplift paid to ~23,100 MWh

Estimated suppression: $5.50/MWh

• Energy markets: 80-90% of revenue for baseload resources

• Accurate price formation is key: minimize “out of market” revenues (uplift), ensure all costs necessary to operate system reflected in price

• Uplift dampens the wholesale price; impact varies by region but is significant

Energy Market Reform Goals • Accurate day-ahead and

real-time price signals

• Reflect all RTO actions, all costs of all units used, in setting the market-clearing price

• Allow fast-start units to set market prices

• Ensure day-ahead signals are correct for both energy and reserve needs

• Transparency into reasons for out-of-market actions

Movement on Energy Market Reforms • FERC technical conferences in late

2014 on price formation in energy markets

• FERC Notice of Proposed Rulemaking on two issues

₋ Settlement intervals

₋ Shortage pricing

• NOPR on price formation only addresses real-time market issues, not day-ahead markets

• Order directing reports from RTOs on uplift and other issues

• Proposal to lift offer caps

-595

-184 -133 -13 -12

Nuclear Hydro Wind Solar Geothermal

U.S. Carbon-Free Electricity Sources

2014

Sources: Emissions avoided are calculated using regional and national fossil fuel emissions rates from the Environmental Protection Agency and generation data from the Energy Information Administration.

Recognizing Nuclear Energy’s Carbon-Free Value

U.S. Electric Power Industry CO2 Avoided Million Metric Tons 2014

Nuclear62.9%

Wind14.4%

Hydro19.9%

Solar1.4%

Geothermal1.3%

Recognizing Nuclear Energy’s Value Under the Clean Power Plan

• Two compliance pathways:

- Rate-based (pounds/MWh)

- Mass-based (tons)

• Clean Power Plan (CPP) favors mass-based

compliance:

- Easier, less expensive for states

- All existing pollution control programs

(SO2, NOx, etc.) are mass-based

• Mass-based compliance plans could be

structured to recognize nuclear plants’

compliance value

30

Creating Additional Margin By Increasing Efficiency

Industry Goals: Safety, Reliability and Improved Efficiency

• Sustain high levels of safety and reliability

• Identify opportunities and re-design plant processes to improve efficiency and effectiveness

• Use innovative technology to increase efficiency across the industry

The goal: $12/megawatt-hour cost reduction industrywide

The Goal: 30% Reduction in Cost Why 30%? To drive innovative thinking,

not just tinkering at the margin

How the Arithmetic Works

Starting point: 2012 total generating cost* $40/MWh

Goal $12/MWh reduction

* 2012 was peak year for total generating cost

Where Does the $12/MWh Reduction Come From?

Reduction in capex 2012-2014 $3.50/MWh

Estimated reduction in capex through 2020 $3/MWh

Estimated reduction in fuel costs through 2020 $2/MWh

Estimated cost reductions from improved industry efficiency $3.50/MWh

U.S. Nuclear Plant Costs 2004-2014 (2014 $ per MWh)

Year Fuel Capital Operating

2004 5.28 5.65 18.54

2005 5.02 5.80 18.95

2006 5.04 5.56 19.21

2007 5.13 6.12 19.07

2008 5.35 6.76 19.51

2009 5.93 8.91 20.49

2010 6.76 9.16 20.63

2011 7.10 10.06 21.88

2012 7.46 10.76 21.47

2013 7.73 8.20 20.93

2014 7.17 8.18 20.92

Source: Electric Utility Cost Group

First Improvement Opportunities Have Been Identified

• Based on analysis of costs, CNO-led teams produced over 180 ideas (Improvement Opportunities)

• These were ranked until 53 initial ideas were identified for pursuit in 2016

• Ten CNO-led teams working on the 53 initial IOs, with plans to develop more during 2016/17

• NRC has started self-assessment (Project AIM) to improve performance and “right-size” the agency

• Commission instructed staff to rebaseline and set priorities among regulatory activities

• Commission terminated several rulemakings, including proposal for filtered containment vents ($1.6-billion in avoided costs)

NRC Chairman Stephen Burns

Improving Regulatory Efficiency: Major Initiatives and Results

Looking Forward: 2016 and Beyond

All Electricity Is Not The Same

• Basic economics

- Markets operate efficiently only when goods have a price

- Goods will only be produced when markets assign a price to them

• Different forms of electricity have different “goods” or attributes: Every kilowatt-hour has a pedigree

• Those attributes have varying degrees of value to the market

Nuclear Energy’s Solid Value Proposition Safe, Reliable Electricity 24/7 Plus …

Supports Grid

Stability

Provides Price

Stability

Provides Clean Air

Compliance Value

Contributes to Fuel and Technology

Diversity (Portfolio

Value)

Anchors the Local

Community: Jobs, Tax

Base

Avoids Carbon

Emissions

Runs When

Needed (Fuel on

Site)

The Value of Nuclear Energy to America

Source: The Nuclear Industry’s

Contribution to the U.S. Economy, The Brattle Group, July 2015