Nuclear Energy 2009

Status and Outlook

RICHARD MYERS

Vice President, Policy Development

Nuclear Energy Institute

March 30, 2009

Today’s Briefing

Review of 2008 Operating Performance

New Nuclear Plants

– Progress and Expectations

– Economics and Financing

Politics and Policy: The Year Ahead

Review of 2008

Operating Performance

60

65

70

75

80

85

90

95

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08

Sustained ReliabilityU.S. Nuclear Plant Average Capacity Factor

91.1% in 2008

91.8% in 2007

89.6% in 2006

89.3% in 2005

90.1% in 2004

87.9% in 2003

90.3% in 2002

89.4% in 2001

88.1% in 2000

Highlights

Refueling outages: 66 in 2008, 56 in 2007

Average refueling outage duration: 37.6 days in 2008, 40.4 days in 2007

Sources: Ventyx Velocity Suite, U.S. Energy Information Administration,

U.S. Nuclear Regulatory Commission, NEI estimate for 2008

Sources: Ventyx Velocity Suite, U.S. Energy Information Administration,

U.S. Nuclear Regulatory Commission, NEI estimate for 2008

Steady OutputFrom the Operating PlantsU.S. Nuclear Generation (billion kilowatt-hours)

806 in 2008807 in 2007787 in 2006782 in 2005789 in 2004764 in 2003780 in 2002769 in 2001754 in 2000

Highlights

5,640 MW of power uprates approved since 1977

595 MW of uprates under review

2,882 MW of uprates expected by 2013

51 Granted 3 in 2008

21 Under NRC Review 10 Filed in 2008

24 Intend to Renew

Source: U.S. Nuclear Regulatory Commission

8 Unannounced

Other Key Highlights From 2008

… And America’s 105th Plant Is Well Under Way

TVA sanctioned Watts Bar 2 completion in August 2007

5-year, $2.5 billion project

On schedule and on budget for April 2012 construction completion

Currently employs 1,500 people on-site

License RenewalsContinue ...

Best Regulatory Performance Ever:93 Plants “In the Green”

0

20

40

60

80

100

NRC Action Matrix Summary

Quarter

Nu

mb

er

of

Un

its

Increasing Regulatory Oversight Column 1

Column 2

Column 3

Column 4

New Nuclear Plants:

Progress and Expectations

The Business Case for Nuclear Power

Need for new baseload

capacity

Constraints on carbon

emissions

Solid business case for

new nuclear plants at

commercial operation in

2016 and beyond

Source: The Brattle Group, “Transforming America’s

Power Industry: The Investment Challenge 2010-2030,”

November 2008

New Generating Capacity NeededAssumes 0.7% Annual Growth in Peak Load

133 GW

216 GW

Road Map to Commercial Operation

0 1 2 3 4 5 6 7 8 9 10

Building a new nuclear plant is not a one-step process or decision. It is a sequence of decisions, which provides substantial flexibility.

Years (estimates)

1

2

3

U.S. NRC review of COL

Long-lead procurement of major components, EPC contract negotiated, financing secured, site preparation, limited construction work

Construction

Progress Toward New-Plant Development

2007

− 3 early site permits granted

− 2 design certifications submitted

− 4 COL applications submitted

2008

− 1 design certification submitted

− 13 COL applications submitted

− 3 engineering and procurement contracts signed

− Fabrication of long-lead components

2009-2010

− Site excavations begin

− 1 early site permit expected

− Additional COL applications

Major New Plant Issues Being Managed by the Industry

Financing

Licensing Supply Chain

Work Force

New Licensing Process Reduces Uncertainty and Financial Risk

COL Application And Review

References a specific design; may reference an early site permit

Construction

Inspections, Tests, Analyses and Acceptance Criteria (ITAAC) review

Operation

Potential for challenge, but major capital investment has

not occurred

High threshold for hearing (must prove ITAAC have not been or will not be met) and narrow

scope if it occurs

HearingPotentialHearing

Managing the Licensing Process

Industry approach: design-centered working

groups to achieve standardization

NRC approach: single review of standard

materials, “one issue, one review, one

decision”

Protocols for construction inspection and

ITAAC being developed

U.S. Manufacturers Ramping UpSupply Chain and Fuel Supply Expansion Plans

AREVA and Northrop Grumman

Newport News, Va.

Shaw Group and Westinghouse

Lake Charles, La.

Curtis Wright

Cheswick, Pa.

Alstom

Chattanooga, Tenn.

National Enrichment Facility

Eunice, N.M.

American Centrifuge Project

Portsmouth, Ohio

GE Hitachi Nuclear Energy

Wilmington, N.C.

Rebuilding the Work Force:Supply Responds to Demand

42 community college nuclear partnership programs

16 state-based work force development initiatives

500 percent increase since 1999 in nuclear engineering enrollment

New Nuclear Plants:

Economics and Financing

New Nuclear Power Plants Will Be Competitive

FPL, Progress, SCE&G filings

• FPL: nuclear superior in 8 of 9 scenarios

• Progress: nuclear “better than AFBC, pulverized coal and coal

gasification”

Brattle Group analysis:

Technology Nuclear SCPC SCPC

w/ CCS

IGCC IGCC

w/ CCS

Gas CC Gas CC

w/ CCS

Capital

Cost

(S/kWe)

4,038 2,214 4,037 2,567 3,387 869 1,558

Levelized

Cost

($/MWh)

83.40 86.50 141.90 92.20 124.50 76 103.10

Source: “Integrated Resource Plan for Connecticut,” The Brattle Group, January 2008

Levelized Cost of Electricity, $/MWh

Cost of CO2, $/Metric Ton

NGCC ($8-10/MMBtu)

All costs are in 2007 $; Rev. October 2008; Copyright EPRI

Comparative CostsOf New Generation Options: 2015-2020

50

60

70

80

90

100

110

120

0 10 20 30 40 50

140

130

Average 2007 U.S. wholesale electricity price = 66 $/MWh

Coal without CCS

Levelized Cost of Electricity, $/MWh

Cost of CO2, $/Metric Ton

NGCC ($8-10/MMBtu)

Wind (32.5% CF)

Nuclear

All costs are in 2007 $; Rev. October 2008; Copyright EPRI

Comparative CostsOf New Generation Options: 2015-2020

50

60

70

80

90

100

110

120

0 10 20 30 40 50

140

130

Average 2007 U.S. wholesale electricity price = 66 $/MWh

Coal without CCS

Levelized Cost of Electricity, $/MWh

Cost of CO2, $/Metric Ton

NGCC ($8-10/MMBtu)

Wind (32.5% CF)

Nuclear

All costs are in 2007 $; Rev. October 2008; Copyright EPRI

Comparative CostsOf New Generation Options: 2015-2020

50

60

70

80

90

100

110

120

0 10 20 30 40 50

140

130

Coal with CCS (2020)

Average 2007 U.S. wholesale electricity price = 66 $/MWh

Coal without CCS

Levelized Cost of Electricity, $/MWh

Cost of CO2, $/Metric Ton

NGCC ($8-10/MMBtu)

Wind (32.5% CF)

Nuclear

Solar PV = $250/MWh

Central Station Solar = 175 $/MWh

All costs are in 2007 $; Rev. October 2008; Copyright EPRI

Comparative CostsOf New Generation Options: 2015-2020

50

60

70

80

90

100

110

120

0 10 20 30 40 50

140

130

Coal with CCS (2020)

Average 2007 U.S. wholesale electricity price = 66 $/MWh

Coal without CCS

Electric Sector Capital Spending

Credit crisis could not have come at a worse time

Industry in early stages of major capital investment cycle

Total capex for 2010-2030: $1.5 trillion - $2 trillion

Financial crisis: 2009 capex down 10% or more

35.9%

14.4%

11.7%

24.5%

8.9%4.7%

2008 Capital Spending

Generation Environment

Transmission Distribution

Gas-Related Other

Rapid Capex Growth Since 2004

43.041.8

40.7 40.2 41.1 42.043.6

45.3

48.4

51.9

55.1

58.559.9

62.464.3

66.2

69.171.4

74.6

77.8

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

Capital Spending: Trailing 12 MonthsU.S. Shareholder-Owned Electric Utilities ($ Billions)

Source: Edison Electric Institute

Rate Cases on the Rise

15

11

14

23

20

28

24

34

4846

36

0

10

20

30

40

50

60

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 3Q of

2008

Rate Cases FiledU.S. Shareholder-Owned Electric Utilities

Source: Edison Electric Institute

Awarded ROEs Trending Down

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

13.5

Average Awarded ROE: 1990 - Q3 2008

(Quarterly)

Sources: SNL Financial/Regulatory Research Associates, Edison Electric Institute

Recent Authorized ROEs(Highest to lowest by state − First 9 months of 2008)

8

8.5

9

9.5

10

10.5

11M

O

WI

VT

HI

MI

IL NV

WV

MN IL

MA

MT

UT

WY

ID NM

NM AZ

DC

CT

NY

NY

% R

OE

Au

tho

rize

d

Source: Edison Electric Institute

Bond Spreads Dramatically Wider

-

100

200

300

400

500

600

Utilities' 10-year Bond Spreads vs. Treasuries

Average Spread Over Treasury by Calendar Quarter (bps)

Source: Edison Electric Institute

Industry Leverage Beginning to Rise

Capitalization StructureU.S. Investor-Owned Utilities

6.30.08 12.31.07 12.31.06 12.31.03

Equity 43.9% 45% 45.9% 38.2%

Debt 56% 54.9% 54% 61.3%

Source: SNL Financial, Edison Electric Institute

Credit Quality Started to Slide in 2008Rating Actions: U.S. Shareholder-Owned Electric Companies

13.8

46.4

60.3 60.9 60.3

40.5

253

110121

110121

42

0

50

100

150

200

250

300

0

10

20

30

40

50

60

70

2003 2004 2005 2006 2007 2008*

Upgrade Percent Total Actions

* Activity through 9/30/08

Sources: Fitch Ratings, Moody’s, Standard & Poor’s

Downgrades outpaced upgrades in 2008 – first time since 2004

The Business Case for Nuclear Power

New nuclear projects still in early stage of

development

– Cost estimates will firm up as design/engineering completed

Capital cost important but does not measure

economic viability

Relevant metric is the cost of electricity produced

relative to:

– alternative sources of electricity

– market price of electricity at COD

Based on what we know, all signs suggest solid

business case for new nuclear plants

Financing New Baseload Capacity

Nuclear is competitive but has a structural

challenge: very large projects relative to the size

of the companies building them

This challenge can be managed

– Supportive rate policies at the state level

– Loan guarantees from the federal government

• Higher leverage (up to 80 percent)

• Non-recourse to sponsor’s balance sheet

$4$4$4$5$5$10$11$11$12$13$15$15$18$18$21$24

$30$138

$22$32

$40$38

$56$76

$59$130

$146$139

$349

$0 $50 $100 $150 $200 $250 $350 $400

SCGNRGCEGDTEAEEPGNAEPPPLFE

ETRPEGPCGDUK

DFPLSO

EXCBRK

ENDENELRWE

IBEEONEDF

COPBP

CVXRDSXOM

Market Value $ in billions

Oil Majors

Europe Power

U.S. Power

Market Value of Energy CompaniesU.S. Power Companies Are Undersized

$300

The Structural Challenge(Market values as of 3.26.09)

Exelon $30.2 billion

Southern $23.9 billion

Dominion $18.5billion

FPL $21.2 billion

Duke $18.6 billion

Entergy $13 billion

Two-unit nuclear power station $12-16 billion

PPL Corp. $11.3 billion

Progress $10.04 billion

AmerenUE $4.95 billion

DTE Energy $4.62 billion

NRG $4.16 billion

SCANA $3.75 billion

Status of Loan Guarantee Program

$18.5 billion in loan guarantee volume for nuclear

power projects authorized

Applications from 14 projects (28,800 megawatts) for

$122 billion in loan volume

Co-financing from export credit agencies in France,

Japan will stretch existing U.S. loan guarantee

authority

Need more loan volume, permanent financing platform

for clean energy technology deployment

State Policies Favoring Nuclear

Legislation in place that helps secure financing

Regulation in place that helps secure financing

Legislation and regulation in place that help secure financing

Legislation that includes nuclear in clean portfolio standard

Potential location for new nuclear plant

Politics and Policy:The Year Ahead

A New Political Environment

Increased Democratic

majority in both House and

Senate

Despite changes, still solid

base of support for nuclear

power

House Energy & Commerce

Committee: significantly

more liberal

The New Secretary of Energy on Nuclear Power

“The first [priority] is to accelerate this loan guarantee program for several [new] nuclear reactors.”

“[N]uclear power … is going to be an important part of our energy mix. It is 20 percent of our electricity generation today, but it is 70 percent of the carbon-free portion of electricity today. And it is baseload. So I think it is very important that we push ahead.”

—Dr. Steven Chu during his Senate confirmation hearingJan. 13, 2009

Key Energy Priorities for the New Administration and Congress

Green jobs

– Nuclear sector expanding, not contracting

– 15,000 new jobs created

More energy efficiency and renewables

– Significant new baseload capacity still required

Climate change

– Analysis of all major climate change legislation

requires nuclear expansion

Key Nuclear Energy Priorities

Sustained, safe, reliable

operation of current fleet

New plants

– Predictable licensing

– Financing

Used fuel management

A Reasoned Approach to

Used Fuel Management

Three-part strategy

– Long-term technology

development to recycle

nuclear fuel

– Eventually … permanent

disposal facility

– Interim storage

Create “blue ribbon” commission to conduct

reasoned reassessment of the government’s

program

Strong Public Support Continues

72%

Safe and

Secure

85%

Renew

Licenses

89%

Important

for

Future

69%

Definitely

Build New

Reactors

75%

Acceptable

at

Nearest

Site

Source: Bisconti Research Inc.

September 2008 poll of 1,000 U.S. adults; margin of error is +/- 3%

The New Politics of Nuclear Energy

State and local government

officials, business leaders

Organized labor

Organized grassroots

organizations

(CASEnergy Coalition)

State coalitions

Nuclear industry employees

New alliances

The Value Proposition

Operating plants are safe, reliable and profitable

New plants are financeable and profitable,

particularly in a carbon-constrained world

New nuclear plant construction will contribute

significantly to President Obama’s top priorities:

– Jobs

– Climate change

– Energy security

Nuclear Energy 2009

Status and Outlook