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Kutak Rock Team Co-Authors Report for DOE Detailing Federal Agency Options for Purchasing Power Produced by Small Nuclear Reactors

News | March 20, 2017

A new report created for the U.S. Department of Energy (DOE) on financing small modular reactors (SMRs) highlights the role that federal agencies play as purchasers of power produced by SMRs. The report, Purchasing Power Produced by Small Modular Reactors: Federal Agency Options, is written by two attorneys from Kutak Rock’s Washington, D.C. office, managing partner Seth Kirshenberg and partner Hilary Jackler, along with Brian Oakley and Wil Goldenberg from Scully Capital Services.

The report, which is available here, was prepared with funding from the DOE, Office of Nuclear Energy (NE) pursuant to a federally procured contract with Allegheny Science & Technology Corporation.

SMRs are compact, factory-fabricated reactors that can be transported by truck or rail to a nuclear power site. Producing 300 megawatts electric (MWe) or less, they are significantly smaller than the 1,000 MWe or higher base load plants currently in operation.

Federal purchasing has proven to be a meaningful method to spur the siting and development of power projects using innovative technologies. The risks associated with SMRs will require public-private risk-sharing to achieve commercial deployment. Federal power purchase agreements will provide a contractual commitment to purchase power from a plant, lessening the risks associated with the project and improving the project’s financial profile in the eyes of private investors.

There are several options for purchasing power, including utility contracts, power purchase agreements, virtual power purchase agreements and contracted capacity, and several federal agencies have expressed interest in purchasing electric power produced by an SMR (Department of Defense, DOE/National Nuclear Security Administration, and others); however, there are numerous complex legal, economic and budgetary accounting issues federal customers may face, making it very challenging to implement federal purchasing on a broad scale. Among the most burdensome is that federal law typically limits power contracts to a term of 10 years. A power purchase agreement involving nongovernmental agencies typically lasts 30 years. Longer contract terms spread the high up-front costs of development and construction. This report reviews key considerations and best practices for federal agencies seeking to purchase power from an SMR.

The report identifies the key benefits of SMRs and provides guidance to federal agencies, the largest consumer of energy in the United States, on procuring power generated by SMRs. It also includes background information regarding the benefits and challenges offered by SMRs and the current state of the United States power sector, the primary financing considerations for energy projects, an overview of current legal authorities that federal agencies utilize to purchase power, considerations federal agencies evaluate when making power purchase decisions, and a theoretical project that offers a roadmap of key decision points for federal agencies exploring purchasing power from an SMR.

This report also reviews an SMR project currently under development: the Idaho SMR Project (UAMPs and NuScale). Using the Idaho SMR Project as an example, key issues are identified and actionable next steps are offered to assist federal agencies and other interested parties understand the benefits and limitations of purchasing power from an SMR.

Purchasing power from SMRs will provide federal agencies the opportunity to purchase highly reliable carbon-free power while providing support for financing the development of the initial SMRs. After years of development, SMRs are close to obtaining Nuclear Regulatory Commission (NRC) regulatory approval. DOE has identified that these small nuclear power plants will “play an important role in addressing the energy security, economic and climate goals of the U.S. if they can be commercially deployed within the next decade.”

Seth Kirshenberg focuses on financing federal public-private partnerships (P3s) and has worked on over $15 billion dollars in P3 transactions. He has developed several federal privatization “first-of-a-kind” projects, including energy projects. He regularly structures, negotiates, documents and closes large, complex governmental transactions for lenders, developers, federal agencies, state entities and municipalities. Mr. Kirshenberg’s unique practice requires him to work on all phases of development projects, which have included Navy, Marine Corps, Army, Air Force, Coast Guard, Department of Veterans Affairs, DOE, including the Western Area Power Administration (WAPA) and National Nuclear Security Administration (NNSA) and General Services Administration (GSA) privatization projects, and state and local government projects (enhanced use leases, housing privatization, energy development, water, electric and wastewater utilities privatization, office facilities, specialized secure space, airports and exchange agreements).

Hilary Jackler advises federal agencies, state and local governments and private entities on a variety of regulatory, transactional and litigation matters that require significant experience in administrative law, military base realignment and closure processes, and the structuring, financing and implementation of public-private partnerships. Ms. Jackler regularly supports federal agencies on regulatory, transactional and litigation matters. Representative matters include supporting federal agencies to negotiate, implement, amend and terminate several enhanced-use lease transactions, leases, licenses, and other agreements; preparing Congressional reports by analyzing federal and state laws in multiple jurisdictions and identifying policy recommendations; executing more than $3 billion of military housing privatization projects; and creating and implementing a new federal grant program.