Financing nuclear decommissioning: 3 lessons learned

Nuclear decommissioning is a first-of-its-kind construction project: While decommissioning bears many characteristics of a large-scale capital construction project—and requires the same level of rigorous and detailed planning and management—it also presents many new, unique challenges.

The finance aspects of a decommissioning project are particularly complex due to evolving NRC regulations, insurance requirements, trust funds and tax rules. Here are three lessons I have learned in working with clients on their decommissioning projects.

Shift from a maintenance-and-operation to a profit-and-loss mindset

The transition from being a nuclear power plant operator to a decommissioning project owner requires a whole new financial strategy. Instead of thinking in terms of operation and maintenance budgets, you should start focusing on capital project funding opportunities and cost controls. This likely means establishing the following functions:

  • Treasury—with corporate finance, cash management, and investment teams working together—to oversee the investment strategy and administration of the Nuclear Decommissioning Trust Fund (NDT)
  • Site finance group to provide financial governance and oversight for decommissioning cost controls—e.g., providing cost reporting schedules, Private Equity and working forecasts, site payroll budget, and more
  • Risk management program to manage the various factors impacting costs and reduce the likelihood of cost escalations that exceed contingencies

There are also other critical functions—licensing, tax, insurance—that can impact your project finance decisions in this new environment.

Adopt a holistic view of finance management

Finance management can get very complicated when you have to consider many moving parts including investment strategy, and, tax and regulatory compliance. Take the following scenarios, for example:

Scenario 1: You have decided on a SAFESTOR (deferred decontamination) rather than a DECON (immediate dismantling) strategy to decommission your nuclear plant. After all, how hard can it be to go into SAFESTOR? But that scenario can actually be tricky as you still need to make sure you spend upfront in order to save as much of your nuclear decommissioning trust fund for the balance of the decommissioning project. Moreover, the longer time table for SAFESTOR—40-60 years, compared with 5+ years for DECON—means you will also need to spend money and time demonstrating to your stakeholders exactly what you are doing with the project and the nuclear decommissioning trust fund.

Scenario 2: You are considering selling the license for one of your nuclear reactors to another company that is more suited to managing the risk of decommissioning projects. But since you will need to transfer the associated Nuclear Decommissioning Trust (NDT) to the purchaser as well, you may need to clarify whether the NDT is a qualified or a non-qualified fund and assess your tax consequences for the sale accordingly. Additionally, your ability to spend those funds will partially be driven by incomplete NRC requirements on the allowable uses of NDTs.

Adopting a holistic financial management strategy should enable you to better understand all the potential implications and impact of each financial decision—and, ultimately, the overall financial health of the decommissioning project.

Build a cross-discipline team of finance, regulatory, and risk experts

As I had mentioned before, nuclear decommissioning is a special kind of capital project with its own complex—and still evolving—rules and regulations. Having a team of experts from across relevant disciplines, including finance and investment, regulatory and licensing, tax, and insurance, helps enable  compliance and reduces any risk that could potentially devastate the project, the organization, and the environment.

The insight of an insurance expert can be invaluable for decommissioning risk financing, for example. As a nuclear plant shuts down and ceases to produce revenue, your instinct may be to start cutting costs, including property and liability insurance expenditures. However, liability for radiological injuries tend to be latent by nature, and any cost reduction schedule should take into account this potential longer term risk exposure.

And ever since the US Nuclear Regulatory Commission (NRC) raised concerns regarding allowable uses of decommissioning trust funds for certain already- and to-be-incurred decommissioning expenses, some organizations have been struggling to determine which expenditures are NRC regulation-compliant. Having an NRC regulatory expert on board could help you assess the basis for justifying allowable decommissioning expenses.

The above suggestions are all meant to foster prudent financial management, which is an essential pillar for successfully executing a nuclear decommissioning project. This means managing emerging issues and mitigating risks, as well as achieving annual financial targets while preserving Nuclear Decommissioning Trust growth and meeting NRC and IRS requirements.

 

Contact us

Brooke Traynham Morrison
Director, Capital Projects & Infrastructure, Nuclear Energy
Tel: +1 (603) 717 4707
Email

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