[ RadSafe ] Nuclear Cleanup Funds May Benefit From Bush Budget Plan

[Sandy Perle]

Index:

Nuclear Cleanup Funds May Benefit From Bush Budget Plan
US, French, Russian Cos Bid To Sell China 4 Reactors-Report
U.S. Loans for Reactors in China Draw Objections
NRC Renews License For Dominion Surry Plant Fuel Storage
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Nuclear Cleanup Funds May Benefit From Bush Budget Plan

NEW YORK -- A relatively small provision in the Bush administration's 
budget proposal, unveiled in early February, could turn into a minor 
windfall for nuclear operators that haven't qualified for tax 
deductions on the funds they have reserved for environmental cleanup.

Since nuclear power plants began to be built in the 1960s, the U.S. 
Nuclear Regulatory Commission has required operators to set aside a 
portion of their income in trust funds to cover the costs of 
decommissioning the plants once they go out of service. 
Decommissioning a nuclear plant can include decontaminating the site, 
providing for safe storage of radioactive waste, entombing the plant 
and repowering, which adds a new fuel source to an existing steam 
cycle of a reconfigured nuclear plant.

Current tax law allows only regulated operators whose plants went 
into service after July 1984 to deduct the income they set aside for 
decommissioning from taxable income each year. In addition, any 
income earned on investment of funds set aside is taxed at a 20% rate 
instead of the normal 35% corporate tax rate.

The revised rule would grant the same tax advantages to 
decommissioning funds reserved for plants that either started up 
before 1984 or that generate power sold into the wholesale market and 
whose funds aren't supported by ratepayers.

The Nuclear Energy Institute, a Washington, D.C., policy group, sees 
the proposed change as a chance to harmonize the tax rules with a 
business environment much changed since electricity markets have 
moved toward deregulation.

"The tax gain is not that significant. We have pursued this more on 
the basis of business logic, the fact that we're operating in a 
competitive business and the tax rules were set up for a regulated 
business," said Richard Myers, NEI's director of business and 
environmental policy.

Twenty years ago, when the tax rule was created, most if not all 
nuclear plants were operated as regulated assets. With the move 
toward deregulation of electricity markets in the late 1990s, more 
than half of them now come under an unregulated merchant energy 
business model, Myers said.

Gains To Individual Companies Would Be Small

He estimates an aggregated amount of $25 billion has accrued so far 
in decommissioning trust funds, of which roughly $5 billion is in 
nonqualified funds. The NRC has estimated the cost to decommission 
each plant at $400 million to $500 million.

"It's relatively important and will be accretive to earnings in the 
near term because of the deductibility as (companies) move the 
nonqualified funds into the qualified ones," Myers said.

Still, with just less than $1 billion in income-tax revenue expected 
to be lost over a five-year period if the tax law is revised, the 
windfall to individual companies probably won't be much.

Exelon Corp. (EXC), the largest U.S. nuclear operator - all 17,000 
megawatts of its nuclear generation is unregulated, said the Bush 
proposal would " facilitate funding of its nuclear decommissioning 
liability," but declined to quantify the potential economic benefit.

There's one weakness in the administration's proposal, however, 
according to Yolanda Pollard, a spokeswoman at Entergy Corp. (ETR). 
Any company planning to sell a plant, instead of getting an immediate 
deduction on the nonqualified funds as it does under current tax law, 
would forfeit the deduction to the buyer, who would then be able to 
take a deduction over the remaining life of the plant, she said.

If the new law were enacted, it's likely to spur a seller to raise 
the selling price in order to compensate for the deduction it's 
giving up, she said.

In the previous version of the proposal included in the unsuccessful 
2003 energy bill, the House of Representatives "has it right, for 
(the deduction) to go to seller," said Martha Pugh, a tax attorney at 
McDermott Will & Emery who specializes in decommissioning tax law.

"It's something that should be cleaned up as a bill moves forward," 
she said.

No one from the Bush administration was available to comment on that 
aspect of the proposal.

WPS Resources Corp. (WPS) plans to retain the nonqualified fund for 
its 59% stake of the Kewaunee plant in Wisconsin if WPS and its 
partner Alliant Energy Corp. (LNT) get the nod from regulators to 
sell the plant to Dominion Resources Inc. (D), according to Chief 
Financial Officer Joseph O'Leary.

The Kewaunee plant went into service in the early 1970s and has both 
nonqualified and qualified decommissioning funds associated with it. 
The pretax value of WPS's nonqualified fund is about $115 million, 
which WPS has asked state regulators to be returned to ratepayers 
over the remaining life of the plant, once the sale closes, O'Leary 
said.

It would be unusual for a nuclear operator that has sold a plant to 
keep its nonqualified fund, though to do so isn't explicitly 
prohibited, according to Pugh. Generally, the policy is that once 
money is put into any trust fund, whether qualified or nonqualified, 
it stays there until decommissioning is complete, she said.

The NRC said it won't approve the sale of a plant to a new owner 
unless it is confident the new owner has the requisite amount of 
decommissioning funds in place.

Although its nonqualified fund hasn't benefited from special tax 
treatment, WPS has been able to pass the higher income-tax costs on 
to retail customers, O'Leary said. Under the new tax law, ratepayers 
would still be the main beneficiaries were WPS to keep the plant and 
to transfer the nonqualified fund to the qualified fund, as the 
reduced taxes on the combined fund would filter down to lower retail 
rates, he explained.

A spokesman for PPL Corp. (PPL), which owns one unregulated nuclear 
plant in Pennsylvania, said he didn't anticipate any tax benefit from 
the budget proposal, as the company has received a series of private 
letter rulings from the IRS since 1987 granting its two nonregulated 
units the same tax advantages that apply to regulated plants.

Any tax revision for decommissioned trust funds would pass only as 
part of a broader tax or energy legislation bill, Myers said. The 
revision was included in the comprehensive energy bill that came 
close to passing in 2003.

"It has such broad bipartisan support that whenever the House Ways 
and Means Committee drafts tax or energy legislation, this is one of 
the must-do items sitting on the shelf waiting to be done," Myers 
said. The NEI is a long-time advocate of a more-equitable tax rule.
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US, French, Russian Cos Bid To Sell China 4 Reactors-Report

BEIJING (Dow Jones)--U.S.-based Westinghouse Electric Co., France's 
Areva SA ( 427583.FR) and Russia's AtomStroyExport have submitted 
competing bids to China to supply four nuclear reactors, state media 
reported Tuesday.

The preparatory office of the State Nuclear Power Technology Corp. 
accepted the final bids from the three competitors to supply four 
1,000-megawatt pressurized-water nuclear power reactors, the official 
China Daily reported.

Westinghouse Electric Co. is the U.S. unit of state-run British 
Nuclear Fuels PLC (BNF.YY), while Areva's bid was submitted by its 
Framatome ANP unit.

The office will consider the bids during the next five months, the 
newspaper reported.

Two of the fours units are to be installed in Yangjiang in China's 
southern province of Guangdong, while the other two are destined for 
Sanmen in Zhejiang province in the country's east near Shanghai, the 
report said.
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U.S. Loans for Reactors in China Draw Objections

WASHINGTON (Feb. 28) - The Westinghouse Electric Corporation plans to 
present a bid to China on Monday for building four huge nuclear 
reactors, backed by a pledge of nearly $5 billion in financial 
assistance from the United States government that it hopes will give 
the company an edge over competitors from France, Germany and other 
nations.

But the package of loans and loan guarantees does not follow the 
typical pattern of the government's Export-Import Bank, and is 
raising objections from some critics.

Approved on a preliminary basis by the bank on Feb. 18, the package 
is almost three times larger than anything the bank has offered 
before. And while it would stimulate employment in the United States, 
the price would amount to about $1 million a job. The package also 
appears to benefit the British government, which owns Westinghouse 
through BNFL, the company formerly known as British Nuclear Fuels.

"If the risk were not falling on the Ex-Im bank, it would be falling 
on the British government," said Peter A. Bradford, a member of the 
Nuclear Regulatory Commission from 1977 to 1982. Mr. Bradford said he 
opposed the subsidy to a foreign company, and what he said was 
support by the commission for Westinghouse's sales efforts. "Jobs 
really aren't what this is about. What it's about is protecting the 
investors in the company making the bid, and here, there is only one 
investor."

Representative Dennis J. Kucinich, an Ohio Democrat who is a frequent 
critic of the bank, said, "The bank is funded by U.S. tax dollars; 
they should be supporting U.S. companies. I'm not against U.S. jobs, 
but shouldn't we be for U.S. companies?"

Mr. Kucinich said that the deal could also eventually hurt the export 
of technology from this country because China has said that it wants 
to build many more plants and take over the manufacture of the 
components, many of which are now made in the United States.

A spokesman for the bank, Phil Cogan, said the aid package had 
"nothing to do with shareholders." The package, which would go to the 
bank for final approval if Westinghouse won the bidding, "is for the 
Westinghouse Electric Company of Monroeville" in Pennsylvania, he 
said. Ownership of the company "makes absolutely no difference," he 
said.

BNFL bought Westinghouse's nuclear unit from CBS, the broadcasting 
company, in 1998. BNFL's other businesses in the United States have 
met with mixed success. The company contracted in the mid-1990's with 
the Energy Department to build a factory in Washington State to 
solidify liquid nuclear wastes, but the two entities had a rancorous 
falling-out over costs and other factors. This month, BNFL and the 
Energy Department settled a long dispute over BNFL's performance in 
cleaning up former nuclear weapons sites in Tennessee and Idaho.

The British government has intermittently discussed selling BNFL and 
its Westinghouse subsidiary, and recently reorganized the company. To 
make the company more attractive, the company recently separated some 
of its unprofitable ventures, including liabilities related to a 
subsidiary that recovered plutonium from spent nuclear fuel for 
reuse.

A spokesman for Westinghouse, Vaughn Gilbert, said in a telephone 
interview from the company's headquarters in Monroeville, near 
Pittsburgh, that the proposal to build the Chinese reactors 
represented about 5,000 jobs in the United States because components 
like the instrumentation and control systems would be manufactured 
here. The reactor vessel and the steam generators, the largest parts, 
would come from other countries.

Westinghouse would also supply the fuel, at least initially. China 
has expressed interest in building dozens more reactors and sticking 
to a standard design, so winning this contract could mean many years 
of business, although fewer parts would be imported as time went on. 
Bidders are hoping for a decision from China by the end of the year.

The Westinghouse design is said to incorporate "passive" safety 
features that require fewer active parts, like pumps, relying instead 
on features like cooling through natural heat circulation. It is 
called the AP-1000, for "advanced passive." None have yet been sold. 
Spencer Abraham, a former secretary of energy, told reporters after 
an appearance last week at the United States Energy Association that 
if China chose the Westinghouse design, it might make it easier for 
electric utilities to build that model here.

Mr. Cogan, the Ex-Im spokesman, said that the bank was backing only 
the portion of the contract that would involve work in the United 
States. According to Westinghouse, the American portion of the deal 
is half the reactors' value, suggesting that the four reactors would 
cost $10 billion, but the company would not disclose the amount of 
its bid.

Asked how the level of support - almost $5 billion for 5,000 jobs - 
compared to that of other projects that the bank had nurtured, he 
insisted that the bank had no yardstick, and that dividing the amount 
of support by the number of jobs was not a good measure. "That's a 
crazy equation," Mr. Cogan said.

The bank's announcements about its loan and loan-guarantee packages 
often give few details, but in several recent cases where an amount 
and a number of jobs were specified, the dollars-per-job figures were 
far smaller.

For example, on Feb. 24 the bank announced it would guarantee a loan 
of $500,000 to a company in Carson City, Nev., that exports hoses, 
fittings, nuts and bolts, and that this would create up to 18 new 
jobs, which comes to less than $30,000 a job. On Jan. 11, it 
announced a guarantee that helped provide a $315,000 loan for a 
company in Oakmont, Pa., that makes equipment for testing the 
efficiency of filters. The company had three employees but was 
faltering, the owner said in the announcement; with the loan it got 
more business in China, and expanded its work force by two. That 
works out to $63,000 a job.

Mr. Cogan said that the cost to American taxpayers would depend on 
the success of the project; if the loans are paid back on time, they 
could generate a profit for the bank, he said.

Gary C. Hufbauer, a former deputy assistant secretary of the Treasury 
for international trade and investment policy and now a senior fellow 
at the Institute for International Economics, a nonprofit group here, 
said that at one time the bank had a requirement that 65 percent of 
the work be in this country. But, he said, "the choice is, as this 
case illustrates, not between 100 percent U.S. and 100 percent U.S.; 
it's 50 percent U.S. and no percent at all. And 50 percent is better 
than nothing."

But Michael Mariotte, the executive director of the Nuclear 
Information and Resource Service, an antinuclear group based here, 
said, "you can think of other corporations that would be sounder 
risks." He added, "I'm sure there's cheaper ways to generate 5,000 
jobs."

"A lot of the money is not staying in the United States, and whatever 
profit is made on this deal is going to the U.K."
--------------------

NRC Renews License For Dominion Surry Plant Fuel Storage

CHICAGO (Dow Jones)--The U.S. Nuclear Regulatory Commission said 
Tuesday that it has officially renewed a license allowing Dominion 
Resources (D) to store nuclear fuel at its Surry nuclear plant in 
Virginia after the plant's reactors retire.

The agency in December granted Dominion the first-ever 40-year 
license renewal for a dry cask spent fuel storage installation. On 
Tuesday, the NRC confirmed the license has been officially issued 
following a review of maintenance and inspection requirements.

"The license includes strict conditions to monitor potential effects 
of aging on the integrity of the casks," said E. William Branch, 
director of the NRC's Spent Fuel Project office, in a release. "These 
conditions include additional inspections to be conducted by the 
licensee and continuous monitoring of radiation at the boundary of 
the dry-cask storage facility."

Surry was the first plant to achieve NRC approval for a dry-cask 
spent fuel storage facility in 1986, and it's now the first plant to 
get a 40-year extension to the original 20-year operating license for 
that facility.

Because Surry's spent fuel pools are filled to capacity, continued 
use of dry cask storage is "essential" for the reactors there to 
continue running, the NRC said in December. The license renewal means 
Dominion can continue storing fuel at Surry beyond 2032 and 2033, 
when the operating licenses for the facility's two 813-megawatt units 
expire.

There are now 30 sites like Surry's storage facility in the U.S., 
according to the NRC.

The NRC approved Surry's 40-year storage site extension by granting 
Dominion an exemption from regulations that currently allow 20 years. 
When granting the exemption, the NRC emphasized that it still 
considers dry casks a temporary solution until a permanent nuclear 
reactor waste storage site is opened.

Nuclear plants typically need to cool spent fuel in storage pools for 
at least five years. But the pools have held waste for far longer, 
and are packed at many plants, because the federal government hasn't 
yet opened a long-planned central nuclear dump. The government was to 
start accepting nuclear plant waste in 1998, but it currently expects 
its planned Yucca Mountain site in Nevada will be ready in 2010, any 
many believe it will take years longer.

The Surry site features two thick reinforced concrete pads that can 
each hold 28 16-foot storage containers, and Dominion is building a 
third pad, a spokesman said in December.

When fully loaded with fuel, the containers weigh 103 to 119 tons. 
Each container costs about $1.2 million.

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Sandy Perle
Senior Vice President, Technical Operations
Global Dosimetry Solutions, Inc.
2652 McGaw Avenue
Irvine, CA 92614 

Tel: (949) 296-2306 / (888) 437-1714  Extension 2306
Fax:(949) 296-1902 

E-Mail: sperle at dosimetry.com
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Global Dosimetry Website: http://www.dosimetry.com/ 
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