Roulston Energy Partner Stephen Maloney on US Nuclear Regulatory Commission’s Review of Processes and Regulations

July 22, 2011

The US Nuclear Regulatory Commission (NRC) organized a Near-Term Task Force following the Fukushima accident with the charter to conduct a systematic and methodical review of NRC processes and regulations.  This review was intended to determine whether the agency should make additional improvements to its regulatory system and to make recommendations to the Commission for its policy direction, in light of the accident at the Fukushima Dai-ichi Nuclear Power Plant.

On Thursday, July 14, 2011, the Task Force issued its report and offered a number of recommendations.  The findings are too complex to discuss in this blog but certain important industry trends are evident.

Our review suggests a significant number of modifications will be needed at older US reactors. Some of these modifications will arise from long-recognized single point vulnerabilities in older reactors.  Across the fleet, a more robust view of seismic and flooding risks will be applied.  Finally, NRC appears to be shifting its safety focus from the so-called “design basis accidents” to encompass a broader range of less violent but no less serious reactor hazards.

We see that some portion of the fleet will not find it economic to meet contemporary safety standards, and will continue operations.  We also envision other plants will be sold to one or another of the “elite” nuclear operators in order to leverage engineering and operating talent.

One point we often make to our utility clients is that risk management extends beyond meeting safety standards imposed by regulators. The operation of nuclear reactors at once remote sites that are not ever growing population centers means increasing exposed to third-party damages in the event of a reactor or radiological accident.  While we have every confidence in the effectiveness of defense-in-depth measures to protect the public health and ensure public safety, it is not obvious the economic risk of reactor operations is routinely subjected to the risk management controls associated with utility market and credit operations.  It is also not obvious to us that all nuclear operating companies have sufficient risk capital on their balance sheets to respond to the range of events that should be considered.

Knowledge often diffuses through systems.  We anticipate the lessons from Fukushima will lead to some companies reconsidering their nuclear investments and potentially greater consolidation among nuclear operators.  Such restructuring and consolidation occurred in the past following market and industry events.  It will happen again.

Stephen Maloney is a partner at Azuolas Risk Advisors with over 30 years experience in the US and EU modeling risk and valuation in energy, FX, and other commodities. Stephen has led energy M&A teams for Fortune 100 firms over 15 years. He also routinely advises executive and credit committees concerning high risk ventures and capital investments. His clients include companies, hedge funds, and financial institutions actively marketing or trading physical and financial commodities and derivatives.

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