Nuclear Energy 2014 - 2015: Recognizing the Value

Annual Briefing for the Financial Community

February 12, 2015

Today’s Briefing

• The business and policy environment

• 2014 recap: Key events and activities

• Looking forward: 2015 and beyond

The Business and Policy Environment

“The Kewaunee power plant

needed much less than the cost of a

new [gas-fired combined-cycle

plant] to cover the costs of continued

operation.” - The Value of US

Power Supply Diversity, IHS

Energy, July 2014

$28.22

$42.53 $49.81 $50.10

$53.70 $57.30

Lowest-CostNuclear Plants(Lowest 25%)

Average AllExisting Nuclear

Plants

Single-UnitNuclear Plant

New CC($4.00 gas)

New CC($4.50 gas)

New CC($5.00 gas)

The Cost of Replacing Nuclear Generating Capacity

($ per MWh)

Sources: Nuclear plant costs are 2011-2013 averages from Electric Utility Cost Group. Cost for single-unit nuclear plant is 2011-2013 average for seven small (approx. 600 MW) nuclear plants like Kewaunee, Vermont Yankee. Gas-fired combined cycle plant costs from NEI financial model: Debt at 5.0%, 15% return on equity, debt/equity structure of 50/50. Capital, O&M and fuel cost assumptions for natural gas are from the Energy Information Administration’s Annual Energy Outlook 2013. CC = combined cycle.

Nuclear Energy’s Solid Value Proposition Safe, Reliable Electricity 24/7 Plus …

Supports Grid

Stability

Provides Price

Stability

Provides Clean Air

Compliance Value

Contributes to Fuel and Technology

Diversity (Portfolio

Value)

Anchors the Local

Community: Jobs, Tax

Base

Avoids Carbon

Emissions

Runs When

Needed (Fuel on

Site)

Nuclear Energy Does Matter

Spotlight on Nuclear Energy’s Value

• Powering through the Polar Vortex

- Value of baseload capacity with firm fuel supply

• EPA Clean Power Plan proposal to reduce CO2 emissions by 30% by 2030

- Cannot be achieved and sustained without preserving existing nuclear generating capacity and building new nuclear capacity

FERC Initiatives to Address Market Issues

• Technical workshop on capacity markets (Sept. 2013)

• Lessons learned from Polar Vortex (April 2014)

• 3 technical workshops on price formation in energy markets

• Order to RTOs on fuel assurance (Nov. 2014)

FERC Recognizes Value of Baseload Capacity

“[T]he Commission is right now actively considering – both how our capacity markets are designed, and whether the full value of a baseload plant is included in the payments

they’re getting from the capacity market, but also whether we have the right set of products out there, that will incent the resources that can provide reliability ….” Arnold Quinn, Director, FERC Division of Economic and Technical

Analysis, at joint FERC-NRC Meeting, May 28, 2014

The Evolution at PJM: From April …

“I think we may look at potentially paying more for firm winter fuels. And obviously I think nuclear would easily fall into that …. [I]t concerns us when nuclear units start to prematurely retire, only because we're not going to get them back once they go. And so we are taking a very hard look at our markets, and we may be coming to you with changes if our markets are not paying enough.” Michael Kormos, Executive Vice President, PJM, at FERC

Workshop, April 1, 2014

The Evolution at PJM: From April to December

“[T]he PJM Board has authorized the filing of a Capacity Performance initiative at FERC. …Stronger incentives within the existing capacity market structure should be established to encourage needed investment by both new and existing resources. PJM is acting now to begin reversing trends in generation performance and fuel security that will continue to deteriorate reliability.”

Terry Boston, PJM President and CEO, December 3, 2014

Impact of Plant Shutdowns in Illinois • PJM analysis for Illinois Commerce

Commission: - $307 million-$437 million annual increase in

load payments in ComEd zone

- $752 million-$1.3 billion annual increase in load payments in PJM

- “Significant thermal and voltage violations”

• NEI analysis: - 2,500 direct jobs lost; 9,000 direct

and indirect

- $2.4 billion in direct lost economic value; $3.6 billion direct and indirect

-588.5

-203 -128.6 -12.7 -7.1

Nuclear Hydro Wind Geothermal Solar

Nuclear63.3%

Wind13.4%

Hydro21.2%

Solar0.7%

Geothermal1.3%

U.S. Carbon-Free Electricity Sources

2013

Source: Emissions avoided are calculated using regional and national fossil fuel emissions rates from the Environmental Protection Agency and generation data from the Energy Information Administration.

Preventing Electric Sector Carbon Emissions

U.S. Electric Power Industry CO2 Avoided Million Metric Tons 2013

• States should demonstrate how they intend to preserve existing nuclear capacity in State Implementation Plans

• Power uprates completed after 2012 should count toward compliance

• License renewals after 2012 should be considered new capacity and count toward compliance

• Plants under construction should not be part of rate-setting formula, should count toward compliance when operating

Industry Recommendations for EPA’s Clean Power Plan

“Vernon [is] now facing the loss of its largest employer and taxpayer, significant budget cuts, and mounting questions about its financial footing.”

Patricia O’Donnell Chair

Board of Selectmen Vernon, Vermont

Growing Recognition of Nuclear Energy’s Value

• FERC, EPA, RTOs, states recognize value of nuclear power plants, consequences of nuclear plant shutdowns

- Electricity consumers lose long-term, low-cost power at stable price

- Jobs, state and local economies suffer

- Reliability at risk

• Initiatives underway to monetize that value

2014 Recap: Key Events and Activities

0

20

40

60

80

100

1990 1996 2002 2008 2014

Record Capacity Factor in 2014

U.S. Nuclear Plant Capacity Factor

91.8% in 2007 91.1% in 2008 90.5% in 2009 91.2% in 2010 88.9% in 2011 86.4% in 2012 90.9% in 2013 91.9% in 2014*

• U.S. reactors set record capacity factor: 91.9%

• Nuclear plants generated 798.4 billion kWh in 2014

• Refueling outage duration declined again:

2014: 37.2 days

2013: 41 days

2012: 46 days

Source: Energy Information Administration * NEI estimate

27.67

34.50

40.83

49.69

Snapshot of U.S. Nuclear Plant Costs ($ per MWh)

2013 Average Generating Costs

2013 Generating Cost

Total generating cost = fuel + capital + operating.

Excludes Crystal River 3, Fort Calhoun, San Onofre 2 and 3, and Kewaunee. Vermont Yankee did not provide data for 2013.

Source: Electric Utility Cost Group.

First Quartile

Fleet Average

Single Unit Sites

Multi-Unit Sites

• Average generating costs decreased 9 percent – from $45/MWh in 2012 to $41/MWh in 2013

• Capital spending down significantly

• Fuel costs up slightly, operating costs down slightly

• $6.4 billion in capex, 25% decrease from $8.6 billion in 2012

7.69

23.33

9.81

Fuel

O&M

Capital

3.0

2.2

1.4

0.5

3.2

1.9 1.8

0.4

4.0

1.9 1.6

0.5

4.4

2.2

1.6

0.4

2.5

1.7 1.7

0.4

Uprates, ExtendedOperation

EquipmentReplacement

Regulatory Other

2009 2010 2011 2012 2013

Nuclear Plant Capital Spending Trends (2013 Billions of $)

Source: Electric Utility Cost Group

Distribution of Capex in 2013

-50%

0%

50%

100%

150%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Nuclear Power Plant Cost Trends 2005-2013

Source: Electric Utility Cost Group

Regulatory CapEx

Fuel O&M

Engineering & Equipment Reliability O&M

Security O&M

Licensing O&M

Watts Bar 2 Nears Completion

Progress at Vogtle, Summer

Progress at Vogtle, Summer

Status of New Plant Licensing

Company/Site Design

(# Reactors)

Nuclear Innovation North America: South Texas Project 3 & 4

ABWR (2)

Dominion Resources: North Anna 3 ESBWR (1)

Duke Energy: William States Lee 1 & 2 AP1000 (2)

Duke Energy: Levy County AP1000 (2)

DTE Energy: Fermi 3 ESBWR (1)

Florida Power & Light: Turkey Point 6 & 7 AP1000 (2)

Projects with applications for combined construction/operating licenses under review by the Nuclear Regulatory Commission

$740 Billion Global Nuclear Energy Market Over Next 10 Years

Sources: International Atomic Energy Agency; World Nuclear Association; U.S. Department of Commerce

Worldwide Development 69 reactors under construction 183 reactors on order or planned

64

25 22

6

31

9

China India Russia

Planned

Under Construction

U.S. Participation in Global Market Supports Strategic Objectives

• U.S. technology among the most innovative reactor designs

• Enhances U.S. ability to achieve nonproliferation goals, influence global safety practices

• NRC approval of reactor designs considered the “gold standard”

• Global sales create tens of thousands of U.S. jobs: - Domestic manufacturing of key components and fuel

- Design, engineering and other services

FLEX Strategy Enhances Safety

• FLEX provides additional layer of protection against extreme, unexpected scenarios that are beyond the plants’ design basis

• Focus on maintaining key safety functions

• Each nuclear plant site maintains backup portable

Emergency equipment is pre-staged on truck flatbeds at national centers, ready to be shipped by truck or aircraft

safety equipment, shares it industrywide if needed

• National response centers opened in 2014 in Memphis and Phoenix

National Response Centers Open in 2014

Five full sets of emergency backup equipment is stored at the national centers

Emergency equipment is equipped with color-coded electrical connections for “plug and play” installation

Stable Outlook for Used Fuel Management

• Court ordered DOE to reset Nuclear Waste Fund fee to zero = $750 million annual saving

• Court ordered NRC, DOE to resume Yucca Mountain licensing

• Government program requires restructuring, including new management entity

• Tangible interest in developing interim storage facility

Used fuel storage at interim facility

Source: Nuclear Regulatory Commission

Status of First License Renewal

74 Reactors Approved

8 Reactors Intend to

Renew

17 Reactors Under Review

Applications for License Renewal

Steam generator replacement in progress

Nuclear Energy Replacement Scenarios If all U.S. nuclear capacity retires at 60 years …

100 GW (16.4% of U.S.

electric supply) 72.4 GW

(11.4% of U.S. electric supply)

22.2

54.6

2030 2035

New Nuclear Capacity Neededto Maintain 20%

Existing Nuclear Capacity

Nuclear Energy Replacement Scenarios If all U.S. nuclear capacity retires at 80 years …

104 GW (17% of U.S.

electric supply)

104 GW (16.4% of U.S.

electric supply)

18.1 22.9

2030 2035

New Nuclear Capacity Neededto Maintain 20%

Existing Nuclear Capacity

Looking Forward: 2015 and Beyond

Policy, Politics and Priorities

America’s Power Supply Challenge: Fuel Diversity at Risk

• As much as one-third of today’s coal-fired capacity may be lost in next 5-10 years

• 342,000 megawatts of gas-fired generation built since 1995 (75% of all new capacity)

• Renewables will expand, but they’re not baseload

Impacts of Losing Electricity Diversity

• $93 billion increase in cost of electricity per year

• 25% increase in retail power prices, along with increased price volatility

• $200 billion reduction in GDP each year due to higher electricity prices

• 1 million fewer jobs resulting from lower GDP

• $2,100 increase in electricity costs per year for the typical household

49,140 58,068

217,351

361,428 373,763

107,678

< 10 10 - 29 30 - 49 50+

OtherCapacity

Nuclear

Approx. 411 GW (34% of installed capacity) 10-30 years old

Approx. 432 GW (35% of installed capacity) 31-50 years old

Plant Age

Age of U.S. Generating Capacity: Replacing Today’s Infrastructure A Major Challenge

Source: Ventyx

Nuclear Energy’s Unique Value Proposition Safe, Reliable Electricity 24/7 Plus …

Supports Grid

Stability

Provides Price

Stability

Provides Clean Air

Compliance Value

Contributes to Fuel and Technology

Diversity (Portfolio

Value)

Anchors the Local

Community: Jobs, Tax

Base

Avoids Carbon

Emissions

Runs When

Needed (Fuel on

Site)