Exploring The Path To New Nuclear Today Financing Nuclear Energy In A Merchant Market NARUC Nuclear Study Tour Augusta, Georgia October 23, 2012
Safe Harbor Statement This presentation contains forward-looking statements which are subject to various risks and uncertainties. Discussion of risks and uncertainties that could cause actual results to differ materially from Energy Future Holdings Corp. s ( EFH ) or Energy Future Competitive Holdings Company s ( EFCH ) current projections, forecasts, estimates and expectations is contained in certain filings with the Securities and Exchange Commission by EFH and EFCH, which are parents of Comanche Peak Nuclear Power Company LLC ( CP Nuclear Power ). Specifically, EFH makes reference to the section entitled Risk Factors in its most recent Form 10-K and subsequent reports on Form 10-Q. Many of these risks and uncertainties are beyond EFH, EFCH and CP Nuclear Power s ability to control or predict. Neither EFH nor EFCH undertake any obligation to revise or otherwise update any forward-looking statements contained in this presentation to reflect events or circumstances that occur after the date of this presentation. There can be no assurance that any estimates, projections or forward-looking information will be realized. You are cautioned not to place undue reliance on the estimates, projections and other forwardlooking information in this presentation as they are based on current expectations and general assumptions and are subject to various risks, uncertainties and other factors. Many of these risks, uncertainties and other factors are beyond EFH s, EFCH s and CP Nuclear Power s control and may cause actual results to differ materially from the views, beliefs and estimates expressed herein. EFH s and EFCH s reports and other information filed with the SEC, including the risk factors identified in its Form 10-K for the year ended December 31, 2011, and Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, can be found on the SEC s website at www.sec.gov and on EFH s website at www.energyfutureholdings.com. 1
Overview ERCOT Market Highlights Comanche Peak 3 & 4 Overview Financing Merchant Nuclear Key Concepts 2
ERCOT Market Highlights 3
Texas Retail Electric Price Rank Has Improved Significantly Since Restructuring...And Enabled Customer Choice 20 16 2001 State Ranking (Pre-Competition) /kwh 12 8 4 0 KY WA ID WV OR TN ND NE UT WY MT IN MO AL OK MS SD CO MN KS MD SC AR GA DC VA WI LA NC MI AZ OH IA FL DE IL NM TX NV PA NJ CT CA AK RI MA NH VT ME NY HI /kwh 32 28 24 20 16 12 ERCOT avg. lowest offer July 12 7.6 /kwh ERCOT avg. lowest 12-mo fixed offer July 12 8.5 /kwh July 2012 (Latest Available) State price rank improved by 19 spots after competition 8 4 0 LA WA KY OK ID AR IN WV TN ND MS OR WY SD MT UT IL NC TX MO NE SC AL NV VA FL IA KS AZ MN GA OH NM CO DC PA MD DE WI RI MA ME MI CA NH NJ VT CT NY AK HI Sources: Energy Information Administration avg. annual residential rates for 2001 & July 2012 monthly data. Average of lowest available absolute prices and 12-month fixed prices in the 5 competitive TDU areas from www.powertochoose.org (7/2/12) for residential customers using an avg. of 1,000 kwh per month. 4
The Restructuring Spurred Massive New Generation Investments In ERCOT The competitive market has steadily added new generation and greater efficiency to the market Generators in the competitive market shoulder the risk of building new power plants, bringing efficient, cost-effective generation to consumers Sources: Energy Velocity, NERC, PUC 5
And ERCOT s Economic Growth And Aging Generation Fleet Requires Significant Incremental Capacity Additions ERCOT projected capacity and demand May 2012; GW Implied ERCOT needed capacity additions 1 May 2012; GW Total Requirement (Peak + 13.75% Reserve) 2013 Capacity Additions for Growth Additions for Retirements 120 100 80 60 40 20 0 Capacity less units >50 yrs 109.6 100.9 94.9 88.7 75.3 68.4 62.5 53.3 47.8 2018 2023 2028 2033 70 60 50 40 30 20 10 0 61.8 47.6 27.5 32.4 22.0 20.3 12.8 6.9 34.3 25.6 19.6 13.4 2018 2023 2028 2033 By 2023, ERCOT projections suggest 20-32 GW of capacity additions are needed, growing to 34-62 GW by 2033, ~50% of which CP Nuclear Power estimates needs to be baseload 1 Additions for Growth equal (a) Total Requirement less (b) 2013 Capacity; Additions for Retirements equal (a) 2013 Capacity less (b) Capacity less units >50 yrs. Does not include retirements due to EPA s proposed Utility MACT or Cross-State Air Pollution Rules. Source: Report on the Capacity, Demand and Reserves in the ERCOT Region; ERCOT, May 2012 6
Comanche Peak 3 & 4: An Overview 7
The Proposed Comanche Peak Expansion: Nuclear In A Merchant State Project Overview and Timeline TXU kicks off nuclear development in August 2006 Selects MHI US-APWR for 2-unit, 3,400 MW expansion at Comanche Peak in March 2007 Co-located with Comanche Peak 1 & 2 60 miles southwest of Fort Worth KKR, TPG and Goldman Sachs form EFH and Luminant; close the $45 bn merger of TXU in October 2007 MHI applies to the NRC for a Design Certification in December 2007; docketed February 2008 Rulemaking scheduled for mid-2015 Luminant forms CPNP in September 2008, announces JV with MHI, a 12% owner CPNP submits COLA to the NRC in September 2008; docketed December 2008 COL issuance scheduled for late-2015 CPNP applies to DOE for a 1703 Loan Guarantee in 2008 In queue awaiting Congressional authorization, COL and market fundamentals CPNP obtains support from Japanese government agencies for a portion of the project debt in 2008 Engineering ongoing; approximately 35% complete Project Highlights Project to be operated by Luminant No CO 2 emissions Avoids 16mm tons of CO 2 annually Would provide power for 1.7mm homes Economic benefit to Texas 1 More than $22 bn during construction o Approximately 112k person-years More than $2 bn annually during operations 6,200 new jobs CP 3&4 Proposed Expansion CP 1&2 1 Source: The Impact of Luminant s Proposed Investment in Nuclear Power Facilities; The Perryman Group, June 2008 8
The Comanche Peak Expansion Project s Structural Relationships Are Similar To Many Other Project Financings Owners Lending Syndicate Luminant subsidiary MHI US subsidiary United States Government Japanese Government DOE Loan Guarantee NEXI JBIC Luminant Generation Company LLC Federal Financing Bank Traditional Lenders Equity U.S. Department of the Treasury Development Services, O&M Production Tax Credits, Standby Support Debt EP/C Mitsubishi Nuclear Energy Systems, Inc. Engineer Constructor U.S. Department of Energy Oncor Electric Delivery Company Spent Fuel Agreement Interconnection Agreement Decommissioning Trust Comanche Peak Nuclear Power Company LLC Water Contracts Property Tax Agreement Hedges Fuel Supply Agreements NYMEX NG Contracts FuelCo LLC State of Texas Brazos River Authority Glen Rose Independent School District While similar in principle to other project financings, the Comanche Peak project financing (or any nuclear project financing) poses significant challenges because of the project s unique regulatory risk, scale, scope and schedule 9
Project Financing Complexities 10
Merchant Nuclear Plants Pose Unique Project Financing Risks And Require Unique Mitigations Unique Risk Regulatory Certainty EPC Certainty Typical CCGT Financing Regulatory agencies issue permits in well adjudicated processes before financing Other unrelated market participants have no impact on the financed project Lump sum, turn-key contracts customary Specific, actionable liquidated damages can be borne by contractor Nuclear Financing NRC issues combined license but subject to ITAAC closure during construction A nuclear plant upset in any country can impact the financed project Customary LSTK too big for EPC firms Regulatory scope changes ultimately borne by owner; higher reserves required Revenue Certainty Syndication &Funding Output and COD guaranteed by EPC Hedge with forward nat gas contract sales; 3-year advance sale manageable Diverse sources for funding both equity and debt Relatively deep and efficient market with predictable pricing Higher probability of force majeure for output and COD guarantees by EPC 5 to 8 year delayed-start hedges costly, if available Unique equity sponsor profile Federally sponsored loan program necessary for syndication and funding Tinsley identifies 16 risk categories for project financing; nuclear projects face unique challenges in virtually every category 11
Financing Guarantees And Foreign Support Are Key Requirements For Comanche Peak 3 & 4 U.S. guaranteed debt AAA-rated Typical Term: 5-year construction + 25-year operating (amortizing) Funds provided from either commercial banks or the U.S. Federal Financing Bank Japan-guaranteed debt NEXI insured debt AA-rated insurance Japan-backed insurance on Japanesesourced equipment Face amount of insurance not to exceed 85% of the value of Japanese content Term: 5-year construction + 18-year amortizing Must follow OECD guidelines Funds provided from Japanese commercial banks JBIC debt Committed financing directly from the Japanese government Face amount not limited by Japanese content, but requires Japanese company equity investment Term: 5-year construction + 18-year amortizing May follow OECD guidelines Funds provided directly from JBIC Key Takeaway Traditional lenders are unwilling to underwrite debt on nuclear projects without a state-backed rate compact or a federally-sponsored guarantee 12
Other Support Is Also Helpful And Reduces Financing Risk State Support Texas offers two important benefits to nuclear plant developers: 1. A Decommissioning Trust Fund that allows new nuclear projects to amortize their upfront NRC decommissioning obligation at favorable rates over a 40-year term 2. A property tax abatement limiting taxable value of a new project to $30 million for a period of 8 years Other Federal Support The US government offers additional support for nuclear plant developers: 1. Production Tax Credits offer 18 per kwh for the first 6,000 qualifying MW of new nuclear construction for 6 years 2. Standby Support provides a backstop against regulatory review delays Dollar-for-dollar support for the first two reactors, up to $500 million each 50% support for the next four reactors, up to $250 million each Support is helpful in risk mitigation; state-sponsored support is targeted on economic benefits to secure future jobs and a bolstered tax base 13
Three Key Concepts For Merchant Nuclear Financing Lenders require loan guarantees or other high-quality assurance Lead times are longer, potentially driving financing (and all-in) costs higher, making less capital intensive generation development such as gas-fired CCGT more advantaged Off-take sales are a major challenge, particularly in competitive retail markets like Texas Merchant nuclear plant development is possible, but not without loan support and a viable revenue hedging plan 14
About The Presenter Jeff Simmons is Director of Corporate Development and Strategy at Energy Future Holdings Corp. (EFH) where he is responsible for certain development activities at its Luminant subsidiary. Luminant is the competitive power generation subsidiary of EFH, and its activities include plant and mine operations, wholesale power marketing and trading as well as construction and development of new power plants. Simmons is also Commercial Manager of Comanche Peak Nuclear Power Company, a development venture owned by Luminant and Mitsubishi Heavy Industries, Ltd.; its primary purpose is development of the proposed 3,400 megawatt Comanche Peak nuclear plant expansion. A leader in the energy industry, Simmons has directed and managed capital-intensive transactions including over $12 billion in power origination, trading and corporate/project development. Simmons has also held key roles in more than $5 billion of acquisition and divestiture transactions. In 2001 he joined TXU, which became EFH in 2007, as vice president of its mid-atlantic wholesale power marketing and trading business. In 2004 he was appointed by TXU s CFO to serve as interim lead and vice president of TXU s corporate development team and has worked in numerous corporate and project development activities since that time. In 1991, Simmons joined Commonwealth Edison Company (now Exelon Corp.) in Chicago. There he held positions in engineering and project management before being selected to help develop its wholesale power marketing business. In 1998, he joined PG&E National Energy Group, where he led its power marketing and business development for the U.S. mid- Atlantic region. Originally from Kentucky, Simmons holds a bachelor s degree in civil engineering from Southern Illinois University and a master s degree in business administration from Southern Methodist University. He and his wife and their five children reside in Dallas. Simmons is active in Boy Scouting, the SIU and SMU alumni associations, is a Builders Society member of the United Way, and is a member of the Tau Beta Pi Engineering Honorary Society. He and his family are members of Highland Park United Methodist Church. 15