U.S. Department of Energy Publishes Report Co-Authored by Kutak Rock Team

January 30, 2018

On January 25, 2018 the U.S. Department of Energy (DOE) published a report, "Small Modular Reactors: Adding to Resilience at Federal Facilities," co-authored by two Partners in Kutak Rock’s Washington, D.C. office, Seth Kirshenberg and Hilary Jackler, along with Brian Oakley and Wil Goldenberg from Scully Capital Services. The report, available here, reviews critical issues relating to energy resilience—including defining energy resilience, why it is important, how to price energy resilience, and the justification for federal agencies and owners of large facilities to pay for the additional costs associated with energy resilience. The report also examines the emerging technology of advanced small modular reactors (SMRs) and their ability to flexibly provide carbon-free power in response to outages caused by severe weather and physical threats to the power grid.

DOE estimates power outages are costing American businesses around $150 billion per year; money that could be reinvested back into the economy. Having a resilient power source not only saves money but maintains critical services our country needs to be safe and secure.

Prepared with funding from DOE, the report identifies several methods to increase energy resilience. Critical areas of resilience include on-site backup power; microgrids, which have been tested and implemented in the military; improved cybersecurity; and resistance to physical attacks on a facility. It further identifies that investing in energy resilience can present a cost recovery challenge, since backup power is not used in normal circumstances, and, preferably, never used. Investing in resilience requires capital and maintenance expenditures for assets which may largely sit idle; thus, routes to cost recovery are not as clear as for normal power generation, which sells power on a regular basis. When making an investment decision for resilience, energy users generally seek options that provide acceptable levels of reliability for critical loads throughout the requisite time period at the least cost.

The report uses as a case study the SMR project currently being developed by the Tennessee Valley Authority (TVA) in Oak Ridge, Tennessee. Given the project’s location near the Oak Ridge National Laboratory, this SMR project could be configured to provide a unique energy resilience benefit to DOE. The report explores potential contracting methods and costs associated with DOE obtaining this resilience benefit. Additionally, the report offers recommendations to advance the deployment of SMRs.

Many industries, such as large technology companies, hospitals, and universities, rely on on-site backup generation. The United States military typically buys its day-to-day power off-site (from a utility) and uses stand-alone backup generators during outages. The fact that organizations are willing to spend money on energy security implies that resilience has a value. The “resilience premium,” as noted in this report, reflects the extra benefit of backup power as compared to the status quo option.

Seth Kirshenberg focuses on financing federal infrastructure and has worked on close to $20 billion dollars in public-private partnership (P3) and privatization transactions. He has developed several federal privatization “first-of-a-kind” projects, including energy projects. He regularly structures, negotiates, documents and closes large, complex governmental transactions for lenders, developers, federal agencies, state entities, and municipalities. Mr. Kirshenberg’s unique practice requires him to work on all phases of development projects, which have included Navy, Marine Corps, Army, Air Force, Coast Guard, Department of Veterans Affairs, DOE, including the Western Area Power Administration (WAPA) and National Nuclear Security Administration (NNSA), and General Services Administration (GSA) privatization projects, and state and local government projects (enhanced use leases, housing privatization, energy development, water, electric and wastewater utilities privatization, office facilities, specialized secure space, airports, and exchange agreements).

Hilary Jackler advises federal agencies, state and local governments, and private entities on structuring, implementing, and financing public-private partnership (P3) projects, military base realignment and closure (BRAC) matters, and programmatic and regulatory development. She has supported governmental clients as they solicit, negotiate, implement, and terminate over a dozen P3 transactions. Additionally, she assisted governmental entities to create and implement a federal grant program, draft policy reports, resolve disputes, negotiate settlements, and defend and prosecute litigation. Ms. Jackler has assisted more than a dozen governors’ offices, mayors’ offices, and other local redevelopment authorities to enable the redevelopment of over 5,000 acres. Ms. Jackler also represents developers and lenders participating in P3 transactions. She regularly drafts and tracks legislation, resolutions, regulations, and grant opportunities to address the objectives of her clients.