TEXT-Fitch: TVA deal could pave way to small nuclear reactors

Feb 22 - Fitch believes the Tennessee Valley Authority's (TVA)
agreement with Babcock & Wilcox (B&W) to develop the first small modular nuclear
reactor in the U.S. could eventually provide affordable access to an alternative
to gas-fired generation for public and cooperative power providers. The joint
effort between TVA and B&W will include remaining design work, preparation of a
license application for Nuclear Regulatory Commission (NRC) review, as well as
an evaluation of TVA's Clinch River site in Oak Ridge, TN. The U.S. Department
of Energy is expected to fund nearly 50% of the total cost of design and
licensing which could approach $900 million pursuant to a pending agreement. TVA
and B&W would fund the remaining costs.

TVA expects to submit the license application in 2015. In our view, the
licensing process should benefit from the NRC's approval last year of the
construction and operating licenses for new nuclear plants at the Summer and
Vogtle sites. However, delays related to both regulatory approval and
implementation are possible, and the political risk to nuclear projects is
always high. Commercial operation is not expected before 2022.

Although the near-term economics of nuclear development are questionable, if the
resulting design is approved and can be replicated, we believe that it would
provide a valuable long-term option for public power and cooperative issuers.
These units are likely to be more costly per megawatt of capacity than larger
designs, but they will require a much lower investment overall as they will be
approximately one-sixth the size and would not require significant incremental
research and design funding. This would make them a viable resource option for
small to midsize utilities, particularly those that are remotely located with no
access to high voltage transmission.

Additional information is available on www.fitchratings.com.

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expressed are those of Fitch Ratings.