A nuclear renaissance has begun in this country.

Here is a cursory overview of what is coming and when, respectively: “Proposed New Nuclear Power Plants” and “First Wave or Second Wave?”. As you can see, the plans span decades. That is because nuclear energy facility construction requires years of wide-ranging and comprehensive planning, licensing and financing efforts. All of this is changing rapidly, but it is already underway. The extent of the work that will be bonded is not clear, but given the the risks, public responsibilities and probable general contractors, the use of construction contract surety bonds is likely. My personal opinion is that it is highly advisable, and I have written about it here:

Surety Bonds for Nuclear Energy Facility Construction Cost-Savings.

On a personal note, I should mention that before I had ever heard of a surety bond, I was involved in the tail-end of the last round of new nuclear construction in several capacities. I have been following the progress of the nuclear renaissance for about a year now, reading everything available and finally meeting some of the people involved in June. There is no primary source for this news and information, but there is an extensive blogosphere covering the developments. There are few traditional sources covering this other than highly-specialized, expensive paid sites and studies, very few of which specialize in the construction side of the nuclear industry, much less matters of interest to surety.

I would summarize my findings simply by saying that it looks like there is a sizable new market opportunity awaiting, but it is fraught with unfamiliar risks, particularly in regard to construction standards as well as nuclear and environmental regulations, state, federal and local. This is a whole other world of construction, folks.

“How big is that market?” I hear you asking. Well, $188 billion is one number that was floating around last last year. And at the National Press Club in July, Senator Lamar Alexander of Tennessee announced a $700 billion plan to almost double the number of reactors nationwide. There is similar legislation pending in Congress, e.g., the American Energy Act.
I am loathe to put a number on it myself, and hereby chastise the mainstream construction press for being so late to the game reporting on this with any kind of comprehensive summary. The numbers on the board change frequently for reasons including: federal licensing, corporate fluctuations, financing, federal loan guarantees and state approvals, listed here in no particular order. But I would submit that they are indeed substantial.

Due to their sheer size, complexity and duration, these projects do not easily lend themselves to bonding in their entirety. But some proportion of bonding is probably feasible for many of the subcontracts and large fabrications. In fact, “modularity” is a phrase used a lot in the renaissance circles, and that ties-in very well with surety, at least in my opinion. The overall financial guarantees for the general contracts with the utilities are mostly confidential, thus not revealed on the state utility regulatory websites. But just to give you number-hungry sureties one red-meat example, the first new project underway is Plant Vogtle 3 & 4 in Georgia, at $6.446 billion, so sharpen your pencils boys and girls. Other projects on the boards may be higher or lower, as some are expansions at existing facilities and others completely new. At least one of the general contractors involved has mentioned that there may be a need for financial guarantees for its subcontractors, citing surety bonds specifically. For a number of reasons, I think it can be expected that others will soon follow suit, if they have not already done so. You might want to give the old “heads-up” to reinsurers, as nuclear exclusions are prevalent in insurance and surely confusion will ensue among that quarter. Sureties which predominantly bond smaller subcontractors should also take note and dust-off the old guidelines from thirty years ago before they are blindsided. Questions may be forthcoming.

Bear in mind, these are only the domestic projects, dwarfed by what is planned worldwide. China, India, Brazil, Italy, the UAE, Finland and even Saudi Arabia are all in the mix. Those of you in international markets may have even greater opportunities there.

The surety industry has a lot to offer in this effort, as I’ve argued in the other post. I see it as an opportunity that should be explored.

by Surety Insider

The stimulus package is absolutely gigantic. So much so, I thought I would create a list of pros and cons related to the construction industry pertaining to the bill. Many of the cons are items that the industry was pushing for, but did not get.

Overall, the bill looks like a victory for the construction and surety industries. See below for details.

Along with many other issues, The 2008 November Presidential election and economy has changed some of the makeup of the state legislative agendas. Like the battle of some in Congress to the industry’s use of information from credit reports, limitations on the use of credit scores are likely in many states in which the Democrats have gained control of both chambers of the legislature. So far, the legislation has been restricted mainly to personal lines insurance.

Due to these recent changes, there are some added subjects that are expected in the state legislation in 2009 that have either been created or revitalized from the recent political and economic state of affairs. These subjects are listed below:

Antitrust

The Florida Senate Banking and Insurance Committee is revising the repeal of the insurance industry’s exemption under the Florida antitrust statute. The next Senate President kicked off this topic late last year. Application of the state antitrust laws to the insurance industry and to advisory and statistical groups, such as SFAA, is mainly unchartered waters. There is minor case law or enforcement of state antitrust laws against the industry, mostly due to state exemptions that reflect the federal McCarran Act.

Bad Faith

The trial bar is presumed to push bad faith legislation to Florida, Idaho, Louisiana, Michigan, Minnesota, Oregon and Washington. SFAA will evaluate all bills for application to both surety and fidelity bonds. The extra states in which there are concerns with the trial bar that could generate bad faith or other anti-tort development measures are: California, Colorado, Illinois, Nevada, New York, Pennsylvania, and New Jersey.

Regulation of Credit Default Swaps (CDS) Given the position that credit default exchanges played in the meltdown on Wall Street, a few state insurance regulators may try to regulate CDSs as insurance, or as surety or financial guarantee, depending on the descriptions and other licensing and capital and financial regulations in their insurance code. A CDS is a contract under which the supplier guarantees the consumer to pay upon the event of a credit incident, usually a failure to pay, at an exact entity.

The Missouri Insurance Department just released a bulletin affirming that it will standardize particular CDS as surety as of January 1, 2009, while the Department will use good judgment in its enforcement authority to the degree of any wide-ranging federal regulatory scheme is created for CDSs. Sellers of CDSs have to be licensed in Missouri, abide by the capitalization requirements, and agree to financial and market conduct regulation as insurers.

New York will be a key state because New York law usually has governed regarding the regulation of surety and financial guarantees because of the extraterritorial statute the Appleton Law. While New York initially confirmed that it would look into regulating CDSs as insurance in some way, in more recent proof in Congress, the Department stated that it would wait to see what development federal regulators made on addressing these free products. The New York legislature will carry out a hearing on CDSs in early December. There was legislation initiated in Congress late this year to demand every swap and copy to be traded on a regulated exchange. A number of the federal banking and securities regulators have stated that they are in the process of working on a clearing house for these transactions so that all the suitable regulators will have information required to observe and reduce the risk in these connections.