Thursday, February 04, 2010Last Update: 1:45 PM PT

      WASHINGTON (CN) President Obama has ordered the Secretary of Energy to create a Blue Ribbon Commission on America's Nuclear Future to explore expanding the use of nuclear energy.
     The President wants the commission to report back to him in 18 months with a comprehensive review of policies for managing the back-end of the nuclear fuel cycle.
     In a separate statement, Secretary of Energy Steven Chu announced that former Congressman Lee Hamilton, who previously co-chaired the Iraq Study Group and former National Security Advisor Brent Scowcroft, will co-chair the new commission.
     In his memorandum to Secretary Chu establishing the commission, Obama complained that "the nation's approach, developed over 20 years ago, to managing materials derived from nuclear activities including nuclear fuel and nuclear waste, has not proven effective."
     Congress designated Yucca Mountain as the first permanent repository for the nation's nuclear waste. Under the Nuclear Waste Policy Act of 1982 the Department of Energy is required to take ownership of and responsibility for the containment of all nuclear waste and spent fuel at all nuclear reactor sites. Since then, most waste and spent fuel remained on the site of the reactor where it was created in "temporary" holding ponds or casks, as the Yucca Mountain site continued to be plagued by construction delays, legal challenges and cost overruns.
     Finally, in 2009, the Obama administration announced that it would not proceed with the Yucca Mountain project and cut its funding from the federal budget.
     As of 2007 there were 50,000 metric tons of spent nuclear fuel and waste. Currently, no reprocessing of spent fuel is allowed in the United States.
     There is some hope that much of that spent fuel could be burned up in molten salt reactors which have an experimental history dating back to the 1960's. These reactors emit very little radioactive waste as the molten salt traps the products of fission.
     The core and primary cooling loop of this type of reactor is operated at near atmospheric pressure, and has no steam, so a pressure explosion is impossible. Unfortunately, the most advanced project to build such a reactor, the Fuji MSR in Japan is still decades from completion.

     WASHINGTON (CN) - Banks will have an additional year to include asset backed commercial paper as risk-weighted assets on their balance sheets, according to new rules by the Federal Reserve and other financial agencies. With these listed assets, banks will have to maintain higher capital reserves.
     The switch is in response to two changes in accounting standards made by the Financial Accounting Standard Board. The changes require bank holding companies to consolidate certain assets into so-called variable interest entities which are means of consolidating minority positions in several companies into one entity.
     Banks and bank holding companies must to provide additional disclosures about their involvement with variable interest entities and any significant changes in risk exposure due to that involvement, under two of the financial account standards. Banks will be required to disclose how their involvement with a variable interest entity affects their financial statements.
      The major financial regulators originally had proposed to implement the new risk calculations on Feb. 1, but agreed to a two quarter delay, and a two quarter phase-in period, in response to the banking industry's request for a three-year phase-in. The industry is afraid that increasing capital requirements will hamper their liquidity and ability to make loans.

     WASHINGTON (CN) - The Federal Energy Regulatory Commission had proposed universal credit practices for the wholesale electricity market to replace the ad hoc credit practices developed by regional transmission organizations and independent system operators.
     Among the reforms the commission is seeking is a reduction of the billing period between the purchase of electricity and payment to seven days. Reducing the settlement period would lower collateral requirements for counter-parties, reduce credit risk exposure time and provide earlier identification of potential defaults. Eventually the commission would like to see one-day settlement periods.
     Such a reform might pose cash flow problems for wholesale buyers who bill their retail customers in 30 day cycles and who benefit from the "float" or interest they earn by keeping their cash on hand for longer periods.
     If the billing cycle is reduced, the need for extension of unsecured credit to wholesale buyers would also be reduced and the commission proposes to limit such unsecured credit to $50 million per counterparty. The commission also is considering different unsecured credit limits for different sized electricity markets, but ultimately would like the energy markets to eliminate the use of unsecured credit if the billing cycle is reduced to one day.
     The other side of buying electricity often is buying capacity on a transmission system to transport the electricity to customers. Transmission rights often are sold under longer dated contracts running up to years into the future. Because the value of transmission rights fluctuates with the condition of the grid and the weather, and the contracts cannot be terminated until the expiration of the contract, immediate losses due to reduced capacity could quickly bankrupt a buyer. The commission proposes to eliminate unsecured credit in transmission rights markets so that buyers will not enter contracts beyond what their secured credit lines would allow.
     When a wholesale buyer goes bankrupt, because actual title to the energy in an energy transaction does not switch to the owner of the system on which the energy was bought and transmitted, the system operator cannot net payments it owes to a buyer against those owed by the buyer to the system. This causes the system to take a loss on any transactions not already paid for because creditors of the bankrupt buyer would have claim to payments owed to that buyer.
     To offset the risk the system operator bears, the commission plans to require all market participants to include provisions in their contracts that would allow participants to net payments owed and payments received between counterparties before creditors can claim right to any payments.
     More fundamentally, the commission is asking market participants to define financial criteria for participation in the market. The commission believes that it currently is too easy for under-capitalized traders to enter the market, placing a great degree of risk of default on other participants.
     The commission's proposals may radically alter the landscape for participation in energy markets causing smaller buyers to join consortiums, as in many cases they would find it hard to meet the liquidity demands the proposals would require. Feedback on the commission's proposal is due by March 29.

     WASHINGTON (CN) - Lenders regulated by the Federal Housing Finance Agency must submit a timely report to the agency upon discovery that the lender has bought or sold a fraudulent loan, or suspects a possible fraud in the purchase or sale of a loan. The same rule applies to financial instruments.
     Also, the regulated entities must establish and maintain internal controls, policies, procedures, and operational training programs to ensure that any fraudulent loan or financial instrument or possible fraudulent loan or financial instrument is discovered and reported, according to an agency rule.
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