Scott Bailey

Vice President of Supply Chain

NuScale Power

January 24, 2022

Placeholder.png
Ep 350: Scott Bailey - Vice President of Supply Chain, NuScale Power
00:00 / 01:04
Play audio:

Shownotes

Bret Kugelmass
Okay, so we're here today on Titans of Nuclear with Scott Bailey who's the VP of Supply Chain at NuScale. Scott, welcome to Titans.

Scott Bailey
Well, thank you for having me.

Bret Kugelmass
Super excited to learn about your work. But before we get there, we'd love to just learn about you as a person. Tell us where you grew up.

Scott Bailey
Oh, great. I'm a New Englander, so that makes me a Red Sox fan and New England Patriots fan. But I grew up in Maine and lived there the first 40 years of my life. I went to college there. I went to the Maine Maritime Academy in Marine Engineering. And I worked at- did a little bit of shipping work out on the deep sea and then I cut my teeth in nuclear in 1986 at the Maine Yankee Plant. I was there for 14 years in various positions.

Bret Kugelmass
Before we get to that plant, why don't you just tell us what got you into Maritime originally? Why'd your interests end up going there?

Scott Bailey
A couple of things is one that I had always been interested in the ocean and boats and ships and all of that stuff. But also, I was a little bit of a fix it guy, meaning working on things around the house and those kinds of things. You know, lawn mowers or whatever it might be. And the Maine Maritime Academy is a little bit- it's kind of a combination between technical and a trade school. So even though you do get a BS degree, I get to learn how to weld and do machine tool operations and operate power plant equipment. That was definitely an interest of mine. And then, moving on from shipping, I've pretty much been in power generation my entire career, starting with the ships and then moving up through the nuclear power plants and so on.

Bret Kugelmass
When you were working on the ships, did you work on the ships' engines, or-

Scott Bailey
Yes, I was-

Bret Kugelmass
What kind of ships were these?

Scott Bailey
I was a watch standard, so I spent part of my time on a diesel ship that was a freighter and we would just carry goods from one location to another, almost like a taxi. And then I spent the last part of my tenure out in shipping down the Gulf of Mexico where I was engineer on supply boats. We were taking equipment out to the oil rigs in the Gulf of Mexico.

Bret Kugelmass
I've always been curious, what happens if an engine stops working like when you're in the middle of the ocean?

Scott Bailey
Generally speaking, you've got multiple sources, particularly like on the supply boats that we had. We had twin screws or some cases three, so you had a second engine. But if- on the larger ships, you basically have to fix it, right?

Bret Kugelmass
And can someone fly out with supplies? Or like are you all on your own?

Scott Bailey
Well, there's a reason why at the Maritime Academy they taught us how to weld and how to use the lathe, because you generally- sometimes you could get a port engineer and sometimes you could fly out some goods and things like that if you needed them. But generally you fixed it with what you have and you get it going again.

Bret Kugelmass
What's the worst case scenario? Is it even possible for a tugboat to get out there or is that not-

Scott Bailey
Well, it depends. It really depends on how far you are away from port. Now, fortunately for me, I've experienced what I'll call "losing the plant" where we lost main propulsion, but we got it back. It wasn't in a- we weren't in a maneuvering situation like when we were in a port or something. We were out to sea. All you did was get the bridge yelling at you and saying, Hey, what's going on down there? But we'd get it back up and running and all is well.

Bret Kugelmass
How big are the engineering crews on a ship like that?

Scott Bailey
Oh, I was the only one in the engine room at night, so on eight to 12 shift at night that was just me. But generally, the crews were- it depended on whether you're a steam plant or on the diesel, but I was on the diesels. We generally had a crew of one, two, three... probably about a half a dozen.

Bret Kugelmass
Cool. Okay, I bet there are some fun adventures there.

Scott Bailey
Yes. Yeah, there are some stories. All merchant mariners have some stories.

Bret Kugelmass
Okay, so then you come back landside and start working at Vermont Yankee. Is that right?

Bret Kugelmass
No, Maine Yankee.

Bret Kugelmass
Oh, Maine Yankee. Sorry. I'm sorry.

Scott Bailey
All right, that's all right. I was at Maine Yankee for about 14 years. I was there from 1986. I started out as a quality control inspector, so I got to climb over all the pipes. And as I often tell people, I get to go places where many people didn't get to go, because-

Bret Kugelmass
Like where?

Scott Bailey
-they didn't- Well, I mean, like inside of the steam generators and things like that and down in some of the pipe tunnels where there's not a lot of activity, but if there's a valve down there that needs an inspection, then I went down there, whether it was a high radiation or not. It was a good experience, because I really got to learn the plant, got to do that kind of stuff. And then I ended up over in the engineering department. I ran their procurement engineering group for a while. And then-

Bret Kugelmass
Before we get too far along, what kind of plant was it? What was the configuration?

Scott Bailey
It was a Combustion Engineering PWR.

Bret Kugelmass
3-loop or two?

Scott Bailey
Yeah, it was a 3-loop. Yeah, it was a 3-loop CE plant. And of course, at the end it was Westinghouse when they bought them. So I ended up in the procurement engineering group after that. I spent a lot of time in- when I was on the QA side of the organization with a lot of supplier quality related stuff, so I ended up in- started their procurement engineering group at Maine Yankee and then eventually ended up in supply chain in the mid-90s.

Bret Kugelmass
So you must have had a pretty good understanding just of plant reliability overall. Tell me. From the time that you started in 1986 through the end of your career there, what were the primary differences in maintenance issues over that time period? How did it change?

Scott Bailey
Yeah, well, with the some of the post-Three Mile Island modifications and stuff that we did, there were a lot of changes there where we had to install a, I'll say a lot of modifications to the power plant. But I would say probably the biggest change is, because I got to experience a lot of change in the nuclear world, but I would say some of the biggest changes were the focus on shorter outages, managing your- project managing a little bit better. I mean, I was working at Maine Yankee during the time when outages went from a few months down to several weeks, so a real attention to detail and focus on shorter outages and reliability. On the supply chain side, we focused- we found ourselves really trying to deal with the obsolescence kinds of issues and trying to keep the plant running with parts that are no longer available by the various suppliers.

Bret Kugelmass
Is there a specific part or component that kind of plagued the whole industry from an obsolescence perspective?

Scott Bailey
Yeah, I think some of the electronics, perhaps some of the stuff in the reactor protection systems, were some of the areas, some of the electronics because, as you well know, the industry was moving much towards digital but in the existing fleet. We did whatever we could do to maintain our analog designs, because going through a design change was a very costly, time consuming and troublesome. We spent a fair amount of time trying to keep our more analog systems operating. But suppliers had abandoned some of those product lines, so that created some challenges for us?

Bret Kugelmass
And in your opinion, how come the industry just never moved towards digital? Why was that just so tough?

Scott Bailey
There are probably a lot of reasons, but I do think that the regulatory hurdles in order to make some of those changes were- they're fairly big. And then, of course, you've typically got to do the installs during the shutdown, which has the potential to extend your shutdowns. And obviously, a plant at rest is not making its owners any money. I think it was a combination of the time and money, right, I think in the end. And we'll talk about NuScale in a little bit, but we had the opportunity to bypass all that pain.

Bret Kugelmass
Right, right. Start right from the beginning. What was your next step in the nuclear industry?

Scott Bailey
After- so I went through the horrors, if you will, of going through a plant shutdown, because Maine Yankee made a decision to shut down in, I think it was 96.

Bret Kugelmass
But why?

Scott Bailey
In the end, it was economics. Our owners- they were going through deregulation in New England. We were in a situation where we were currently shut down and on the NRC watch list and those kinds of things. Our owners felt that it was probably in their best interest to shut the plant down versus them trying to put more money into it and to restart it. We were the first- at the Maine Yankee plant, we were - I think the first, but if not the first - one of the first plants to actually go on the auction block so to speak, being sold. So it was during that period of time when people like Entergy and Dominion and others were starting to- at the time, Philadelphia Electric, which later became Exelon, they were looking at purchasing us and then couldn't strike a deal with the owners, so we ended up going the decommissioning route. I spent the first five years or so of shutdown at Maine Yankee working on decommissioning. So in a way, getting to NuScale is kind of going full circle in an odd way. Operating plant, shutdown plant, now developing new plants. Pretty excited to be on this side of the cycle versus the decommissioning side of the cycle. I was there until 2001, which was prior to them completing decommissioning, but I was looking for a change after that and said I've been doing decommissioning long enough. And I ended up, I'll say, exiting the nuclear industry a little bit. It's one of those things, I don't think you ever exit the nuclear, because kind of once you've been tagged as nuclear you tend to be nuclear all the time, right?

Bret Kugelmass
Because you developed a very unique set of skills that's very valuable, so people know where to find you when they need you.

Scott Bailey
Oh, yes. And they're always hunting you down, so no matter how hard you hide, even if you're trying to escape nuclear, it's awful hard. But I went to a startup company that was working - this was in the early 2000s, so think about the dot com boom and e-commerce and e-marketplaces and all those things. I went to work for a small startup company that was working in the utility space, right in the e-commerce. I ended up staying there for several years. And then after I left them, I went to a consulting company. In that period of time in the early 2000s until 2007, I was pretty much consulting. During that period of time, I think I worked for 14 different utilities, sometimes fossil, sometimes nuclear, but always power generation. I was always focused on the power generation side of the business, generally representing the owner. When I was doing consulting work, I was consulting for the utility owners. Like I said, I worked for a bunch of utilities, which was a great experience for me, because I get to see a lot of different ways of how people ran their organizations, what their processes were, where their hard spots were.

Bret Kugelmass
Yeah. What's the biggest difference? If you could explain just the range of ways to run your procurement and your supply chain. What's on one end of the spectrum and what's on the other end?

Scott Bailey
Well, I think what I would say is that certainly on the fossils side of the house, there was such a- because I worked for- in 2007, I went to work for an independent power producer, basically NRG Energy. They had nuclear assets, but I was not involved in that. I was responsible for their fossil assets. I would say the largest difference that I saw there was efficiencies, meaning less infrastructure, less- I'll say less procedures, but maybe less detail, because we obviously had procedures and policies and things that we passed. We were generally a pretty flat organization. At the time when I left NRG Energy, I reported to the Chief Operating Officer who reported to the President. I mean, we were pretty flat and I had responsibility for all the supply chain for all of the operating plants. At the time, I think we had 30 something, 34 I think, power plants that we had. So I had 100 some odd people spread out across coast to coast. But it was a pretty flat organization which, the bigger differences I see on the nuclear side particularly is that much more infrastructure, much more procedure, much slower decision making processes, and so on and so forth. I'd say that's the biggest difference I experienced.

Bret Kugelmass
What would be something that would have gone slower for decision making? Like if you got an existing asset and it needs a pump, don't you just get a pump? Like what's the-

Scott Bailey
That's actually a pretty good example, because in the power plant, you'd sit with your power plant engineers and you would go out to the market and see what was available and see what pump would work in that application. In the nuclear side, we tried to figure out how we could identically match and do a like-for-like replacement so we didn't have to go through a design change. So the design change process was a lot simpler. I mean, when- in the fossil side, when a manufacturer came up with a new widget or a new design of the widget, we take it. We'd say, Oh, this is more efficient and it fits. It fits on the same foundation or it fits in the same brackets.

Bret Kugelmass
Use about the same amount of power, about the same physical size, it's better. Yep, plug it in.

Scott Bailey
And then we put it in place and test it and say, Yep, that works exactly the way we wanted it to work. And then it would be running, whereas that evolution might take a few weeks in a fossil plant. It could take months for a nuclear plant to go through that. And part of it, obviously, is for the safety aspect of that, for the nuclear safety aspect of that. So yeah, I understand that.

Scott Bailey
Yeah, though, it is interesting. I mean, there are safety concerns inside of giant fossil plants, too. Let me ask, did you have to- if you were going to replace a pump, did you have to tell anybody? I mean, obviously, within your organization, but I mean like outside. Is there an equivalent regulator for fossil plants?

Scott Bailey
Well, because- you do have some - and this isn't really my area of expertise - but you do have obligations to the grid operator, so if you were going to shut down your plant, the grid operator-

Bret Kugelmass
You don't have to get an outside organization to sign off on which pump you chose.

Scott Bailey
No, exactly. No, exactly. And technically you don't even really need to do that in the nuclear industry. You just have a much more robust set of procedures that you have to follow, whereas in the fossil side, you still had the procedures and things were done certainly from a safety perspective, but it was mostly about personnel safety and asset protection versus nuclear safety, which is a different bar.

Bret Kugelmass
Got it. Yeah. So tell me, how did you end up working for NuScale?

Scott Bailey
I told you I went to NRG and then I was at Tennessee Valley Authority. I was there for a little over a year and I was working on their nuclear- I was in charge of their- the procurement for their nuclear projects on that side of the business. And actually a headhunter found me there. It was right about the time, it was the late 2000s, so there was a little bit of the renaissance going on at that period in time. I had been kind of eyeing nuclear, which is how I ended up at TVA. So a headhunter talked to me. At first I was like, Oh, no, I just got here at TVA, I'm kind of happy here. And then he kept bugging me and then it started with the, Okay, I'll have coffee with you, we'll talk about it. And then I went out to NuScale and I've been with new scale a very long time.

Bret Kugelmass
You're one of the early guys.

Scott Bailey
I'm one of the early guys. I started in January of 2011. In fact, I'm on the executive team. It's kind of a badge of honor for myself is that, other than José Reyes, which he's been on the podcast before - and he's my personal hero and we'll talk about that in a second - but I've been with that company as long as everybody except for Jose, as far as the executives go. And there are probably about 35 or 40 employees that have been at NuScale longer than I have, so I've seen a lot.

Bret Kugelmass
What attracted you to the original vision? And I also want to ask, has it changed? Because we all know startups have to pivot occasionally. Have there been any major- like if you go all the way back to 2011, in those early few years, were there any major design changes that you were part of?

Scott Bailey
I wouldn't say so much as design changes as much as the changes in the company. When I had gone for my interview, I interviewed with José and José spent a fair amount of time with me explaining to me what the design was. And I was sold instantly on the design.

Bret Kugelmass
Which characteristic, which characteristic of the design?

Scott Bailey
Simplicity, because from a supply chain perspective, everything was, I'll say, more complex than it really needed to be or at least it seemed that way. The fact that-

Bret Kugelmass
In old nuclear, you're saying in old nuclear.

Scott Bailey
Yes. Old nuclear had a lot of moving parts. Old nuclear had a lot of dependence on safety related electricity and a lot of moving parts, pumps and tanks and various methods to keep the fuel cool. When I saw the NuScale design, I instantly saw that this is the answer that we've been looking for and I need to be part of this. And that's kind of how I did it. It was risky at the time. We were- it was pre-Fluor. It was before Fluor came in. It was before we had any Department of Energy funding, so it was kind of a rough, a little bit of a rocky start for me, but that in itself is a good story. But maybe we'll get to that later. So the I knew that we were on to something. I had- honestly, I had my doubts whether a small company that was starting up in Corvallis, Oregon could do it. But I'm also not afraid and I felt that, if this is something that I believe in and is something I want to do, then I'm just gonna saddle up and let's go.

Bret Kugelmass
Amazing. Yeah, I do want to hear about some of those rough bumps early on. Tell us. What were some of the early bumps?

Scott Bailey
Well, my first day of work is the- well, I'll say it was probably the roughest start, because literally, the first day of work was when we were notified that our primary source of equity, of funding, his assets had been- the assets have been frozen by the SEC. And so we had no more money.

Bret Kugelmass
Wow.

Scott Bailey
That was my first day of work. As a matter of fact, the CEO at the time, Paul Lorenzini, walked into my office and I hadn't even taken my jacket off. And he said, Scott, we need to talk. That's when I learned that we were in trouble. And I told him, You know, I kind of knew that this would be risky, but I kind of thought I would get through the first day.

Bret Kugelmass
Yeah, first day, first week, maybe first month even.

Scott Bailey
Right. So my first week was pretty adventurous, because I had to suspend all but- basically terminate all of our contracts and put the suppliers on hold. I had to call all of our suppliers. In fact, I put out a notice Thursday that week that froze the work.

Bret Kugelmass
I'm curious. Back then, what was- I mean, because it's like you were still in the earliest design stages. What suppliers were supplying stuff?

Scott Bailey
Oh, no, it was- so the suppliers were designing things for us.

Bret Kugelmass
I see.

Scott Bailey
That's one of the unique things about NuScale is that while we design things like the NuScale power model and some other components, we generally rely on the supply base. We tell the supply base what the product needs to do and what the functional specs are for the product, but we let suppliers design their own products, because-

Bret Kugelmass
And they'd be willing to do at least conceptual design work for free, with like the promise of a good entry?

Scott Bailey
Yeah, actually we had- so after I made that notification to folks- you know, generally suppliers don't work for free, I suppose that's the way they make money.

Bret Kugelmass
Yeah, but you kind of assume like they'll put a couple engineers to do some heat exchanger sizing calcs for like a rough quote.

Scott Bailey
Yeah, we get that kind of support all the time. It's when you get into a detail. But even during this period of time when we had issued the stop work order, we have several suppliers that just said, We believe in you, we're gonna keep working. We're gonna work on our own dime, because we don't want to lose time on the schedule. We had- we really learned that we had friends in the nuclear industry that also believed in us. And that was a very heartwarming kind of thing there. So that period of 2011 from my first day of work up through to the point of time when Fluor entered the picture later that year was kind of rough. I mean, we all took cut in pay at one time. We were all- we furloughed like 30 employees and about 40 of us were on minimum wage, right? My son thought that was interesting, because he said, Dad, now I make more money than you. And I just kind of laugh. But the point being is a lot of people made a lot of sacrifices in those early days. And that's kind of what- I had other opportunities. I could have gone back to TVA. They would've worked something out. I had a couple other colleagues that I knew out in the industry that said, Just come work for me. So I had several other opportunities, but when I learned what NuScale was doing, I just said, No, nope, I'm gonna ride this thing out. I don't know where it's gonna go, but I'm going to ride it out.

Bret Kugelmass
What level of design is owned by NuScale versus - like where does the NuScale technology stop and the rest of the power plant, whoever owns that intellectual property begins?

Scott Bailey
Generally speaking, if we pay for it, we own it, so we own the rights to it. But if you're that familiar with intellectual property kind of roles is that you always get tangled up in background IP, which is IP that the supplier brought to the table and then foreground IP, which is that IP that's developed as part of your project. Generally speaking, a supplier keeps the rights to their background IP and we have license to use it. And generally speaking, the foreground IP we own, so if there's any IP that was developed, we get to own it and oftentimes we'll license that back to the supplier as well for uses that are what I'll describe as non-competitive kinds of uses. That's generally how that works out. But the actual intellect- the intellectual property that sits behind the magic of the NuScale plant, that's all owned by us.

Bret Kugelmass
And then, at the end of the day, in the NuScale business model as it exists today, who is responsible for, I guess, the final delivery of power? Is it NuScale the company that like has the warranty on actual electrons coming out of the facility or is that like an EPC that sits on top of NuScale that has to package all of that up and then NuScale is responsible for the core?

Scott Bailey
Does it extend into the balance of plant and the turbine island as well or is that on the Fluor side?

Scott Bailey
In general, generally speaking, it can differ a little bit from whatever the owner desires. In our particular case, there's a NuScale scope of supply, which is my responsibility and then there's an EPC scope of supply which is Fluor's responsibility, in particular, as we talked about the Carbon Free Power Project in Idaho. We have a division of responsibilities that we have with Fluor, so there are certain things that I'm responsible for, which means I'm responsible for everything- for instance, NuScale is responsible for the NuScale power module and the thermal output of the NuScale power module, which means we'll warrant that.

Scott Bailey
That's on the Fluor side. So the Fluor-

Bret Kugelmass
You guys are the nuclear island, maybe minus the civil site work, and then the EPC is everything else, essentially?

Scott Bailey
Yes. That's accurate. That's accurate. And we have the benefit that other developers don't really have- well, one of the benefits is that we've been, because of Fluor's ownership position with NuScale, we've been working with Fluor for 10 years. You don't usually see that. Usually the EPC and the OEM kind of merge, I'll say, later in the process, but we've been working alongside each other the entire time.

Bret Kugelmass
You guys have had a lot of successful announcement recently across the world? How does that change things? If you're building a power plant in Romania - I think Romania was one of the more recent announcements - is Fluor still the EPC there? Or do you have to find a Romanian EPC?

Scott Bailey
Generally, we leave that up to Fluor. Obviously, they have, as part of being an owner, they have rights. And what they'll do - and I won't speak for them - but generally speaking, they'll figure out is this a market that they want to self-perform in? Or is this a market they just want to do oversight on? Is this a market that they want to partner with somebody on? They'll take a look at that and we won't worry about that, so to speak. Fluor will take care of that. We'll still work on our scope or supply and how that gets delivered. But you bring up a valuable point that, as we start to spread out into other countries, particularly like in Eastern Europe and Canada and other places, is that there's always a demand for local content. Everybody wants the jobs, which is- we recognized- and our plant is very unique from that perspective, because most everything that we have, with the exception of some of our most sophisticated kind of items, they're pretty much built to print, which means that if you have the capability, then the work can be localized. Canada is a great example. They're an industrial nation with all kinds of capabilities. They can build the NuScale power module. They can build it at BWXT right there.

Bret Kugelmass
You're saying that you would actually have not just the balance of plant locally sourced internationally, but even the power module, the nuclear core itself, could be built internationally.

Scott Bailey
It can be. It depends on the capabilities.

Bret Kugelmass
But I guess why do that? Because you're definitely gonna get efficiencies from your- when you build your first factory that produces these modules, you're gonna want to give that one as much business to help pay off the factory. Why isn't there enough in the balance of plant to say, Hey, we're like 50% or 60% locally sourced and then you just have one factory that's just spitting these guys out that you can ship around the world?

Scott Bailey
There might be, but I need to explain a little bit about what our go to market strategy is relative to manufacturing. We're not going to have a factory starting the block. The way our design is, it's a number of subcomponents, right? The NuScale power module is broken up into several components that are completely independent of each other. In fact, they ship separately. Whether you're talking about the upper reactor pressure vessel, the lower reactor pressure vessel, top support structure, I mean, all these parts of the- so our strategy today is nobody's going to build a bespoke or custom- what we call a purpose- built factory, a factory that is designed to build NuScale power modules. We're not going to do that today, so our going in strategy is to use the existing supply base to build the various components. NuScale acts as more of a manufacturing integrator. From my perspective, or from our perspective, we're going to need pretty much a large chunk of the capability in the globe in order to meet our sales demands. As an example, we've gone through what we call design for manufacturing process. It's what we did concurrently with both BWXT and with Doosan. And what they did is they went through our entire design and made- and did two things for us. They made- A) they made recommendations on how we can make it faster, better, cheaper. And then the second thing, which was equally as important, was they went through the process and said, Yes, I can build this. So we've got two suppliers, two well-known juggernauts in the nuclear industry that have said we can build this, so we're confident that if we need to expand that to other locations to increase our capacity, that we can do that. And then NuScale acts as kind of the facilitator, the orchestrator of which parts go where and so becomes a little bit of a- kind of a little bit more like somebody like a Boeing where they don't really manufacture a lot, but they assemble a lot. They get lots of parts and pieces and they coordinate putting them all together.

Bret Kugelmass
But they do have their own factories to do that integration, so that's what you said you're working towards, essentially.

Scott Bailey
Well, but our factory to integrate that stuff is literally the site, right? Because all the parts and pieces end up eventually at the site where the plant is. So the only difference between maybe a shipyard or maybe somebody like a Boeing - I mean, there are obviously huge differences - but one of the major differences is the fact that we'll put it together in the field versus the- so it's much more of an assembly than it is really a construction. You get a lot of components that mechanically you connect them.

Bret Kugelmass
And would that be NuScale employees that physically have the cranes and stuff? Or is that like a subcontractor?

Scott Bailey
Typically those will be subcontractors. For instance, we have a partnership with Sarens for putting- Sarens USA for assembly of large components, so they're helping us with that whole process?

Bret Kugelmass
Right? And what is the largest component? Is it that outer vessel itself?

Scott Bailey
The largest component is the upper- it's called the Upper New Scale Power Module, but it's actually the upper containment vessel and the upper reactor pressure vessel, probably close to 500 tons. It's pretty big. That's the largest piece and everything else is quite small compared to that.

Bret Kugelmass
And then does the- and that can be road transported or-

Scott Bailey
We have two configurations that we can transport in. One of them requires a little bit more- we call it near-site assembly, because it's not really on-site assembly. It's kind of an extension of the factory. But you can segregate the upper reactor pressure vessel from the upper containment vessel and then you can put that together at the site. That's one of the configurations that we use for sites that are much more restrictive as far as transport goes. Our first site like in Idaho being an example of that, because it's not on a waterway. But if we had a location that's near a barge slip - doesn't have to be on one, because you can still transport over a road - but it has to be within decent striking distance of some sort of water port, then you definitely would put the upper reactor pressure vessel on the upper containment vessel together before you ship them.

Bret Kugelmass
And why not narrow in on the most restrictive, but still applicable design, rather than like maintain parallel assembly paths and parallel construction paths? Isn't it- how much could you possibly save, maybe a million bucks? Isn't it worth it just to have one thing that you do the exact same every time even if it is a little bit more expensive?

Scott Bailey
Well, so the suppliers will be doing one thing, meaning that the upper reactor pressure vessel or the lower containment- or the lower reactor pressure vessel, right. And we believe that there will come a time for a purpose-built factory, because, as you're probably aware, most of what I'll called qualified suppliers or manufacturers of these components are more like job shops than they are production facilities. Their shops, whether it's a Doosan shop or a BWXT shop or somebody else's, they're designed where they can make a whole bunch of different things in different ways. They're not- their production layout is not optimized necessarily for the NuScale power module. Of course, they'll do some things to make it better, but it wasn't designed that way. There will come a time when the order book supports it that a factory will likely get built, because we believe that you can take some- we'll be able to shave a fair amount of time off the schedules.

Bret Kugelmass
I just meant like why not impose an artificial design constraint of saying everything has to be road transportable and then maybe after we've built 10 or 20, then we'll kind of open up the barge for optimization, but right now, no matter what everything has to be road transportable period.

Scott Bailey
Everything is road transportable.

Bret Kugelmass
All right. Okay. Okay, sorry. All right. Got it.

Scott Bailey
The question is there are some more optimum ways to do it when you get into some of these very challenging inland kind of routes.

Bret Kugelmass
Oh, I see, because the road actually might be the restriction is what you're saying.

Scott Bailey
Yes, the road sometimes might be the restriction, particularly when you're trying to travel up over mountains. It was, I mean, obviously in the early stages of the design, they had- Jose and the rest of the team, our design team, had to figure out what's the optimum balance between output and size and how big can you make it? But one of the conditions was it needed to be road transportable.

Bret Kugelmass
And speaking about output and size, I did notice that after you guys got your NRC design certification, at one size, there was like a press announcement that said that you guys wanted to now upgrade the power. Did that cause a headache for you? Did you have to redesign whole bunch of stuff?

Scott Bailey
No, actually surprisingly very little effects. It was more along the margins once you get deeper into the analysis about what the fuel can do and how much heat can be removed and so on and so forth. When we get deeper into the calculations, most of that margin was just recovered that way without making any changes. Any changes made were subtle, small.

Bret Kugelmass
Does it require a new NRC design certificate or is the old one still apply to the new power?

Scott Bailey
We're working on what is known as an SDA, which is standard design approval, where we'll make some of these changes on. But it's not really that complicated, because we already have an SDA for the existing plant and the SDA that we'll use for the first plant will be- think of it as a redline document, because a lot of the things don't change. It's very- and the NRC is very familiar with the upgrade process. I mean, that's something that they do all the time with their existing power plant fleet, so this is much more like an upgrade review than it is a change in design.

Bret Kugelmass
The only thing that I would have been nervous about is that, given that it is like a fair percentage increase in power, that some of the physics of the natural circulation and everything might be called into question again, which is like part of the core safety concept, right?

Scott Bailey
Right. And we've run all the calcs and all the analysis on that, so we already know what the answers are going to be, we just have to get it in the right format for submittal. Right. So the so we have We wouldn't have done that without the confidence that we're going to be just fine.

Bret Kugelmass
Got it. So where's the first one going to be built?

Scott Bailey
Idaho Falls area at the Idaho National Labs. Well, we say that that is the first one because they're the most advanced in their whole selection process and their whole contracting process and all of that. But we follow much more of a philosophy of "ready when you are" which means that we're working very hard, particularly on the supply chain, to be able to deliver modules by 2027, even though that's earlier than when UAMPS needs them for the Carbon Free Power Project. We're doing the activities necessary to be able to deliver sooner, just in case somebody decides that they want to step in front of UAMPS, which is- I mean, people like Romania. Some of them, their stated objectives are earlier.

Bret Kugelmass
How does that work from a supply chain perspective if we don't know who's going to be the first? Don't we have to make a decision at some point and just say-

Scott Bailey
Yeah, you do, but there's plenty of time for that decision. There's so much time that has to be involved in the long lead material purchases and-

Bret Kugelmass
What is the longest lead time component if you had-

Scott Bailey
Some of our large forgings that go in the upper reactor pressure vessel. I mean, the longest lead from critical path perspective goes through the upper reactor pressure vessel, because that's the most complicated piece of the NuScale power module. But we're ready to order long lead material in 2022. We're ready.

Bret Kugelmass
So what do you need? You just need a PO from a customer essentially and then-

Scott Bailey
It needs- I'd describe it a different way: somebody has to fund it.

Bret Kugelmass
They have to pay for it.

Scott Bailey
And whether that's NuScale, the customer... I mean, obviously the customer is where you would expect that to come from.

Bret Kugelmass
And how come you can't just be financed off of a PPA like renewable projects are, where you get the contract from a credit worthy provider and then you go out to the financial markets and they just give you a bunch of money?

Scott Bailey
There- like I said, there are a number of ways that you can fund it. I look at it pretty simply from a supply chain perspective as I'm the agent here, right? And I'll order it as soon as somebody tells me they'll pay for it. We're working on various things, various options to get kind of a head start on some of this stuff. We'll work through those details. But in the end, the money's got to come from somewhere.

Bret Kugelmass
Yeah, I kind of feel like in order to deliver faster - because the sooner that you can deliver, the sooner you can start printing that energy money - that the longest lead time components you just kind of maybe order on spec, even without a customer. Like the one that you're talking about, how expensive could that possibly be? Five million bucks?

Scott Bailey
Yeah, I mean, it's in the millions, but low digits. So there are some things that can- and that's why I said that we take a look at strategically at what's the most important way to spend money? What are the sources of funding? Obviously, the government has helped out in a number of different ways. There are a number of different ways, but you're exactly right. There's kind of a natural conflict between- the utilities and the owners generally want to wait as long as they possibly can to write checks. And the manufacturer or the manufacturing integrator like us, we want to order as soon as we possibly can so that- but they're naturally, they're kind of opposed to each other. And that's just kind of the way the market is without- and that's where the government has helped a lot. Certainly has been a tremendous amount of support to both us and to UAMPS, because they're trying to reduce some of that front-end risk, like the early risk, so they front-end loaded some of their support to the UAMPS project so that they can place orders to NuScale and we can start ordering stuff.

Bret Kugelmass
It must be kind of frustrating. I mean, even frustrating for me a little bit like it's an outsider looking in. I'm like, What's the holdup? We know UAMPS wants to do it. I think the government gave them like a billion dollars. Can't that billion dollars just go to start buying equipment?

Scott Bailey
See, now you're getting into all the government funding and how much can be released a year and the processes that they have to go through and so on and so forth and the strings that are attached to some of the money. I mean, we're confident the time is there. We're anxious to get started. We'd rather get started earlier than the schedule says we need to get started so that we get through all these processes. But one thing I want to make sure that I share during this conversation is that, although we're categorized kind of in the advanced reactor category, this is really old technology repackaged in a different way. The things that we're having people build are not things that they don't have experience building. It's not- we build steam generators all the time in our industry. This NuScale power module is very much like the steam generator in terms of size, in terms of complexity. I mean, the outer containment vessel for instance is- it's just a big round thing. Well, it's actually not round, but you know what I'm talking about. It's not really all that complicated. And the industry has a lot of experience. Our fuel, it's the same fuel that Framatome builds in the existing reactors. It's just half height and we've made some adjustments at the top and the bottom for our flow characteristics, but it's a well-known fuel. I could order that fuel from Framatome today in Richland, Washington and they would start manufacturing. And even our valves, our valves, whether we're working with Curtiss-Wright Target Rock or Intertek or some of the other folks. They are valves that have been used that we made some slight modifications for our application. It's like, we know how to build these, we know how to test these, we know- so this is-

Bret Kugelmass
Any new materials? Any new alloys or any new metals that-

Scott Bailey
We're starting to- I mean, we're looking at some materials, for instance, in the reactor vessel and the containment vessel that- but they're not- I mean, they're allowed by the code. We have experience in the industry. We're using some materials that- I'll say in a little bit larger forgings than have been done in the past, but we mitigate those risks through doing tests in advance to make sure that we're getting the proper grain structures out of the forgings and all that stuff. We have a very robust manufacturing trials program where we've been doing cladding. We've been doing building forgings. We have done weldability tests. We're doing tube bending tests. We've got a lot of things going on in various factories across the world, quite frankly, as part of our de-risking, just to make sure that we can on paper and modeling and the engineers and the manufacturing engineers say, Yeah, we can build it. But we're still doing a lot of prototyping and a lot of manufacturing trials just to prove it. So that's what we'll do in some of these materials, but it's not like we've got to have any code changes, because the codes already allow these materials. They just haven't been utilized in as big of a forging as that we're going to ask for. We're working very closely with the forging suppliers. We have been for years. We've been working with both US Forgings, and companies like Doosan on making sure that we can build the forgings we need to so. So as far as the materials go, like I said, just different applications for materials that have already been used before. We've just got to make sure that our application doesn't introduce any risks that we hadn't intended. Like we did cladding on- nobody's really clad both sides of a pressure vessel in terms of- so we've done cladding distortion trials where we actually-

Bret Kugelmass
And you have to clad both sides to resist corrosion because its sitting in a pool?

Scott Bailey
Yeah, because both sides of our vessel are exposed to borated water, which is for ESA 508 is a challenge, so we clad both sides. But what's going to happen in terms of distortion?

Scott Bailey
How come you guys clad both sides and just didn't make a stainless steel pressure vessel like the rest of them?

Scott Bailey
We actually do have -now you're getting to some of the engineering stuff that I won't be precise on - but some of the materials that I talked to you are stainless steel, so that we don't have to clad. But we are we are doing some cladding on the upper reactor pressure vessels.

Bret Kugelmass
What's the minimum number of modules that a plant can run on? Can you get it to start with just one module?

Scott Bailey
Sure, you could. The way that we're set up right now is our standard plant design is a six-unit facility. The first, the CFPP, the Carbon Free Power Project has asked for a six-unit facility, so that's what we'll call our standard plant design. But we have already looked at- we already have what I'll say a four-unit facility as well as a 12-unit facility where we've done enough work on that we know what- and primarily, the differences are in the building, the reactor building. From a module perspective and from even the balance of plant that supports that module, it's all the same. Whether you're going to-

Bret Kugelmass
Whatever steam turbine you have, you can run that at one sixth steam flow?

Scott Bailey
No.

Bret Kugelmass
If you only have like one connected, could you run it on one?

Scott Bailey
We have one turbine for a reactor-

Bret Kugelmass
Oh, you have a turbine for each reactor. Okay, I didn't realize that.

Scott Bailey
-which makes it really industrialized.

Bret Kugelmass
Then why have your minimum viable product be a six pack? Wouldn't this just have been way easier to just build one and just kind of show that it worked for one sixth the equipment cost?

Scott Bailey
You could, yeah you could if somebody were willing to pay for that. But the economics, obviously, because there are a lot of I'll say sunk costs in the infrastructure and the buildings and all of that stuff that, incrementally, they go from one unit to two units, it's not really that much. And the payback that you get is pretty significant on adding modules. The real bigger question is, how much power do you need? How much power do you want? If you're replacing coal plants, which is something that we're very adept at, we fit on coal sites and can use the existing infrastructure. A lot of times those are in that 300 to 600 kind of range, so you're looking at your six pack, kind of, your six-unit facility. That's really- so the economics just get better the more modules that you have, so trying to get that balance. It was 12 units for the longest time that was considered the optimum size and that was based on a lot of feedback that we got from utilities as to what they wanted. And then when we went to the 77 megawatts electric per unit, then we got better into a sweet spot where people felt that the 462 was a great place for them to be. I'm not sure what will be the, I'll call it the version that ends up taking off the most, because I do think it's very site specific. I mean, if you're out in a very, very remote location that's currently using diesel fuel, you might be able to do a one- or two- unit facility and still the economics might work for you. Whereas you're in a- you're replacing maybe twin coal plants on a coal site, then maybe you're looking at a 12-unit facility. But for us to change, it's really not that complicated.

Bret Kugelmass
And from a supply chain perspective, in terms of economies of scale of volume, when do you start realizing - with your suppliers, let's say the steam turbine - when you start getting to negotiate bulk ordering discounts from your turbine vendor?

Scott Bailey
Like on the turbine - which is just a subtlety, but Fluor will be negotiating that, because that's part of the balance of site work - but they're starting to have those conversations right now.

Bret Kugelmass
But the sense of like when you hit that sweet spot in terms of-

Scott Bailey
Oh, I think in terms of negotiation, I think you get there pretty quick, because the first facility is going to be six units. And if Romania does six units, that's 12 right there, so you're already starting to get to some numbers. We think that we're in a pretty good position with respect to negotiations, because it's a little bit of a paradigm shift from how we've done power plants in the past. We've been onesie, twosie kind of power plants, right? When you start talking about NuScale with each module having its own independent system, you start to get some pretty significant quantities for everything from turbines to transformers to electrical switchgear to heat exchangers to all of those kinds of things. We think that there's quite an opportunity. And you want to keep the plant as standard as you possibly can, much more like they do in automobiles. You might have a few options- like we definitely will have an air-cooled option, as well as a wet-cooled option depending on what your site requires, but that will be one of the options. It'll almost be like the Model T. You can have whatever you want, as long as it's black. But the point being is that- so we're going to negotiate long term arrangements with suppliers that go with the product, not necessarily the plant. That's a different way of- because it's much more production line thinking than it is plant by plant thinking. So once, for instance, we get our supply chain up and running, our intent is just keep it up and running, because we can strip the capacity out pretty easily. Where the intent would be, once you start, once you get the machine rolling, you get it rolling, and then you expand additional suppliers as needed to fill the needs. And then there will come a time when there's enough demand out there and the order book is sufficient where somebody, whether it's us or whether it's our partners or whatever, somebody will build a factory. And then they can then max out the capacity of that factory.

Bret Kugelmass
In terms of your commissioning procedures, do people want to see a single module running for three or four months before they turn on the second module or anything like that? Or can you turn all six on at the same time?

Scott Bailey
Generally speaking, you do it one at a time, but mostly because of the commissioning process, meaning this- but generally speaking, you can probably- I don't know exactly what the schedule is right off the top of my head, but the first one would go a little bit slower, but the intent would be you put them in as fast as you can, or as fast as the owner needs them. So if the owner needs the 462 megawatts as quickly as you can, then you would commission one, get it operating, commission the second one and literally do it as fast as safely as you can.

Bret Kugelmass
I'm wondering because of how that might affect the supply chain. Let's say for those specialized internal forgings, is there a delay between the print of each one? Do you have to order them in batches?

Scott Bailey
Oh, no, you bring up a valuable point. The way we've planned this out with our suppliers is that we plan for the entire plant, so a plant worth. And whether or not the forging orders all go in at the same time, we're still working through some of the details. But generally speaking, your contract would be for whatever you have back to back. UAMPS is buying six units. Our contract would be for six and the only difference will be when they get delivered. The manufacturer will be concurrently working on multiple modules at the same time, because they'll flow through their assembly line, so we just need to make sure that the forgings arrive when they're ready to start on the second one and so on.

Bret Kugelmass
Yeah, that's what I was wondering like in terms of a supply chain risk. If, because of these long lead time components, like I'm trying to figure out what accounts for that long lead time. Let's say a forging takes three years from the moment you put in an order-

Scott Bailey
Oh no, we're talking- we're generally talking a year to no more than 18 months, but generally a year. And it's really just what I'll call melting the- getting it scheduled on the floor, melting the ingot and doing what they have to do, the forging, including either rough machining or whatever machining has to be done before it goes to the factory. And then you've got to start welding them together, because it's a bunch of rings.

Bret Kugelmass
Yeah, yeah, I guess the part that I was trying to think through is, if your forger or if your supplier has to do a bunch of, let's say, custom configurations, setup jigs to get everything in place, and that's what takes- because like, how long does the literal machining or the literal melting take? Not that long. Like what happens between your first and your second order? Do they kind of tear down that setup, because they've got other jobs to do? And then it takes another 18 months to get it set back up again? Or do they have a dedicated space for you?

Scott Bailey
They'll have one- right now- so we've got manufacturing plans from both BWXT that are literally hundreds of pages long with respect to every single detail. That's one of our advantages. I mean, we've advanced this enough that we've got manufacturing plans. We know exactly what steps go in what order and so on. But the intent would be more of the former, where you talked about when they're done at this station, if you will, the next product is going to come up to that station and this piece is going to move on. So the lead time is not- it's only lead time for the first one. There is no lead time kind of after that, because they're going to continue to-

Bret Kugelmass
Right, but I meant between subsequent plants. Like let's say you get an order for a plant, do all that, and then maybe there's a delay. Do they tear down that station or do they keep it up for you hoping the next one-

Bret Kugelmass
Of course, I'm more worried about the initial, you're getting started, cranking the engine, it pitters a little bit, and then, like that type of- those types of risks. And I guess the other risk that I was hoping to hear how you think about mitigating is, in that NuScale module, there probably is a good reason to want to see one running first and see its performance before building the rest, in case- it's part of like the hedge. If you have to make an engineering change to one of those, like critical from like a volume perspective of components.

Scott Bailey
Oh, so you bring- we haven't negotiated that, but the intent, if you think about it, is it'll probably depend on how close is the second customer and what kind of risk that either us or the manufacturer is willing to take, because you're exactly right. Shutting down the assembly line doesn't make a lot of sense, because you've got it running. You've got it optimized. You're cranking them out. Particularly by the time you get to that sixth one, you know exactly how to do it and how to do it as fast- you don't want to have to shut that down. Our going in plan is we're not gonna have to worry about that, because there'll be other plants behind it. But we also, depending on how close they are, then we might have to bridge that gap. And we're working on various things with the regulator about whether or not- because I can envision a time somewhere out in the future where NuScale inventories these things, right that we have-

Scott Bailey
From an engineering perspective, we're pretty confident with the modeling and the laser alignments and all the other kinds of things that that kind of- the hit that you would take in schedule is probably not worth the risk that you're taking of moving forward with the first one. It's not likely that you're going to run into an issue that, what I'll call a fatal flaw, because of all the modeling and so on.

Bret Kugelmass
Even with like precision tolerancing? If you say, Hey, here are this specs on our tolerances. These pieces have to come within this small - you know, quarter inch of each other or whatever it is. But then like, I don't know, they're doing a quenching process and it's a little bit different than they thought and now it's off by half an inch or something.

Scott Bailey
In the first module, we do have what I'll call additional tests that we'll do.

Bret Kugelmass
Alright, you are doing.

Scott Bailey
-additional alignments-

Bret Kugelmass
Factory acceptance tests?

Scott Bailey
Yes, factory acceptance tests. It's possible we'll do some more alignment. We'll do much more on the first one than we will need to do, because once we've got confidence in the process, then feel- we won't worry about it being out in the field with it and having an issue. So yes, there are all kinds of plans that we have in place, because even though you do have all the tools that I mentioned, like for laser alignment and those things, those bring you into a high degree of certainty. But some of us are still old school and want to see that it fits first. I think, as of right now, that's what our current plan is, that we will be doing a bunch of trial fits, to make sure the first unit fits the way we need it to fit. That kind of thing.

Bret Kugelmass
Amazing. Amazing. Okay, great. Well, we're about at the end of our time. I want to give you the last word, if there any kind of final thoughts you want to leave with our audience.

Scott Bailey
I think there were a couple thoughts. One of them was the one that, this is very unique in how we're applying existing technology. And we're ready to go, meaning that licensing is in place- I mean, the process is in place and this is real. We're very anxious to get these units deployed and start the next chapter of nuclear and green energy and so on. We're very proud to be part of it and very proud to have come from where we- our humble beginnings today. We're pretty excited to be leading this.

Bret Kugelmass
Great, well, we're all pretty anxious for that final investment decision to come through. So Scott Bailey, really appreciate you taking the time.

Scott Bailey
All right. Well, thank you for having us.

Titans Logo_2020.png