Next-Generation Nuclear Energy Developer Sues Federal Regulators

A lawsuit recently filed by Utah, Texas, and Last Energy (a microreactor company) is challenging a Nuclear Regulatory Commission (NRC) rule requiring all nuclear power-producing entities—including those that do not generate enough electricity to turn on a lightbulb—to obtain an operating license from the commission before turning on. If successful, the lawsuit could diminish the federal government’s role in the heavily regulated nuclear energy industry. 

The requirement, known as the Utilization Facility Rule, can be traced back to the McMahon Act of 1946. This law gave the government a monopoly on nuclear power by granting federal regulators licensing authority over any equipment or device capable of making fissile material or “adapted for making use of atomic energy.” 

This heavy-handed regulation stunted the growth of commercial nuclear energy in America. Recognizing this, Congress passed the Atomic Energy Act of 1954 to narrow the scope of the federal government’s regulatory authority. Rather than allowing federal regulators to oversee all nuclear-related equipment and technologies, the law limited the fed’s authority to technologies whose use of “special nuclear material” was deemed a risk to national security and public health and safety. 

Despite an order from Congress to pare down its oversight, the Atomic Energy Commission—the NRC’s predecessor—adopted a rule in 1956 that allowed it to regulate all commercial nuclear reactors (similar to the McMahon Act), which lives on today through the NRC’s Utilization Facility Rule. 

The regulation imposes significant costs on all nuclear energy developers, especially startups like Last Energy, which builds 20-megawatt (MW) micro nuclear reactors that are inherently safe and pose no significant risk to the public or environment. Designed to be operational within two years, these reactors fit within “a container that is fully sealed with twelve-inch-thick steel walls, and as such, has no credible mode of radioactive release even in the worst reasonable scenario,” according to the lawsuit. 

Test reactors on college campuses, which the NRC has recognized present “a lower potential radiological risk to the environment and the public,” are also subject to this rule. These include reactors at the University of Utah (100 kilowatts) and Texas A&M University (1 MW and a 5-watt, barely enough to power a small LED lightbulb). Despite the small amount of material required to power these reactors—university test reactors in Texas collectively use less than 1 kilogram of nuclear fuel—they are deemed operation facilities and are under the purview of federal regulators. As a result, universities must pay an annual license fee of $97,200 per reactor. The annual fee for operating power reactors is more than $5 million, although the NRC has stated this could be less for small reactors like the ones that Last Energy produces. 

If successful, the lawsuit could exempt some small modular reactor technologies from complying with the Utilization Facility Rule—developers will still need to comply with other NRC regulations—and give more regulatory authority to states. 

“This case will determine whether the NRC has the authority to charge hundreds of millions of dollars in fees and enforce billions in design changes in the absence of a safety or security concern. Federal law is clear that it should not,” said Bret Kugelmass, founder and CEO of Last Energy, in a statement given to Reason.

Adam Stein, director of nuclear energy and innovation at the Breakthrough Institute, warns the lawsuit “could change the licensing landscape, including by creating some new challenges.” These could include fragmented licensing between states and creating new opportunities for legal challenges by opponents. Regardless of the lawsuit’s outcome, Jack Spencer, a senior energy researcher at The Heritage Foundation and author of Nuclear Revolution, says Congress should clarify where the NRC’s authority begins and ends.

Whatever is decided in court, reform in the U.S. nuclear regulatory system is sorely needed. The Utilization Facility Rule and others like it have forced Last Energy, an American company, to focus on growing its businesses in countries with less stifling regulations. As of 2024, the company has agreements to develop over 50 nuclear reactor facilities across Europe. Last Energy’s case is not unique; many advanced nuclear reactor companies have seen costs and project timelines increase as a result of the NRC’s onerous and confusing licensing requirements. The lawsuit could represent a major step in decreasing the red tape that has plagued American nuclear power production.

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