The purpose of this hearing is to evaluate the progress of the Department of Energy’s Nuclear Power 2010 (NP2010) program and get a better overall sense of the Administration’s commitment to nuclear power and the revival of nuclear power in the United States.

I also want to discuss the NP2010 program in the context of what I hope is an integrated Administration strategy for a renaissance of nuclear power in our country.

Currently, 103 nuclear power plants are operating in the United States. These reactors provide 20% of the electric power needs for our nation – that’s 20% of our total generation that’s free of greenhouse gas emission free and an important diversity in our national energy supply.

Nuclear plants:

• Provide the nation’s lowest cost electricity other than hydropower,
• Emit no greenhouse gases,
• Excel at providing steady baseload power, essential to anchoring grid stability,
• Have demonstrated outstanding reliability, and
• Have a superb safety record.

However, the last completed nuclear plant in the United States was ordered in 1973, 32 years ago. A combination of issues has contributed to preceived financial risks that have precluded new plant orders. Those issues include:

• High up-front capital costs.
• An unproven regulatory framework for new plants.
• Lack of progress on spent fuel management.
• A deregulated and highly competitive electricity market.

In contrast, nuclear plants are both being operated and built today elsewhere around the world. For example, 4 of these plants are under construction in Japan; 2 in China; 2 in Taiwan; 2 in Korea; 1 in Finland; and France is close to final legislative action to approve a new plant.

In 1997, I said we needed a renaissance of nuclear power in America and today we are on the verge of it.

More voices have joined with me in calling for expansion of nuclear energy. I was pleased that last year a preeminent international spokesman for environmental causes, James Lovelock, stated:

I’m enthusiastic right now because at the NRC there are three pending Early Site Permits (ESPs) for three utilities under review – and I hear that more may be on the horizon. This is a key step on the road to new plants in the U.S.

Additionally, there are three consortia, NuStart, Dominion and TVA, that have been awarded monies in a cost share arrangement by the NP2010 program to put together a Combined Construction and Operating License (COL) for submittal to the NRC. This opens the door for new plant construction further than any point in the last three decades -- this is critical for our nation. It is a process that I will continue to watch with very strong interest.

Testifying before the committee today are:

The Honorable Clay Sell, Deputy Secretary of Energy;

Thank you for coming and testifying for the first time as Deputy Secretary of the Department.

My good friend, the Honorable Nils Diaz, Chairman of the Nuclear Regulatory Commission,

Mr. Michael Wallace, to whom I have spoken numerous times about the rebirth of nuclear power, he is the Executive Vice President of Constellation Energy and President of Constellation’s Generation Group,

Before we begin hearing the witnesses, I want to note that The Honorable James Asselstine, Managing Director at Lehman Brothers, Inc. was scheduled to be here, but his mother passed away on Sunday and he is with his family today. On behalf of the committee, I extend our condolences to Mr. Asselstine and his family. We are Very sorry for their loss. Mr. Asselstine contacted the committee and offered to submit his statement for the record and welcomed any questions Senators may have for the record.

Statement of Clay Sell
Deputy Secretary
U.S. Department of Energy

Nuclear Power 2010
Before the
Committee on Energy and Natural Resources
United States Senate
April 26, 2005

Mr. Chairman, Senator Bingaman, and Members of the Committee it is a pleasure to be here to discuss the Department of Energy’s Nuclear Power 2010 program.
For most of our nation’s history, America’s vibrant economy and society have benefitedfrom the abundant energy options we have had available. Even though we have increased our oil imports in recent decades, most of the energy used in the United States – including energy for home heating and electricity -- is produced domestically. Our coal, oil, natural gas, nuclear, and renewable resources all contribute to a diversified and reliable energy picture.

However, we are entering a new era in energy supply. As highlighted in the President’s National Energy Policy, forecasts indicate that our need for energy—even with ambitious energy efficiency measures across all sectors of the economy—will continue to grow as our economy grows. The Energy Information Administration forecasts that by 2025, the United States will import 68% of its energy for transportation uses and 38% of its total energy supply. Most notably, the U.S. will experience an increasing dependence on
imported natural gas, which is increasingly important for generating electricity.
Increased natural gas imports will require us to expand our capacity to accept shipments of liquefied natural gas.

Providing adequate and reliable supplies of electricity, while reducing emissions and
meeting the other challenges, will require the development and application of advanced technologies. New technology can help us to exploit renewable energy sources when they are practical, and enable coal – which generates more U.S. electricity than any other fuel– to continue as a viable, long-term element of our energy supply. In addition, the President made it clear in his State of the Union address that we must also consider new nuclear power plants as part of our long-term energy picture.

NUCLEAR POWER TODAY

Today, American utilities operate 103 nuclear power plants. These efficient and reliable facilities provide one- fifth of the nation’s electricity. These plants are emissions-free and can operate year-round in all weathe r conditions – unlike renewable sources such as wind, solar and hydro.

Over the past 15 years, nuclear utilities in the United States have become better managed, and have improved both efficiency and safety. In the early 1990s, U.S. plants were available to produce electricity only 70% of the time on average. These plants are now producing power more than 90% of the time. More efficient operation has allowed nuclear plants to produce more energy than ever before, adding availability equivalent to 25 new power plants since 1990 -- without building a single new plant.

The companies that today own and operate the nation’s nuclear generating units have demonstrated that they are excellent operators with the ability to manage and operate the plants in a safe, cost-effective, and reliable manner. As a result of this success, essentially all U.S. nuclear plants are expected to apply for renewed licenses to stay in operation into the middle of the century. There will also be some new generation, with The Tennessee Valley Authority restarting a third unit at the Browns Ferry Nuclear Plant in Alabama that ceased operating in 1985. TVA expects to invest $1.8 billion to bring this unit on
line and add 1,280-megawatt (electric) generating capacity to the TVA system in the spring of 2007.

CHALLENGES FACING NUCLEAR ENERGY’S FUTURE

Four basic challenges to the deployment of new nuclear power plants have been
identified by the utility and financial markets: regulatory uncertainty; financial
uncertainty; permanent nuclear waste disposition; and Price Anderson indemnification.

While the Department is working to address all four challenges, the Nuclear Power 2010 program is specifically focused on addressing regulatory and financial uncertainties.

Regulatory uncertainty is centered on building industry confidence in the Nuclear
Regulatory Commission’s untested, combined licensing process to expedite construction and commissioning of new plants. Financial uncertainty, while potentially related to regulatory uncertainty, is based on the owners and operators of nuclear plants being able to accurately estimate the cost of a new plant and manage cash flows between the time the decision is made to build and the time the plant becomes operational and begins making money. Since February 2002, the Department has been working with industry to develop and execute a roadmap for addressing the regulatory and financial uncertainties hindering the near-term deployment of new nuclear power plants.

The Nuclear Power 2010 Program is designed to work with the nuclear industry in a
50/50 cost-shared arrangement to establish a market-driven, public-private effort to address the technical, regulatory and institutional challenges to new plant construction.

The program’s basic missions are to demo nstrate the new Nuclear Regulatory
Commission licensing processes, identify suitable sites for new plants, and certify stateof- the-art (or “Generation III+”) designs for new nuclear power plants. The goal of the Nuclear Power 2010 program is to facilitate an industry decision to build and operate at least one new advanced light-water reactor plant in the United States early in the next decade.

NUCLEAR POWER 2010

While it is too early to determine success, the Nuclear Power 2010 program appears to be on the right track. Three utilities – Dominion Energy (North Anna, Virginia), Entergy (Grand Gulf, Mississippi), and Exelon (Clinton, Illinois) – are working with the Department to obtain “Early Site Permits” for three sites across the country—the first time this important regulatory tool has ever been used. The Nuclear Regulatory Commission is reviewing the three Early Site Permit applications submitted by the utilities in the fall of 2003 and is expected to make decisions on the permits in 2006. The successful demonstration of the Early Site Permit regulatory process in pre-approving plant sites will avoid the problems in siting that substantially increased the cost of some plants in the 1980s and partially contributed to the abandonment of others. The results from these 50% cost-shared partnerships with industry also will include a streamlined and predictable Early Site Permit process for future applicants and a catalogue of lessons learned by the power companies from navigating the process. The Early Site Permit application and approval process, like all major Federal government construction projects, includes critical public participation in open meetings and through the National Environmental Policy Act Environmental Impact Statement process.

The Department is also working with the Tennessee Valley Authority (TVA) to conduct a detailed evaluation of the cost and schedule requirements for deploying an NRC-certified General Electric Advanced Boiling Water Reactor (ABWR) at TVA’s Bellefonte site in Alabama. In addition to TVA, the team includes General Electric, Toshiba, Bechtel, USEC, and Global Nuclear Fuels. The final report from this study is expected in September of this year and will be considered in any decision regarding the viability of proceeding with this advanced reactor design at the site. Geological and seismological evaluations as well as transmission access and site infrastructure surveys are being conducted, with completion scheduled for the end of 2005. The Department has also recently received two new proposals from power companies to explore additional sites for new nuclear power plants, including existing nuclear sites and “greenfield” sites. The Department expects to make decisions on whether to proceed with these two new projects by the end of next month (May 2005).

In November 2004, the Department took another step forward in the Nuclear Power 2010 program by awarding two major cost-shared projects to utility- led consortia to implement
plans that could lead to the construction and operation of new plants. Learning from the experiences of the early 1990s, when the Department directly funded U.S. reactor vendors for design certification activities, the Department is requiring these projects be led by utilities – the ultimate owners and operators. Central to this effort, these projects will provide first-time demonstration of the Nuclear Regulatory Commission’s combined
Construction/Operating License (COL) process. These utility- led projects could result in the first license applications for a new nuclear power plant beginning in 2007. The two consortia are the Dominion Energy- led project with General Electric and Bechtel and the NuStart Energy- led project that includes nine power companies (Entergy, Exelon, Constellation, Florida Power & Light, Southern Company, Progress Energy, TVA, Duke and EDF North America), General Electric, and Westinghouse. While the Department is committed to a 50/50 cost-share for the regulatory demonstration and technology certification activities, the actual cost of construction of any new nuclear plants will be borne completely by the project sponsors. The Department is committed to this sevenyear,
$1.1 billion effort of which 50 percent would be non-Federal funding.

The Department did experience a delay in initiating these two projects as a result of a change by Dominion in its preferred reactor technology, which occurred just prior to the planned issuance of its cooperative agreement in December 2004. We believe that Dominion’s change from the Atomic Energy of Canada Limited Advanced CANDU Reactor, ACR-700, to the General Electric Economic Simplified Boiling Water Reactor, ESBWR, resulted from the longer-than-expected certification schedule set forth by the Nuclear Regulatory Commission for the AECL reactor. This longer certification schedule did not meet Dominion’s deployment plans. The selection of the GE reactor technology affected the issuance of the Dominion cooperative agreement as well as the scope and funding for the NuStart project, because the GE technology is also part of that project.

The Department asked these two consortia to work out an equitable arrangement and resubmit their cost proposals such that the work on the GE technology was split between the two projects. These cost proposals and cooperative agreements were re-evaluated by the Department’s procurement staff prior to finalizing the cooperative agreements. In addition, intellectual property rights and royalty payment terms and conditions took longer to negotiate than expected.

The Department finalized its cooperative agreement with Dominion Energy on March 31, 2005, and Dominion has initiated the planning phase of the project, which will establish the detailed project schedule and baseline budget. Later this fiscal year, the Dominionled project will submit a design certification application for the General Electric Economic Simplified Boiling Water Reactor (ESBWR) to the Nuclear Regulatory Commission. The Dominion team is focused on deploying the General Electric ESBWR technology at Dominion’s North Anna site in Virginia.
The Department will finalize its cooperative agreement with the NuStart Energy team today, at which time the consortia will initiate the planning phase of the project to establish the detailed project schedule and baseline budget. Later this fiscal year, the NuStart- led project will complete its site selection process, which could result in the identification of a single site for a new reactor or multiple sites.

The NuStart Energy team is focused on developing the General Electric ESBWR and Westinghouse AP1000 advanced reactor technologies. Without the construction of new plants, nuclear power’s contribution as a percentage of the nation’s total energy mix will steadily decline. Nuclear power helps to maintain a
more diversified energy supply and it has no emissions; nuclear power today comprises almost 75% of all the non-emitting power generation in the country.

The President’s FY 2006 budget supports the successful continuation of the Nuclear Power 2010 initiative in FY 2006 with a request of $56 million (an increase of $6.4 million compared to FY 2005).

CONCLUSION

Our nation cannot rely on any single energy technology to secure its future. A broadly diverse energy supply has served us well in the past and must be available for the future.

Nuclear energy should be a part of that diverse portfolio as we look to support our
growing economy while limiting air emissions and enhancing America’s energy
independence.

The Department of Energy’s goal is to work with the private sector, our overseas
partners, and other agencies to assure that the benefits of nuclear technology continue to increase the security and quality of life for Americans—and other citizens of the world— now and into the future.

This concludes my prepared statement. Your leadership and guidance has been essential to the progress the program has achieved thus far and your support is needed as we engage the tasks ahead.

I would be pleased to answer any questions you may have.

Testimony for the Record

Michael J. Wallace

Executive Vice President

Constellation Energy

United States Senate Committee on Energy & Natural Resources

Hearing on the Department of Energy’s Nuclear Power 2010 Program

April 26, 2005

Mr. Chairman, members of the Committee, thank you for the opportunity to appear before you today.

I am Michael Wallace, Executive Vice President of Constellation Energy and President of Constellation Generation Group.  I want to take just a moment to tell you about Constellation Energy.  Constellation Energy, a Fortune 200 company based in Baltimore, is the nation’s leading competitive supplier of electricity to large and industrial customers and the nation’s largest wholesale power seller.  Constellation Energy also manages fuels and energy services on behalf of energy intensive industries and utilities.  The company delivers electricity and natural gas through the Baltimore Gas and Electric Company (BGE), its regulated utility in Maryland.  We are the owners of 107 generating units at 35 different locations in 11 states, totaling approximately 12,500 megawatts of generation capacity.  In 2004, the combined revenues of the integrated energy company totaled more that $12.5 billion and we are the fastest growing Fortune 500 Company over the past two years.

Our portfolio based on electricity produced is approximately 50 percent nuclear, 35 percent coal-fired, 7 percent gas-fired and 5 percent renewables.  We own and operate the Calvert Cliffs nuclear plant in Maryland, and the Nine Mile Point and Ginna nuclear stations in New York State. 

Constellation is part of the NuStart consortium that is preparing an application to the NRC for a license that would allow us to build and operate a new nuclear plant.  Additionally, in December 2004, we submitted a proposal to the Department of Energy (DOE) for studies that could lead to an application to the Nuclear Regulatory Commission for an Early Site Permit as part of the Nuclear Power 2010 program.  So, as you can tell, we have a vested interest in the continued success of Nuclear Power 2010, and we’re bullish on the future of nuclear power.

Although I am here testifying today on behalf of Constellation, this testimony is supported by our trade association, the Nuclear Energy Institute (NEI).

My statement this morning will address four major issues:

1.      The strategic value of our 103 operating nuclear power plants, and the compelling need to build new nuclear plants to preserve our nation’s energy security, meet our environmental goals, and sustain our economic growth.

2.      The critical importance of the Department of Energy’s Nuclear Power 2010 program as a platform from which to launch the next generation of nuclear power plants in the United States.

3.      The need to recognize that the Nuclear Power 2010 program does not address all of the challenges facing companies interested in building new nuclear power plants, and that additional joint investment initiatives by the federal government and the private sector will be necessary.

4.      The urgent need for comprehensive energy legislation that squarely addresses the critical need for additional investment in our electricity and energy infrastructure, including advanced nuclear and coal-fired generating capacity, electric and natural gas transmission, and other areas.  Construction of the next nuclear power plants in the United States will require some form of investment stimulus, but I know I speak for the entire electric sector when I say that the need for investment stimulus extends well beyond nuclear power.  This sector is starved for investment capital, and new federal government policy initiatives are necessary to reverse that trend and place our economy and our future on a sound foundation.

The Strategic Value of Nuclear Power

And the Need for New Nuclear Power Plants

The United States has 103 reactors operating today.  Nuclear power represented 20 percent of U.S. electricity supply 10 years ago, and it represents 20 percent of our electricity supply today, even though we have six fewer reactors than a decade ago and even though total U.S. electricity supply has increased by 25 percent in the period.

Nuclear power has maintained its market share thanks to dramatic improvements in reliability, safety, productivity and management of our nuclear plants, which today operate, on average, at 90 percent capacity factors, year in and year out.  Improved productivity at our nuclear plants satisfied 20 percent of the growth in electricity demand over the last decade.

Due, in part, to excellent plant performance, we’ve seen steady growth in public support for nuclear energy.  The industry has monitored public opinion closely since the early 1980s and two key trends are clear:  First, public favorability to nuclear energy has never been higher; and second, the spread between those who support the use of nuclear energy and those opposed is widening steadily:  80 percent of Americans think nuclear power is important for our energy future and 67 percent favor the use of nuclear energy; 71 percent favor keeping the option to build more nuclear power plants.  Six in 10 Americans agree that “we should definitely build more nuclear power plants in the future.”  Sixty-two percent said it would be acceptable to build new plants next to a nuclear power plant already operating.

The operating nuclear plants are such valuable electric generating assets that virtually all companies are planning to renew the operating licenses for these plants, as allowed by law and Nuclear Regulatory Commission regulations, and operate for an additional 20 years beyond their initial 40-year license terms.  Sixty-eight U.S. reactors have now renewed their licenses, filed their formal applications, or indicated to the Nuclear Regulatory Commission that they intend to do so.  The remaining 35 reactors have not yet declared because most of them are not yet old enough to do so.  We believe that virtually all U.S. nuclear plants will renew their licenses and operate for an additional 20 years.  At Constellation, we are proud that our Calvert Cliffs station was the first U.S. nuclear plant to renew its license.  At the time, the license renewal process was a novel concept.  Today, thanks to efficient management of the process by the Nuclear Regulatory Commission, it is a stable and predictable licensing action.  Ten years from now, we hope and believe that the issuance of combined construction/operating licenses for new nuclear plants — a novel concept today — will be similarly efficient and predictable.

Although it has not yet started to build new nuclear plants, the industry continues to achieve small but steady increases in generating capability —  either through power uprates or the restart of shutdown nuclear capacity.  The Tennessee Valley Authority is restarting Unit 1 at its Browns Ferry site in northern Alabama.  This is a very complex project — fully as challenging as building a new nuclear plant — and it is on schedule and within budget at the midpoint of the project.

However, despite the impressive gains in reliability and output, there are obviously limits to how much capacity we can derive from our existing nuclear power plants.  The time has come to create the business conditions under which we can build new nuclear power plants in the United States.  We believe there are compelling public policy reasons for new nuclear generating capacity.

First, new nuclear power plants will continue to contribute to the fuel and technology diversity that is the core strength of the U.S. electric supply system.  This diversity is at risk because today’s business environment and market conditions in the electric sector make investment in large, new capital-intensive technologies difficult, particularly the advanced nuclear power plants and advanced coal-fired power plants best suited to supply baseload electricity.  More than 90 percent of all new electric generating capacity added over the past five years is fueled with natural gas.  Natural gas has many desirable characteristics and should be part of our fuel mix, but over-reliance on any one fuel source leaves consumers vulnerable to price spikes and supply disruptions.

Second, new nuclear power plants provide future price stability that is not available from electric generating plants fueled with natural gas.  Intense volatility in natural gas prices over the last several years is likely to continue, thanks partly to unsustainable demand for natural gas from the electric sector, and subjects the U.S. economy to potential damage.  Although nuclear plants are capital-intensive to build, the operating costs of nuclear power plants are stable and can dampen volatility of consumer costs in the electricity market.

Third, new nuclear plants will reduce the price and supply volatility of natural gas, thereby relieving cost pressures on other users of natural gas that have no alternative fuel source.

And finally, new nuclear power plants will play a strategic role in meeting U.S. clean air goals and the nation’s goal of reducing greenhouse gas emissions.  New nuclear power plants produce electricity that otherwise would be supplied by oil-, gas- or coal-fired generating capacity, and thus avoid the emissions associated with that fossil-fueled capacity.

In summary, nuclear energy represents a unique value proposition:  new nuclear power plants would provide large volumes of electricity — cleanly, reliably, safely and affordably.  They would provide future price stability and serve as a hedge against price and supply volatility.  New nuclear plants also have valuable environmental attributes.  These characteristics demonstrate why new nuclear plant construction is such an imperative in the United States.

The Critical Value of the Nuclear Power 2010 Program

As I said earlier, the Department of Energy’s Nuclear Power 2010 program is an essential foundation in the joint government/industry partnership to build new nuclear power plants.  This committee and, in particular, you, Mr. Chairman, deserve great credit for your leadership in ensuring adequate funding for this program in the 2005 Fiscal Year.

Nuclear Power 2010 is designed to demonstrate the various components of the new licensing system for nuclear power plants, including the process of obtaining early site permits (ESPs) and combined construction/operating licenses (COLs), sharing the cost of the detailed design and engineering work necessary to prepare COLs, and resolving generic licensing issues.  This work is an essential risk-management exercise because it allows industry and the NRC staff to identify  and resolve scores of technical and regulatory issues that must be settled before companies can undertake high-risk, capital-intensive construction projects like new nuclear plant construction.

The Nuclear Power 2010 program is the springboard that launched a tangible and visible industry commitment to new plant construction.  The industry’s commitment to Nuclear Power 2010 includes a planned investment of $650 million over the next several years on design, engineering, and licensing work, which will create a business foundation for decisions to build.  Three companies have applications for early site permits under review at NRC.  In addition to these three, Constellation and possibly one other company are also considering ESP applications.  The industry is developing at least three applications for construction/operating licenses; the first will be filed in 2007, the second and third in 2008.

As you know, the administration has proposed $56 million for the Nuclear Power 2010 program in the 2006 fiscal year.  The $56 million funding proposed for 2006 is sufficient for the ESP and COL demonstration projects already underway.  It is not adequate, however, to cover more recent expressions of interest from Constellation and others, and additional resources will be needed to ensure this program is viable into the future.

It is also important to recognize that Nuclear Power 2010 is a multi-year undertaking.  Certainty of future funding and program stability are a big concern for industry.  However, our biggest frustration with the Nuclear Power 2010 program involves the time it has taken the DOE to award the grants.  In the case of NuStart, we submitted our application in April 2004 and we were not notified that we received the grant until November 2004.  As for Constellation’s ESP application, we submitted it almost four months ago and have yet to hear from DOE.

To support the ESP and COL demonstration projects currently underway and future projects, we anticipate that the Department of Energy will need to significantly increase funding for Nuclear Power 2010 over FY 2006 levels.

The process of developing the first COL applications, certifying new designs and completing NRC review of the first ESP and COL applications will take some time.  We are looking for ways to accelerate that process, and the Congress may be able to help there — by ensuring sufficient funding for Nuclear Power 2010 and even accelerating that funding; and by providing NRC sufficient resources to ensure that the commission has adequate manpower to conduct licensing reviews and meet aggressive but realistic schedules.

The Nuclear Power 2010 Program Does Not Address

All The Challenges Facing New Nuclear Plant Construction

The Department of Energy’s Nuclear Power 2010 program is a necessary, but not sufficient, step toward new nuclear plant construction.  We must address other challenges as well.

Our industry is not yet at the point where we can announce specific decisions to build.  We are not yet at the point where we can take a $1.5 billion to $2 billion investment decision to our boards of directors.  We do yet not have fully certified designs that are competitive, for example.  We do not know the licensing process will work as intended:  That is why we are working systematically through the ESP and COL processes.  We must identify and contain the risks to make sure that nothing untoward occurs after we start building.  We cannot make a $1.5 — $2 billion investment decision and end up spending twice that because the licensing process failed us.

The industry believes federal investment is necessary and appropriate to offset some of the risks I’ve mentioned.  We recommend that the federal government’s investment include the incentives identified by the Secretary of Energy Advisory Board’s Nuclear Energy Task Force in its recent report.  That investment stimulus includes:

1. secured loans and loan guarantees;
2. transferable investment tax credits that can be taken as money is expended during construction;
3. transferable production tax credits;
4. accelerated depreciation.

This portfolio of incentives is necessary because it’s clear that no single financial incentive is appropriate for all companies, because of differences in company-specific business attributes or differences in the marketplace – namely, whether the markets they serve are open to competition or are in a regulated rate structure.

The next nuclear plants might be built as unregulated merchant plants, or as regulated rate-base projects.  The next nuclear plants could be built by single entities, or by consortia of companies.  Business environment and project structure have a major impact on which financial incentives work best.  Some companies prefer tax-related incentives.  Others expect that construction loans or loan guarantees will enable them to finance the next nuclear plants.

It is important to preserve both approaches. We must maintain as much flexibility as possible.

It’s important to understand why federal investment stimulus and investment protection is necessary and appropriate.

Federal investment stimulus is necessary to offset the higher first-time costs associated with the first few nuclear plants built.

Federal investment protection is necessary to manage and contain the one type of risk that we cannot manage, and that’s the risk of some kind of regulatory failure (including court challenges) that delays construction or commercial operation. 

The new licensing process codified in the 1992 Energy Policy Act is conceptually sound.  It allows for public participation in the process at the time when that participation is most effective – before designs and sites are approved and construction begins.  The new process is designed to remove the uncertainties inherent in the Part 50 process that was used to license the nuclear plants operating today.  In principle, the new licensing process is intended to reduce the risk of delay in construction and commercial operation and thus the risk of unanticipated cost increases.  The goal is to provide certainty before companies begin construction and place significant investment at risk.

In practice, until the process is demonstrated, the industry and the financial community cannot be assured that licensing will proceed in a disciplined manner, without unfounded intervention and delay.  Only the successful licensing and commissioning of several new nuclear plants (such as proposed by the NuStart and Dominion-led consortia) can demonstrate that the licensing issues discussed above have been adequately resolved.  Industry and investor concern over these potential regulatory impediments may require techniques like the standby default coverage and standby interest coverage contained in S. 887, introduced by Senators Hagel, Craig and others.

Let me also be clear on two other important issues:

1. The industry is not seeking a totally risk-free business environment. It is seeking government assistance in containing those risks that are beyond the private sector’s control. The goal is to ensure that the level of risk associated with the next nuclear plants built in the U.S. generally approaches what the electric industry would consider normal commercial risks.  The industry is fully prepared to accept construction management risks and operational risks that are properly within the private sector’s control.
2. The industry’s financing challenges apply largely to the first few plants in any series of new nuclear reactors.  As capital costs decline to the “n^th-of-a-kind” range, as investors gain confidence that the licensing process operates as intended and does not represent a source of unpredictable risk, follow-on plants can be financed more conventionally, without the support necessary for the first few projects.  What is needed limited federal investment in a limited number of new plants for a limited period of time to overcome the financial and economic hurdles facing the first few plants built.

In summary, we believe the industry and the federal government should work together to finance the first-of-a-kind design and engineering work and to develop an integrated package of financial incentives to stimulate construction of new nuclear power plants.  Any such package must address a number of factors, including the licensing/regulatory risks; the investment risks; and the other business issues that make it difficult for companies to undertake capital-intensive projects.  Such a cooperative industry/government financing program is a necessary and appropriate investment in U.S. energy security.

I hope this Committee can find a place for this type of investment stimulus in the comprehensive energy legislation now being developed

In addition, I would be remiss if I did not thank the Chairman for his support for three additional programs/provisions that will assist in the construction of new nuclear power plants in the United States:

1. Sustained progress with the Yucca Mountain project is essential. This includes the funding necessary to maintain the schedule, ensure timely filing of the license application, and access to the full receipts of the Nuclear Waste Fund.

2. Renewal of the Price-Anderson Act, which provides the framework for the industry’s self-funded liability insurance.  I am pleased to note that this is included in the recently House-passed energy bill.

3. Updated tax treatment of decommissioning funds that would provide comparable treatment for unregulated merchant generating companies and regulated companies.  This provision, included in the energy tax legislation passed recently by the House, would allow all companies to establish qualified decommissioning funds and ensure that annual contributions to those funds are treated appropriately as a deductible business expense. 

The U.S. electricity business and our nation are paying the price today for our inability to strike an appropriate balance between what was expedient and easy in the short-term, and what was prudent and more difficult in the long-term.  We are paying the price today for 10 to 15 years of neglect of longer-term imperatives and the oversupply of base-load generation in the 1990’s.

The United States faces a critical need for investment in energy infrastructure, including the capital-intensive, long-lead-time advanced nuclear and coal-fired power plants that represent the backbone of the U.S. electricity supply system.

While some may not realize it, the United States faces an imminent energy crisis today.

Electric power sales represent three to four percent of our gross domestic product.  But the other 96 to 97 percent of our $11-trillion-a-year economy depends on that three to four percent.  We cannot afford to gamble with something as fundamental as energy supply, and the biggest problem we face with nuclear energy is not having enough of it.

Thank you again, Mr. Chairman and the other members of the committee and your outstanding professional staff, for your strong support for energy policy initiatives, for nuclear power and for your continued and strong support for the Nuclear Power 2010 program.