U.S. House of Representatives: Committee on Energy and Commerce, RepublicansPrepared Witness Testimony: Fertel, Marvin

The Nuclear Energy Institute (NEI) is the U.S. nuclear energy industry's Washington-based policy organization. NEI represents 270 members with a broad spectrum of interests, including every U.S. electric company that operates a nuclear power plant. NEI's membership also includes nuclear fuel cycle companies, suppliers, engineering and consulting firms, national research laboratories, manufacturers of radiopharmaceuticals, universities, law firms and labor unions.

The nuclear energy industry commends you, Mr. Chairman, and the members of this subcommittee, for devoting this hearing to a discussion of the value of nuclear energy. Today, America's 103 nuclear power plants are the safest, most efficient and most reliable in the world. Nuclear energy is the second largest source of electricity in the United States, and the nation's largest source of emission-free electricity generation. The industry last year reached record levels of safety, reliability, efficiency and output.. In our view, increasing nuclear energy's contribution to U.S. electricity supply is not an option. It is essential to sustain economic growth, meet the electricity needs of our growing population, and satisfy our nation's clean air and environmental goals.

Demand for electricity in the United States is growing rapidly. The Department of Energy's Energy Information Administration estimates that our nation will need an additional 393,000 megawatts of additional generating capacity between now and 2020, assuming average growth in electricity demand of 1.8 percent per year. At 2.5 percent annual growth, which is closer to the growth rates experienced during the 1990s, the United States will require an additional 564,000 megawatts to meet new electricity demand and replace aging power plants that have reached the end of their useful life.

To satisfy this electricity demand, and ensure that nuclear energy is available when needed, the U.S. nuclear industry is implementing a three-part program:

1. maintaining the contribution from its existing plants through license renewal;

2. expanding the output from the existing nuclear units by continuing to improve efficiency and reliability, and by investing the capital required to increase the rated capacity of the units; and

The nation's largest nuclear generating companies, working with NEI, are implementing a broad-based plan to create the business conditions necessary for construction of new nuclear power plants. The plan includes: (1) a number of initiatives to reduce the initial capital cost of new nuclear power plants; (2) programs to create a stable licensing regime and reduce regulatory uncertainties, and (3) a series of initiatives to build support for new nuclear power plants among policymakers, the media and local communities around prospective sites for new nuclear power plants.

The companies intent on starting construction of new nuclear power plants in the United States within the next five years are doing so because new nuclear capacity represents a solid business opportunity. For an electricity generating company, new nuclear power capacity represents:

1. a reliable source of electricity with low "going-forward" or "dispatch" costs;

2. a high level of forward price stability and protection against the fuel price volatility that impacts gas-fired power plants; and

3. protection against possible escalation in environmental requirements imposed on fossil-fueled power plants. For companies already operating coal-fired or gas-fired power plants, new nuclear capacity reduces the cost of clean air compliance that might otherwise be imposed on that coal- and gas-fired capacity.

The 1992 Energy Policy Act, enacted during the first Bush Administration, completely overhauled the licensing process for new nuclear plants so that all design, safety and site-related issues are resolved before capital is invested. The chairman of this subcommittee, Mr. Barton of Texas, was a principal author of this major improvement to the licensing process. The new approach allows NRC (1) to evaluate and pre-approve a prospective site for a new nuclear plant; (2) to issue a single license to construct and operate a new nuclear plant if a company uses a certified design and a pre-approved site; and (3) to "certify" a standardized design. Certification is a formal rulemaking process. It requires a substantial up-front investment to prepare a reactor design-complete and detailed enough to satisfy the NRC that it meets all necessary safety standards.

Three reactor designs-a 1,300-megawatt advanced boiling water reactor, a 1,300-megawatt pressurized water reactor, and a 600-megawatt pressurized water reactor-have been certified by the NRC. Several of these designs have already been deployed overseas, which testifies to the fact that U.S. nuclear technology remains at the leading edge worldwide. Japan has already built two advanced boiling water reactors, and will build more. Taiwan is building two advanced boiling water reactors. And South Korea is building variants of the large pressurized water reactor.

The U.S. nuclear industry is pursuing two parallel approaches to new nuclear power plants:

1. Preparing to deploy one of the three new reactor designs already certified by the NRC, or derivatives of those designs. This initiative includes a systematic program to reduce the initial capital cost of these new designs--through improved construction techniques, faster construction schedules, innovative approaches to project structure or, in the case of one of the three designs, increasing the power output from 600 megawatts to 1,000 megawatts.

2. In addition to the three new reactor designs already certified, several companies are developing advanced gas-cooled reactors, including an international consortium-that includes Exelon and British Nuclear Fuels, the parent of Westinghouse-which is looking at a smaller, modular reactor for deployment in the United States. Exelon has launched an aggressive program to commercialize this 110-megawatt modular reactor. The project is still in the feasibility stage, but Exelon is proceeding on the assumption that economic and technical feasibility will be established, and is developing a strategy that will lead to the first U.S. order, license application, and construction.

The industry is committed to validating both the economic performance of the new plants, and the licensing process for them. Over the next year, for example, a group of companies will begin a program, coordinated through the Nuclear Energy Institute, to address a number of generic issues associated with the concept of early site approval, ultimately leading to a formal application to the NRC to approve one or more sites.

The U.S. nuclear energy industry estimates that new nuclear power plants could be built in the United States for between $1,000 and $1,200 per kilowatt of capacity. At this capital cost^[1] of $1,000-1,200 per kilowatt of capacity, new nuclear power units are fully competitive with the other alternatives for baseload electricity production.

1. Conventional coal-fired power plants with a full suite of environmental controls. Largely because of the significant increase in the cost of natural gas, which has increased the cost of electricity from gas-fired power plants, a growing number of new coal-fired projects are being proposed. These conventional coal-fired plants typically have capital costs in the range of $1,000-1,100 per kilowatt of capacity.

2. The so-called "clean coal" technologies, which have capital costs in the range of $1,200-1,500 per kilowatt of capacity. Over time, as more of these atmospheric fluidized bed plants are built, the technology developers expect to be able to reduce the capital cost. Their current target is $1,000-1,200 per kilowatt.

Other "clean coal" technologies have higher capital costs than atmospheric fluidized bed combustion. An integrated gasification combined cycle (IGCC)^[2] plant currently has a capital cost of approximately $1,800 per kilowatt for the first plants built, according to estimates from the technology developers and data from the Department of Energy's clean coal technology program. The technology developers hope to reduce this capital cost to $1,200-1,500 as the technology matures and more of these plants are built.

3. New combined-cycle gas-fired power plants, which have capital costs in the range of $600-700 per kilowatt of capacity. Unlike the nuclear and coal-fired technologies, however, gas-fired power plants are extremely sensitive to fuel prices. Economic analysis shows that a new nuclear unit at $1,000 per kilowatt of capacity is competitive with a new gas-fired combined cycle plant fueled with gas at $4-5 per million Btu. (Although wellhead gas prices in the spot market have slumped below $4 per million Btu in recent weeks, the cost of gas delivered to electricity generators remains well above $5 per million Btu in all major consuming regions of the United States except California. In California, delivered prices for natural gas are considerably higher, in the $10-15 per million Btu range.)

Like renewable energy, conventional coal-fired power plants and advanced "clean coal" technologies, nuclear power is a capital-intensive technology. Large new nuclear power plants-of the 1,000-megawatt^[3] size now operating-would cost approximately $1 billion each, and would thus represent a substantial investment risk for the company or companies that build them.

Private companies would only undertake investments of this size if they were convinced that new nuclear power plants, once built, would be competitive with other sources of electricity. Given the significant public policy benefits of nuclear energy, however, limited policy initiatives are appropriate for new nuclear power plants to stimulate companies to invest in new nuclear plants sooner and in larger numbers than they otherwise would; and to reduce the investment risk associated with construction of new nuclear power plants.

The policy initiatives necessary to stimulate construction of new nuclear generating capacity include:

1. Creation of a government/industry partnership to pursue two short-term objectives: resolving technical and/or economic issues associated with the new nuclear plant designs, and validating the new licensing process-verifying that it works as intended and will not place private sector investment at risk. This initiative will require a modest additional federal investment in nuclear energy research and development.

2. Changes to the tax laws to reduce the investment risk associated with new nuclear plant construction and to allow quicker recovery of capital investment, including such techniques as accelerated depreciation and an investment tax credit.

Congress should renew the Price-Anderson Act as soon as possible, and it should provide an indefinite renewal. Price-Anderson is a proven framework that has worked for nearly 45 years. Given this proven record, Congress should renew it indefinitely. If needed, Congress can re-open the law at any time if modifications are needed. In addition, Congress can request periodic updates on the status of Price-Anderson Act implementation from the NRC in order to provide a basis for change if necessary.

The Price-Anderson Act of 1957, signed into law as an amendment to the Atomic Energy Act, provides for payment of public liability claims related to any nuclear incident. In its 1998 report to Congress, the Nuclear Regulatory Commission said that the Price-Anderson Act has "proven to be a remarkably successful piece of legislation" that has grown in depth of coverage and that proved its viability in the aftermath of the Three Mile Island accident.

Since the inception of the Price-Anderson Act, the law has been extended three times for successive 10-year periods, and in 1988 it was extended for 15 years. Unless Congress renews the Price-Anderson Act, it will expire on Aug 1, 2002.

For the primary level, the law requires nuclear power plant operators to buy nuclear liability insurance available or provide for an equal amount of financial protection. That amount of insurance is $200 million.

For the second level, power plant operators are assessed up to $88 million for each accident that exceeds the primary level at a rate not to exceed $10 million per year, per reactor for a total of $9.3 billion. The NRC increases the level for inflation every five years. An important feature of the law is that it spreads the liability for a major accident across the entire industry. In addition, Congress may establish more assessments if the first two levels of coverage are not adequate to cover claims. The Price-Anderson Act framework provides the same level of liability for DOE facilities as for the commercial sector.

Research or small power reactors are required to self-insure at least the first $250,000 of any nuclear incident. The federal government also provides up to $500 million of indemnity. At present, there are no small power reactors in operation that qualify for this coverage. But the groundwork is being laid to design power reactors that would be smaller, safer and more cost effective to build. That very extensive research and development would be jeopardized if the Price-Anderson Act is not renewed expeditiously.

The costs of Price-Anderson coverage are included in the cost of electricity, they are not a taxpayer expense or federal subsidy. That means the nuclear industry bears the cost of insurance, unlike the corresponding costs of some major power alternatives. For example, risks from hydropower (dam failure and flooding) are borne directly by the public. The 1977 failure of the Teton Dam in Idaho caused $500 million in property damage. The only compensation for this event was about $200 million in low-cost government loans.

In addition to the approximately $180 million paid in claims by the insurance pools since the Price-Anderson Act went into effect, the law has resulted in payment of $21 million back to the government in indemnity fees.

The NRC and DOE has recommended renewal of the Price-Anderson Act to Congress. The NRC, in its 1998 report, describes the benefits the law provides to the public. The agency says that "the structured payment system created to meet the two objectives stated in the Price-Anderson Act has been successful. The Commission believes that in view of the strong public policy benefits in ensuring the prompt availability and equitable distribution of funds to pay public liability claims, the Price-Anderson Act should be extended to cover future as well as existing nuclear power plants.

The Department of Energy in 1999 has also recommended renewal of the law. The Energy Department said that its indemnification "should be continued without any substantial change because it is essential to DOE's ability to fulfill its statutory missions involving defense, national security and other nuclear activities."

The Price-Anderson Act has withstood court challenges dating back to 1973 when the Carolina Environmental Study Group, the Catawba Central Labor Union and 40 individuals brought suit against Duke Power Co., which was building nuclear power plants in North and South Carolina.

In June 1978, the U.S. Supreme Court upheld the constitutionality of the law. In an opinion written by Chief Justice Warren Burger, the court held that because the liability limit was created to encourage private sector construction of nuclear power plants it was neither arbitrary nor irrational.

The industry recommends an indefinite renewal of the Price-Anderson Act. Like any other legislation, if Congress wants to reconsider and amend the law it can do so at anytime. We would encourage Congress to hold periodic oversight hearings and, if required, modify the law accordingly.

The industry believes that the retrospective premium should remain at $10 million per nuclear plant. The NRC initially recommended it be increased to $20 million, based in part on the assumption that 25 nuclear plants would be closed without relicensing, and that total insurance coverage would decrease as a result. However, most nuclear plants will be relicensed. NRC Chairman Richard Meserve, in a May 11, 2001 letter to members of Congress, retracted this recommendation based on the number of plants seeking license renewal. The NRC no longer believes that the increase in the retrospective premium to $20 million is necessary.

In addition to renewal of the Price-Anderson Act, the nuclear industry has identified several areas where continuing, sustained federal government policy support would assist the construction of new nuclear power plants. These areas include:

Nuclear Energy R&D. As noted above, the industry believes it would be appropriate to create a government/industry partnership to share the modest cost of resolving remaining technical or economic issues, and to validate the new licensing process for new nuclear plants. An expert working group assembled by the U.S. Department of Energy to advise the agency on actions necessary for near-term deployment of new nuclear power plants believes that validating the new licensing process, and other similar pre-commercial activities, will require approximately $36 million in the 2002 fiscal year, and an estimated $47 million in FY 2003.

It is appropriate for the federal government to bear part of the cost of these programs for two reasons. First, these are generic, pre-commercial activities that provide no financial return to private industry. And second, these pre-commercial programs are designed to assure that federal government regulations work as intended and will not place private industry investment at risk.

It is equally crucial that industry and the federal government continue to invest in nuclear technology research and development for the United States to remain the world leader in nuclear technology. This includes continuing support for the Department of Energy's existing nuclear energy R&D programs, in line with the funding levels recommended by the President's Committee on Advisors on Science and Technology (PCAST), and the Secretary of Energy's Nuclear Research Advisory Committee.

Continued Progress in Waste Management. Expansion of nuclear energy's contribution to U.S. electricity supply also requires continued progress in the federal government's program to manage used nuclear fuel, and to develop storage and disposal facilities for that fuel. This includes adherence to programmatic milestones, including the Secretary of Energy's site suitability determination scheduled for later this year, and a Presidential determination as soon after that as possible.

Amendments to the Atomic Energy Act. The nuclear industry also believes the time has come to update the Atomic Energy Act so that the NRC is positioned to meet the challenges of the 21^st century. This would include:

1. removing the statutory requirement that NRC conduct antitrust reviews of of applications to build new nuclear plants;

2. removing the statutory prohibition on foreign ownership of U.S. commercial nuclear power planbts; and

3. revising the Atomic Energy Act to ensure that small, modular nuclear reactors are not subjected to excessive levels of liability under the Price-Anderson Act's secondary protection scheme.

The industry clearly understands what must be done to preserve nuclear energy's emission-free contribution to the nation's electricity supply.

Nuclear energy is the only large source of electricity that is both emission-free and readily expandable. Its exemplary safety record, high reliability, low operating costs and price stability make nuclear energy a vital fuel for the future. That is clear from the current U.S. electricity situation, which is marked by thinning capacity margins as demand outruns available supply, and by punishing volatility both in electricity prices and the price of natural gas used to generate electricity.

As electricity demand continues to rise, nuclear energy will be even more important to American consumers.

Thank you for giving me this opportunity to share the industry's perspective on the important nuclear energy issues the subcommittee is focusing on in this hearing.

^[1] To ensure a common basis for comparison, the capital costs of electric generating technologies are expressed in dollars per kilowatt of capacity. The capital costs used in such comparisons are so-called "overnight" capital costs-i.e., they assume the plant is built "overnight" and thus do not include interest charges and financing costs.

^[2] Integrated gasification combined cycle is a multi-step process in which coal is gasified, and the resulting fuel gas is used to fire a conventional combined-cycle power plant.

^[3] A 1,000-megawatt power plant will serve the needs of approximately 650,000 households.