Public Policy

Chairman Bingaman, Ranking Member Murkowski, and members of the committee, thank you for your interest in nuclear energy and in addressing the policies that can facilitate deployment of new nuclear plants to meet national energy needs and reduce carbon emissions.

My name is Marvin Fertel.  I am the President and Chief Executive Officer of the Nuclear Energy Institute (NEI).  NEI is responsible for establishing unified nuclear industry policy on regulatory, financial, technical and legislative issues affecting the industry.  NEI members include all companies licensed to operate commercial nuclear power plants in the United States, nuclear plant designers, major architect/engineering firms, fuel fabrication facilities, materials licensees, and other organizations and individuals involved in the nuclear energy industry.

My testimony will cover five major areas:

1.    Current status of the U.S. nuclear energy industry
2.    The need for new nuclear generating capacity
3.    Progress toward new nuclear power plant construction
4.    Financial challenges facing the electric power sector
5.    Policy actions necessary to address the challenges facing new nuclear plant development

I.    Current Status of the U.S. Nuclear Power Industry

The U.S. nuclear energy industry’s top priority is, and always will be, the safe and reliable operation of our existing plants.  Safe, reliable operation drives public and political confidence in the industry, and America’s nuclear plants continue to sustain high levels of performance.

Just last week, the Nuclear Regulatory Commission published a Fact Sheet highlighting the dramatic improvements in every aspect of nuclear plant performance over the last two decades:  “The average number of significant reactor events over the past 20 years has dropped to nearly zero.  Today there are far fewer, much less frequent and lower risk events that could lead to reactor core damage.  The average number of times safety systems have had to be activated is about one-tenth of what it was 22 years ago.  Radiation exposure levels to plant workers has steadily decreased to about one-sixth of the 1985 exposure levels and are well below federal limits.  The average number of unplanned reactor shutdowns has decreased by nearly ten-fold.  In 2007, there were two shutdowns compared to about 530 shutdowns in 1985.”

This high level of performance continued last year.  In 2008, the average capacity factor for our 104 operating nuclear plants was over 90 percent, and output of over 800 billion kilowatt hours represented nearly 75 percent of U.S. carbon-free electricity.  According to the quantitative performance indicators monitored by the Nuclear Regulatory Commission, last year’s performance was the best ever.  This performance represents a solid platform for license renewal of the existing fleet and new nuclear plant construction.

II.    The Need for New Nuclear Generating Capacity

Construction of new nuclear plants will address two of our nation’s top priorities:  Additional supplies of clean energy and creation of jobs.

Nuclear energy is one of the few bright spots in the U.S. economy – expanding rather than contracting, creating thousands of jobs over the past few years.  Over the last several years, the nuclear industry has invested over $4 billion in new nuclear plant development, and plans to invest approximately $8 billion more to be in a position to start construction in 2011-2012.

The investment to date has already created 15,000 jobs over the last two to three years, as reactor designers, equipment manufacturers and fuel suppliers expand engineering centers and build new facilities in New Mexico, North Carolina, Tennessee, Pennsylvania, Virginia and Louisiana.  These jobs represent a range of opportunities – from skilled craft employment in component manufacturing and plant construction, to engineering and operation of new facilities.  The number of new jobs will expand dramatically early in the next decade when the first wave of new nuclear power projects starts construction.  If all 26 reactors currently in licensing by the NRC were built, this would result in over 100,000 new jobs to support plant construction and operations, and does not include additional jobs created downstream in the supply chain.  This would be in addition to the 30,000 new hires in the next 10 years to support operation of the existing fleet of plants through the extended license period of 60 years.

New nuclear plants will also help the United States meet its climate change objectives.  Predominantly independent assessments of how to reduce U.S. electric sector CO2 emissions – by the International Energy Agency, McKinsey and Company, Cambridge Energy Research Associates, Pacific Northwest National Laboratory, the Energy Information Administration, the Environmental Protection Agency, the Electric Power Research Institute and others – show that there is no single technology that can slow and reverse increases in CO2 emissions.  A portfolio of technologies and approaches will be required, and that portfolio must include more nuclear power as well as aggressive pursuit of energy efficiency and equally aggressive expansion of renewable energy, advanced coal-based technologies, plug-in hybrid electric vehicles and distributed resources.

NEI is not aware of any credible analysis of the climate challenge that does not include substantial nuclear energy expansion as part of the technology portfolio. In fact, removing any technology from the portfolio places unsustainable pressure on those options that remain.

Analysis last year by the Energy Information Administration of the Lieberman-Warner climate change legislation (S. 2191) demonstrates the value of nuclear energy in a carbon-constrained world.  In EIA’s “Core” scenario, which included new nuclear plant construction, carbon prices in 2030 were 33 percent lower, residential electricity prices were 20 percent lower and residential natural gas prices were 19 percent lower than in the “Limited Alternatives” scenario, which severely limited new nuclear construction.

It is also clear that the United States will need new baseload electric generating capacity even with major improvements in energy efficiency.  Recent analysis by The Brattle Group, an independent consulting firm, showed that the United States will need between 133,000 megawatts of new generating capacity (absent controls on carbon) and 216,000 megawatts (in a carbon-constrained world) by 2030.  These numbers assume 0.7 percent per year growth in peak load – a significant reduction from historical performance.  Annual growth in peak load between 1996 and 2006 was 2.1 percent, and the Energy Information Administration’s Annual Energy Outlook assumes a 1.5-percent annual increase in peak load.

NEI estimates that if the 26 reactors being licensed today (approximately 34,000 MW) were built by 2030, this would simply maintain nuclear at 20 percent of U.S. electricity supply.  To increase nuclear energy’s contribution to 2050 climate goals, build rates of 4-6 plants per year must be achieved.  This was possible in the 1970s and 1980s even with the old licensing process and lack of standardization.  With standardized designs and improved construction techniques, this accelerated deployment is feasible after the first wave of plants are constructed.

III.    Progress Toward New Nuclear Power Plant Construction

The Nuclear Regulatory Commission is reviewing construction and operating license applications from 17 companies or groups of companies for 26 new reactors totaling 34,200 MW.  These new plants will be built at a measured pace over the next 10-15 years.  Safety-related construction of the first new nuclear plants will start in 2012, and NEI expects four to eight new nuclear plants in commercial operation in 2016 or so.  The exact number will, of course, depend on many factors – U.S. economic growth, forward prices in electricity markets, capital costs of all baseload electric technologies, commodity costs, environmental compliance costs for fossil-fueled generating capacity, natural gas prices, growth in electricity demand, availability of federal and state support for financing and investment recovery, and more.  We expect construction of those first plants will proceed on schedule, within budget estimates, and without licensing difficulties, and a second wave will be under construction as the first wave reaches commercial operation.

Supported in part by government-industry cost-shared programs like the Department of Energy’s Nuclear Power 2010 program, detailed design and engineering work on advanced reactor designs is nearing completion.  This detailed design information will allow companies to develop firm cost estimates.  Based on what is known today, however, there is a solid business case for new nuclear generating capacity.

Nuclear energy is a capital-intensive technology.  NEI estimates a new nuclear power plant could cost $6 billion to $8 billion, including financing costs.  This large capital investment does not mean that new nuclear plants will not be competitive.  Capital cost is certainly an important factor in financing, but it is not the sole determinant of a plant’s competitive position.  The key factor is the cost of electricity from the plant at the time it starts commercial operation relative to the other alternatives available at that time.  Based on NEI’s own modeling, on the financial analysis performed by companies developing new nuclear projects, and on independent analysis by others, new nuclear capacity will be competitive.  (NEI’s white paper, “The Cost of New Generating Capacity in Perspective”, is attached for further information on this topic.)

Florida Power and Light and Florida Progress demonstrated this in the financial modeling that supported their requests last year to the Florida Public Service Commission for “determinations of need” for new reactors at Turkey Point and Levy County.  In FP&L’s modeling, the only scenario in which nuclear was not preferred was a world in which natural gas prices were unrealistically low and there was no price on carbon.  The Florida PSC has approved both projects.  Independent analyses reach the same conclusion.  In an integrated resource plan developed for Connecticut last year, The Brattle Group concluded that new nuclear plants are a lower-cost source of electricity in a carbon-constrained world than supercritical pulverized coal with carbon capture and storage (CCS), integrated gasification combined cycle with CCS and gas-fired combined cycle with CCS.

Understanding the Past.  Many of the nuclear power plants commissioned in the 1960s and early 1970s completed construction in four to five years with construction costs around $500 million.  By the late 1970s and early 1980s, however, construction was averaging 10 to 12 years, and construction costs ranged as high as $5 billion.  The nuclear industry has conducted detailed and extensive analysis of this experience, which demonstrates that the nuclear plants built after the early 1970s were built under extremely unfavorable conditions – caused by several major factors converging at roughly the same time.

Nuclear energy technology in the United States scaled up quickly.  The industry scaled from the first 200-megawatt-scale plants to 1,000-megawatt-plus plants in just a few years.  This rapid increase in reactor size occurred at a time when electricity demand was growing at seven percent a year on average, which required a doubling of electric generating capacity every 10 years.  In that business environment, bigger was better for new power plants.  Larger plants meant greater economies of scale.  Larger was also more complex, however, and that complexity coupled with other factors discussed subsequently created project management challenges.  Construction times stretched out and economies of scale vanished with schedule delays and rising costs.

Changing regulatory requirements and licensing difficulties added to the challenge of managing these large construction projects to schedule and budget, but licensing and regulatory requirements were not the sole cause of cost increases and schedule delays.  Construction started before design work was complete.  Some projects were managed by companies with no prior nuclear construction experience.  Project planning and management tools equal to the complexity of the task did not exist at the time.

Finally and of significant importance to the increasing cost, the first generation of nuclear power plants were built under difficult business and economic conditions.  Growth in electricity demand slowed from six to seven percent a year to one to two percent in the mid-1970s.  Many utilities intentionally slowed construction.  The prime rate reached 20 percent in the early 1980s.  As project schedules stretched out, costs increased and companies were forced to borrow more at double-digit interest rates.

Lessons Learned:  Roadmap for a Successful Future.  The root causes of past construction delays are well understood and both industry and government have taken steps to ensure that past experience is not repeated.

The licensing process has been restructured to increase efficiency and effectiveness and reduce uncertainty and financial risk.  Today’s plants were licensed under a two-step process:  Electric utilities had to secure two permits—a construction permit to build the plant and a second operating license to operate it.  Under the new process, all major safety and regulatory issues – reactor design, site suitability – will be resolved before construction begins, and a company receives a single license to build and operate the plant.  The use of certified standardized designs will also reduce licensing and construction times through repetition.  Once a design has been certified, the NRC reviews will focus only on site suitability and plant operations.  The industry is working together to ensure that the standardization carries over into their license applications, construction practices and operating procedures to fully enjoy the benefits of a standard fleet of plants.

As construction proceeds, inspections and tests are performed to ensure the plant has been built in accordance with the approved design.  These inspections, tests, analyses and acceptance criteria – or ITAAC – are included in the plant’s construction and operating license.  ITAAC are a key risk-management tool.  When the ITAAC are met, the NRC and the public know that the plant has been built according to its design and will operate safely. 

In addition to an improved licensing process, the next generation of nuclear plants built in the United States will benefit from an industry-wide inventory of lessons-learned.  The roadmap for future success includes:

Detailed design essentially complete before construction.  Companies planning to build new nuclear plants intend to have virtually all detailed design complete before construction is started.

Standardized, design-specific pre-build preparation.  Starting in 2006, the nuclear industry formed design-centered working groups (DCWG) with each reactor vendor.  These groups are charged with maintaining standardization within each reactor design, which will enhance licensing, preparation for construction and construction.

Focus on quality assurance.  While quality assurance is a core competency at existing plants, in 2005, the U.S. nuclear industry formed a New Plant Quality Assurance Task Force.  In conjunction with the Institute of Nuclear Power Operations (INPO), this task force is conducting a systematic lessons-learned review of past and present nuclear construction projects in the United States and around the world.

Corrective action programs.  The industry is adapting the corrective action program (CAP), which is standard at operating plants, for use in new plant construction.  A CAP includes a structured database to capture and categorize potentially safety-significant items, enabling constructors to identify and trend quality deficiencies, record that corrective action was taken, and report to the appropriate levels of management.

Focus on safety culture as part of construction.  Safety culture, corrective action programs and programs that encourage employees to raise safety concerns are now an essential part of the operating philosophy at the 104 operating plants.  The work force building new plants will have the same safety focus.

Preparation for construction inspection.  In 2001, the U.S. nuclear industry formed a New Plant Construction Inspection Program Task Force comprised of utilities, reactor vendors and major construction companies.  The task force is formulating guidance and developing programs and processes to implement the inspections, tests, analyses and acceptance criteria that the NRC will use to determine whether the plant is built according to the approved design and is ready to operate safely.

Improved planning and construction management tools.  Project and construction management at new nuclear plants will benefit from a suite of sophisticated construction planning and management tools equal to the complexity of the task, none of which were developed when the last nuclear plants were built.  Companies did not have computer-aided design (CAD) to enable design changes.  Databases for tracking components and resources were not yet mature.  Computerized tools that linked resources with design and construction schedules were in their infancy.

Improved construction techniques.  Construction of new nuclear plants in the U.S. will also benefit from improved construction techniques (such as modular construction), many of which were developed overseas, for the U.S. nuclear navy or for other industries.

Successful Track Record.  Recent construction and operational experience demonstrates that an experienced project management team – with effective quality assurance and corrective action programs, with detailed design completed before the start of major construction, with an integrated engineering and construction schedule – can complete projects on budget and on schedule.  The global nuclear industry, including the U.S. nuclear industry, has performed projects ranging from major upgrades to plant restarts to refueling outages efficiently, without delay.  As recently as 1990, maintenance and refueling outages at U.S. reactors lasted more than 100 days; today’s average is 37 days.
There are other examples that provide confidence that new nuclear plant development in the United States will proceed smoothly:

• The Tennessee Valley Authority returned Unit 1 of its Browns Ferry nuclear plant to commercial operation in May 2007.  The five-year, $1.8-billion project was completed on schedule and only five percent over the original budget estimate, a significant achievement during a period of rapidly escalating commodity costs.  The Browns Ferry 1 restart project was comparable in complexity to the construction of a new nuclear power plant.  Most systems, components, and structures were replaced, refurbished, or upgraded, and all had to be inspected and tested.
• At the Fort Calhoun plant in Nebraska, Omaha Public Power District replaced the major primary system components – steam generators, reactor vessel head and rapid refueling package and pressurizer – as well as the low pressure turbines, the main transformer and hydrogen coolers, among other equipment.  The outage began in September 2006 and ended in December of that year, lasting 85 days.  The $417-million project was completed approximately $40 million under budget and five days ahead of schedule.
• Nuclear construction experience in South Korea over the last 15 years demonstrates the “learning curve” that can be achieved.  The “first of a kind” nuclear power plants – Yonggwang Units 3 and 4 – were built in the mid-1990s in 64 months.  The next two units – Ulchin 3 and 4 – were built in 60 months at 94 percent of the “first of a kind” cost.  The next plants – Yonggwang 5 and 6 – were built in 58 months for 82 percent of the “first of a kind” cost.  By 2004, Ulchin 5 and 6 were built in 56 months for 80 percent of the “first of a kind” cost.  The next two plants – Shin-Kori 1 and 2 – will be in service next year.  Construction duration: 53 months and 63 percent of what it cost to build Yonggwang 3 and 4.  South Korea’s goal is a 39-month construction schedule.
• Nuclear power plants in Japan achieve construction schedules similar to those in South Korea.  The first two Advanced Boiling Water Reactors built were constructed in times that beat the previous world record and both were built on budget.  Kashiwazaki-Kariwa Unit 6 began commercial operation in 1996, and Unit 7 began commercial operation in 1997.  From first concrete to fuel load, it took 36.5 months to construct Unit 6 and 38.3 months for Unit 7.  Unit 6 was built 10 months quicker than the best time achieved for any of the previous boiling water reactors constructed in Japan.
• The Qinshan nuclear power plant in China consists of two 728-megawatt pressurized heavy-water reactors. First concrete was placed on June 8, 1998.  Unit 1 began commercial operation on December 31, 2002, 43 days ahead of schedule. The construction period was 54 months from first concrete to full-power operation.  Unit 2 began commercial operation on July 24, 2003, 112 days ahead of schedule.

U.S. projects will also benefit from this learning curve in other countries, since most of the reactors being licensed in the United States will be built overseas prior to U.S. construction.  South Texas Project Units 3 and 4, for example, are Advanced Boiling Water Reactors of the type already built in Japan.  There are 44 nuclear plants under construction worldwide, and 108 more ordered or planned.

IV.    Financial Challenges Facing the Electric Power Sector

The U.S. electric industry faces a formidable investment challenge.  Consensus estimates show that the electric sector must invest between $1.5 trillion and $2 trillion in new power plants, transmission and distribution systems, and environmental controls to meet expected increases in electricity demand by 2030.  To put these numbers in perspective:  the book value of America’s entire electric power supply and delivery system today is only $750 billion, which reflects investments made over the last 60 years.

Addressing the financing challenge will require innovative approaches.  Meeting these investment needs will require a partnership between the private sector and the public sector, combining all the financing capabilities and tools available to the private sector, the federal government and state governments – particularly at a time when the electric sector is already showing some signs of stress.

The financial crisis has forced investor-owned utilities to reduce capital spending for 2009 by approximately 10 percent, on average.  The industry is experiencing downward pressure on equity returns, largely because rate increases have not kept pace with rising costs.  Bond spreads are also wider (in some cases, significantly wider) and, although all-in debt costs are not dramatically higher because yields on Treasuries are so low, the cost of debt will be significantly higher than historical norms when Treasury yields recover if bond spreads remain at current levels.  Industry leverage is beginning to rise – not to the levels seen in 2003, when debt represented about 61 percent of the investor-owned utilities’ capital structure – but it has increased somewhat over the last three years and debt now represents about 56 percent of industry capital structure.

In summary, the electric power sector is in the early stages of a major, 20-year capital investment program, and is not as well positioned for these capital expenditures as it was in the 1970s and 1980s when it last undertook a major capital expansion program.

For new nuclear power plants, the financing challenge is structural.  Unlike the many consolidated government owned foreign utilities and the large oil and gas companies, U.S. electric power sector consists of many relatively small companies, which do not have the size, financing capability or financial strength to finance power projects of this scale on their own, in the numbers required.  Loan guarantees offset the disparity in scale between project size and company size.  Loan guarantees allow the companies to use project-finance-type structures and to employ higher leverage in the project’s capital structure.   These benefits flow to the economy by allowing the rapid deployment of clean generating technologies at a lower cost to consumers.  The recent stimulus bill recognized the need to provide access to low-cost capital to encourage rapid deployment of renewable energy projects.  Similar support is required for nuclear energy since, in many cases, new nuclear plants and renewable energy projects are built by the same utilities.

Loan guarantees are a powerful tool and an efficient way to mobilize private capital.  The federal government manages a loan guarantee portfolio of approximately $1.1 trillion to ensure necessary investment in critical national needs, including shipbuilding, transportation infrastructure, exports of U.S. goods and services, affordable housing, and many other purposes.  Supporting investment in new nuclear power plants and other critical energy infrastructure is a national imperative.

The loan guarantee program created by Title XVII of the Energy Policy Act is an essential and appropriate mechanism to enable financing of clean energy technologies.  In fact, an effective and workable loan guarantee program is significantly more important today than it was when the Energy Policy Act was enacted in 2005.

The Title XVII program currently includes 10 technologies that are eligible for loan guarantees.  They include renewable energy systems, advanced fossil energy technology (including coal gasification), hydrogen fuel cell technology for residential, industrial, or transportation applications, advanced nuclear energy facilities, efficient electrical generation, transmission, and distribution technologies, efficient end-use energy technologies, production facilities for fuel efficient vehicles, including hybrid and advanced diesel vehicles, and pollution control equipment.  Each of these technologies presents different financing challenges.

The financing challenges are, of course, somewhat different for the regulated integrated utilities than for the merchant generating companies in those states that have restructured.  But these challenges can be managed, with appropriate rate treatment from state regulators or credit support from the federal government’s loan guarantee program, or a combination of both.

Supportive state policies include recovery of nuclear plant development costs as they are incurred, and Construction Work in Progress or CWIP, which allows recovery of financing costs during construction.  Many of the states where new nuclear plants are planned – including Florida, Virginia, Texas, Louisiana, Mississippi, North Carolina and South Carolina – have passed legislation or implemented new regulations to encourage construction of new nuclear power plants by providing financing support and assurance of investment recovery.  By itself, however, this state support may not be sufficient.  The federal government must also provide financing support for deployment of clean energy technologies in the numbers necessary to address growing U.S. electricity needs and reduce carbon emissions.

The Title XVII program also represents an innovative departure from other federal loan guarantee programs.  It is structured to be self-financing, so that companies receiving loan guarantees pay the cost to the government of providing the guarantee, and all administrative costs.  For this reason, a Title XVII loan guarantee program is not a subsidy.  In a well-managed program, in which projects are selected based on creditworthiness, extensive due diligence and strong credit metrics, there is minimal risk of default, and minimal risk to the taxpayer.  In fact, the federal government will receive substantial payments from project sponsors.

V.    Policy Actions Necessary for New Nuclear Plant Development

Financing

Since enactment of the Energy Policy Act in August 2005, achieving workable implementation of the Title XVII loan guarantee program has been a challenge.  The implementation difficulties predate formation of the Loan Guarantee Program Office.  In fact, NEI is impressed with what a relatively small staff in the Loan Guarantee Program Office, operating under chronic budgetary constraints, have been able to accomplish in the time – slightly more than a year – that they have been at work.

Despite this significant progress, implementation of the program by the Executive Branch continues to be difficult, for reasons outside the control of the Loan Guarantee Program Office.  The staff is working to address problems with the regulations governing this program that were promulgated by the Department of Energy in 2007, but one of the major difficulties stems from an unnecessarily narrow and restrictive reading of the original statutory language by the DOE Office of General Counsel.  Section 1702(g)(2)(B) of Title XVII asserts that “[t]he rights of the Secretary, with respect to any property acquired pursuant to a guarantee or related agreements, shall be superior to the rights of any other person with respect to the property.”  This language can be misinterpreted as a prohibition on pari passu financing structures, and a requirement that the Secretary must have a first lien position on the entire project.  Counsel for NEI and many of the project sponsors, with substantial experience in project finance, believe that Section 1702(g)(2)(B) gives the Secretary a “superior right” to the property he guarantees, not to the entire project.

The current interpretation of this language is thus a major obstacle to co-financing of nuclear projects.  Projects financed as undivided interests cannot proceed if this interpretation stands.  Financing from export credit agencies in other countries like France and Japan, would be equally difficult.  This result makes little sense since such co-financing will leverage the existing loan volume of $18.5 billion, and reduce the risk to which the Department of Energy is exposed.

NEI is encouraged by Energy Secretary Steven Chu’s intent, expressed before this committee during his confirmation hearing and at other times, to address the difficulties that have arisen during implementation of the Title XVII loan guarantee program.  Many of these problems can be corrected through rulemaking, and NEI understands that DOE is developing revised rules to address defects in the current rule and to implement the new loan guarantee program authorized in the economic stimulus legislation.  The Energy and Natural Resources Committee can play a key oversight role in ensuring that the necessary revisions to the existing rule are promulgated quickly, and do not become entangled in internal Executive Branch procedural difficulties, as has happened so often in the past.  If the necessary changes cannot be implemented through rulemaking, it will, of course, be necessary to seek statutory changes to accomplish the same purpose.

Insufficient Loan Volume.  The Title XVII loan guarantee program was an important step in the right direction.  That program was designed to jump-start construction of the first few innovative clean energy projects that use “technologies that are new or significantly improved … as compared to commercial technologies in service in the United States at the time the guarantee is issued.” 

That goal remains as valid now as it was in 2005, but today the United States faces a larger, additional challenge – financing large-scale deployment of clean energy technologies, modernizing the U.S. electric power supply and delivery system, and reducing carbon emissions.  As noted earlier, this is estimated to require investment of $1.5-2.0 trillion between 2010 and 2030.

The omnibus appropriations legislation for FY 2008 and FY2009 authorizes $38.5 billion in loan volume for the loan guarantee program – $18.5 billion for nuclear power projects, $2 billion for uranium enrichment projects, and the balance for advanced coal, renewable energy and energy efficiency projects.

DOE has issued solicitations inviting loan guarantee applications for all these technologies and, in all cases the available loan volume is significantly oversubscribed.  For example, the initial nuclear power solicitation resulted in requests from 14 projects seeking $122 billion in loan guarantees, with only $18.5 billion available.  NEI understands that 10 nuclear power projects submitted Part II loan guarantee applications, which represented $93.2 billion in loan volume.  Two enrichment projects submitted Part II applications, seeking $4.8 billion in loan guarantees, with only $2 billion available.  NEI also understands that the solicitation for innovative coal projects resulted in requests for $17.4 billion in loan volume, more than twice the $8 billion available.

It is, therefore, essential that limitations on loan volume – if necessary at all in a program where project sponsors pay the credit subsidy cost – should be commensurate with the size, number and financing needs of the projects.  In the case of nuclear power, with projects costs between $6 billion and $8 billion, $18.5 billion is not sufficient.

The scale of the challenge requires a broader financing platform than the program envisioned by Title XVII.  An effective, long-term financing platform is necessary to ensure deployment of clean energy technologies in the numbers required, and to accelerate the flow of private capital to clean technology deployment.

During the 110th Congress, Senator Bingaman introduced legislation to create a 21st Century Energy Deployment Corporation.  Senator Domenici, ranking member of this committee during the last Congress, introduced legislation to create a Clean Energy Bank.  Both proposals address aspects of the financing challenge facing the United States and its electric power industry.

NEI believes that the existing Title XVII program and the DOE Loan Guarantee Program Office, operating under workable rules, could serve as a foundation on which to build a larger, independent financing institution within the Department of Energy.  There is precedent for such independent entities, equipped with all the resources necessary to accomplish their missions, in the Federal Energy Regulatory Commission and the Energy Information Administration.  This approach could have significant advantages:

1. An independent clean energy financing authority within DOE could take advantage of technical resources available within the Department, to supplement its due diligence on prospective projects and to identify promising technologies emerging from the research, development and demonstration pipeline that might be candidates for loan guarantee support to enable and speed deployment.
2. An independent entity within DOE would have the resources necessary to implement its mission effectively, including its own legal and financial advisers with the training and experience necessary for a financing organization.  Providing the independent entity with its own resources would eliminate the difficulties encountered during implementation of the Title XVII program.
3. Programmatic oversight in Congress would remain with the Energy Committees, which have significantly more experience with energy policy challenges, and in structuring the institutions necessary to address those challenges.

Development of a National Used Fuel Strategy

Used nuclear fuel is managed safely and securely at nuclear plant sites today, and can be managed safely and securely for an extended period of time.  For this reason, used nuclear fuel does not represent an impediment to new nuclear plant development in the near term.  It is, however, an issue that must be addressed for the long-term.

The administration has made it clear that Yucca Mountain “is not an option.”

The nuclear industry’s position on used fuel management is clear:

• The Nuclear Waste Policy Act establishes an unequivocal federal legal obligation to manage used nuclear fuel, and remains the law of the land.  Until that law is changed, the nuclear industry believes the NRC’s review of the Yucca Mountain license application should continue.
• If the administration unilaterally decides to abandon the Yucca Mountain project without enacting new legislation to modify or replace existing law, it should expect a new wave of lawsuits seeking further damage payments and refunds of at least $22 billion in the Nuclear Waste Fund already collected from consumers that has not been spent on the program.
• Given the uncertainties associated with the Yucca Mountain project, DOE should reduce the fee paid by consumers to cover only costs incurred by DOE, NRC and local Nevada government units that provide oversight of the program.
• A credible and effective program to manage used nuclear fuel must include three integrated components:  interim storage of used nuclear fuel at centralized locations, technology development necessary to demonstrate the technical and business case for recycling used nuclear fuel and, ultimately, the licensing of a permanent disposal facility.

The nuclear energy industry supports creation by the Executive Branch of a bipartisan blue-ribbon commission of credible experts to undertake a reassessment of the federal government’s program to manage used nuclear fuel, and produce a roadmap for a sustainable long-term program.

Regulatory Effectiveness and Predictability

An objective, effective Nuclear Regulatory Commission is a key factor in ensuring safe and secure operation of the 104 operating nuclear generating plants.  An objective regulatory process – i.e., a process that is safety-focused and performance-based – will ensure that nuclear plant operators remain focused on safety-significant issues and that management attention is not diverted by matters of low safety or security significance.  For new nuclear plants, a central element of the regulatory process is a predictable licensing process for the review and inspection of new reactor designs and new construction.  The industry and the financial community must have confidence that the licensing process provides the level of predictability necessary to support large capital investments.

Research and Development

NEI appreciates this committee’s recognition – in the draft research and development legislation published recently – of the strategic importance of increased funding for research and development.  Substantial increases in energy R&D investment will be necessary in the years ahead to create a sustainable electric supply infrastructure.  Unfortunately, recent trends are in the opposite direction.  In a 2007 analysis, the Government Accountability Office found that DOE’s budget authority for renewable, fossil and nuclear energy R&D declined by over 85 percent (in inflation-adjusted terms) from 1978 through 2005.  The need for new technologies to address critical energy needs has not diminished over the same time period, however, nor have the energy and environmental imperatives facing the United States become any less urgent.

The Electric Power Research Institute (EPRI) has estimated that the United States must increase investment in energy R&D by $1.4 billion annually between now and 2030 to develop and demonstrate the technology portfolio necessary to bring electric sector carbon emissions back to 1990 levels by 2030.  That additional cumulative investment of approximately $32 billion in R&D would reduce by $1 trillion the cost to the U.S. economy of bringing electric sector emissions back to 1990 levels, according to EPRI’s analysis.

A robust research and development program is necessary if nuclear energy is to realize its full potential in the nation’s energy portfolio.  In 2008, the directors of the 10 DOE national laboratories, including now Secretary of Energy Chu, published a report recognizing that “nuclear energy must play a significant and growing role in our nation’s … energy portfolio … in the context of broader global energy, environmental, and security issues.”  The report also expressed support for the required R&D effort:  “The national laboratories, working in collaboration with industry, academia, and the international community, are committed to leading and providing the research and technologies required to support the global expansion of nuclear energy.”

The report from the national laboratory directors identified areas of research that were incorporated, earlier this year, into a comprehensive strategy for nuclear R&D developed by EPRI and the Idaho National Laboratory.  NEI supports the R&D priorities identified:

• Maintaining the high performance of today’s light water reactors and extend their operating life beyond 60 years, to 80 years.  R&D will be required, among other items, to develop advanced diagnostic and maintenance techniques, to extend component life and introduce new technologies, and to enhance fuel reliability and performance.
• Completing the cost-shared government-industry Nuclear Power 2010 Program, to complete the design and engineering work that will support the nuclear plants on track to start construction over the next several years.
• Developing proliferation-resistant recycling technologies that will capture the vast amount of energy that remains in used nuclear fuel and reduce the volume and toxicity of the waste by-product that requires permanent disposal.
• Developing high-temperature gas-cooled reactors to produce electricity and for non-electric applications.  High-temperature reactors can reduce greenhouse gas emissions from large-scale process heat operations in the petroleum and chemical industries currently fired by liquid fuels and natural gas.  This technology will also be capable of producing hydrogen economically for fuel-cell vehicles and industrial applications, as well as desalinating water cost-effectively.

The national laboratory directors, EPRI and INL point out that the leadership position of the U.S. in the global nuclear enterprise is at stake.  Participation in the development of advanced nuclear energy technologies will allow the U.S. to influence energy technology choices around the world, and to ensure that non-proliferation regimes are in place as other countries develop commercial nuclear capabilities.  Therefore, technical leadership is in the interest of the administration, the congress, and the industry.

Supply Chain

During the 1970s, the United States had the manufacturing capability to produce the large vessels, steam generators and other components necessary for nuclear power plant construction.  Much of that capability – and the associated jobs – moved offshore over the last 30 years.

In the nuclear sector, there are signs that U.S. manufacturing capability is being rebuilt.  In North Carolina, Indiana, Pennsylvania, Virginia, Tennessee, Louisiana, Ohio and New Mexico, among other states, U.S. companies are adding to design and engineering staff, expanding their capability to manufacture nuclear-grade components, or building new manufacturing facilities and fuel facilities –partly in preparation for new reactor construction in the United States, partly to serve the growing world market.

Last year, for example, AREVA and Northrop Grumman Shipbuilding formed a joint venture to build a new manufacturing and engineering facility in Newport News, Va.  This $360-million facility will manufacture heavy components, such as reactor vessels, steam generators and pressurizers.  Global Modular Solutions, a joint venture of Shaw Group and Westinghouse, is building a fabrication facility at the Port of Lake Charles to produce structural, piping and equipment modules for new nuclear plants using the Westinghouse AP1000 technology.  In New Mexico, LES is well along with construction of a $3-billion uranium enrichment facility, scheduled to begin production this year.  Even for ultra-heavy forgings, Japan Steel Works is expanding capacity, and companies in South Korea, France and Great Britain are planning new facilities.

Although progress in this area is encouraging, federal government policy could accelerate the process of creating new jobs and generating economic growth.  Specifically, the expansion and extension of investment tax credits for investments in manufacturing provided in the stimulus would ensure continued expansion of the U.S. nuclear supply chain and help restore U.S. leadership in this sector.

Work Force

The U.S. nuclear industry recognizes the critical importance of a skilled, well-trained and dedicated work force to operate and maintain the 104 nuclear plants that supply 20 percent of America’s electricity, and to build and operate new nuclear plants in the years ahead.

The nuclear industry is working with the federal government, state governments, universities and community colleges, high schools, labor unions, utilities, other trade associations and professional organizations to address the work force challenge.

Electric utilities have created 42 partnerships with community colleges to train the next generation of nuclear workers.  The industry is developing standardized, uniform curricula to ensure that graduates will be eligible to work at any nuclear plant.  Sixteen states have developed programs to promote skilled craft development.  Enrollment in nuclear engineering programs has increased over 500 percent since 1999.  Grant programs from the NRC, the Department of Energy, the Department of Labor and the Department of Defense for education and training are having a major impact on increasing our trained workforce.

NEI commends Senators Bingaman and Murkowski for the attention to workforce development in the draft legislation published recently on research and development.  As with the nuclear supply chain, targeted tax credits to encourage companies to invest in apprenticeship programs and other work force development would accelerate job creation and training in the nuclear energy sector.

VI.    Conclusion

In conclusion, the need for advanced nuclear plants is well established.  Nuclear energy clearly can and must play a strategic role in meeting national environmental, energy security and economic development goals.  The nuclear energy industry has a limited and well-defined public policy agenda to ensure our nation continues to derive the benefits that nuclear power provides.  Those policy conditions include:

1. near-term actions to ensure that the Title XVII loan guarantee program is working as intended, and creation of  a broader, permanent financing platform to ensure access to capital for the large-scale deployment of advanced technologies including nuclear facilities that will reduce carbon emissions,
2. a sustainable strategy for the management and ultimate disposal of used nuclear fuel,
3. an effective and predictable licensing process, and
4. a research and development program that will allow the nation to meet environmental goals and provide leadership on issues related to expansion of nuclear technology and non-proliferation.

Mr. Chairman, thank you for the opportunity to testify, and this completes my testimony.

Please click here to view a webcast of the hearing. Mr. Fertel's testimony begins at the 88:06 mark.