Public Policy

Chairman Murkowski, Chairman Domenici, and Members of the Committee and Subcommittee:

I am Corbin A. McNeill, Jr., and I am Chairman and Co-Chief Executive Officer of  Exelon Corporation and President of Exelon Generation Company. I appreciate the opportunity to appear before you today to discuss the state of the nuclear energy industry and the role that nuclear power can play in meeting America’s future energy needs.

Exelon Corporation was formed last year by the merger of Unicom Corporation of Chicago and PECO Energy Company of Philadelphia. Exelon is the holding company for three wholly-owned subsidiaries: Exelon Energy Delivery, which includes Commonwealth Edison and PECO Energy, two distribution companies providing electric service in Northern Illinois and electric and natural gas service in Southeastern Pennsylvania, respectively; Exelon Enterprises, which owns a host of unregulated businesses involved in energy and infrastructure services, broadband and telecommunications services, and other ventures; and Exelon Generation Company.

Exelon Generation currently owns and operates approximately 37,000 megawatts of diversified electrical generation, including 17 nuclear reactors which generate 16,970 megawatts of electricity. We have another 8,500 megawatts of non-nuclear generation under construction or development. Exelon is the largest nuclear operator in the country, with approximately 20% of the nation’s nuclear generation capacity, and the third largest private nuclear operator in the world. AmerGen Energy is a partnership between Exelon Generation and British Energy of Edinburgh, Scotland that was created to purchase nuclear power plants in the United States. AmerGen currently owns and operates nuclear plants in Illinois, New Jersey, and Pennsylvania.

In my testimony today, I want to provide you with five key messages:

• The state of the nuclear industry is sound. Reactors are operating at record levels of safety, output, and reliability.
• The outlook for the existing fleet of nuclear plants is excellent, and current plants can be expected to produce more electricity through increased efficiency and capacity uprates.
• There is a critical shortage of generating capacity in the United States, and new nuclear plants can play a role in narrowing the gap between supply and demand.
• There are a number of new nuclear technologies that have been approved by the NRC and others that are on the horizon, including the Pebble Bed Modular Reactor, which Exelon believes can provide future generation safely, economically, and cleanly.
• There are several outdated legislative and regulatory requirements that must be modernized to reflect the new deregulated marketplace in which future nuclear plants will be built.

State of the Industry
In assessing the state of the commercial nuclear industry today, I am pleased to report that the industry is operating at extraordinarily high levels by any measure of performance.

No other source of energy receives the scrutiny that nuclear power does. The nuclear industry is held to the highest standards of operation by regulators, legislators, investors, the media, and the general public. The industry has been required to produce power safer, cheaper, and cleaner than any other source of baseload electric generation in order to gain public acceptance. This has presented the industry with enormous challenges, but the industry has successfully embraced and met these challenges.

In fact, the industry has held itself to the highest standards of operation. In 1980, the industry established the Institute of Nuclear Power Operations (INPO) to allow the industry to provide internal assessments of power plant performance and to share operational best practices industry-wide.

I have included as an attachment to my written testimony the most recent report by INPO that outlines the industry’s achievement as judged against 10 separate goals for industry performance. For each of the 10 performance indicator goals set by INPO in 1995, the industry has met or exceeded the performance goals for the year 2000.

Let me provide a brief overview of the industry’s performance in five major areas.

Safety
The nuclear industry remains deeply committed to operating our reactors in a manner that protects the health and safety of both the public and our workers. The industry today is operating at an extraordinarily high level of safety, having exceeded the INPO performance targets by over 10 percent for safety system readiness, collective radiation exposure of employees, and industrial safety accident rate. At one time, critics of nuclear power argued that reactor operators in a deregulated marketplace would be pressured to cut corners on safety in pursuit of greater economic return. The industry’s record, however, has proven that safety and operational excellence go hand-in-hand.

Economics
In economics, too, the industry is performing at unprecedented levels. For the first time in a decade, production costs for nuclear power are lower than those for coal. Nuclear production costs in 1999 were 1.83 cents/kWh; production costs for coal were 2.07 cents/kWh; for gas, 3.52 cents/kWh (even prior to gas price spikes); for oil, 3.18 cents/kWh.

An existing well-managed nuclear power plant can produce electricity at an all-in cost of less than 2.5 cents/kWh. This cost compares to combined cycle gas plants at 3.5-4.5 cents/kWh, assuming a gas price of $3 to $4 per million BTUs.

Reliability and Operational Excellence
Closely related to economics is the area of reliability and operational excellence. The industry is operating plants at record high capacity factors, achieving an industry-wide average of over 91 percent capacity during 2000. As a result, the nuclear industry is generating more electricity than at any time in the past, even though there are fewer operating reactors today than there were just a few years ago. In the last decade, the nuclear industry has added the equivalent of 23 new 1,000 megawatt plants through increased output from the current reactor fleet. These gains have come not only from increased capacity factors, but also from capacity additions at existing plants through power uprates. According to INPO’s 2000 Performance Indicator report, unplanned capability loss factors, unplanned automatic scrams, thermal performance, and fuel reliability indicators all show record performance as well.

Environmental Performance
No other baseload energy source is as efficient at limiting and containing the amount of pollution it generates. Nuclear plants emit no pollutants or greenhouse gases into the air. Nuclear plants are playing a key role in allowing many areas of the country to meet clean air requirements mandated by the Environmental Protection Agency, and Vice President Richard Cheney is among the policymakers worldwide who have publicly recognized the importance of nuclear energy in reducing emissions of carbon dioxide and greenhouse gases. In a major energy policy speech earlier this week, in fact, Vice President Cheney referred to nuclear power as “the cleanest method of power generation that we know.”

Nuclear reactors also emit no pollutants into the water beyond thermal discharge. And while some solid wastes from nuclear plants contain long-lived radioactive elements, these wastes are stored, transported, and disposed of safely in a manner that isolates the waste from the public and the environment. Since 1980, the volume of solid low-level radioactive waste generated by nuclear reactors has decreased an astounding 94% at boiling water reactors and 96% at pressurized water reactors. As for spent fuel, the industry continues to store this material safely onsite, either in spent fuel pools or in dry cask storage. The federal government has failed in its obligation to begin removing spent fuel from reactor sites by 1998. While the Department of Energy (DOE) appears to be making progress in their investigation of Yucca Mountain as a permanent repository for spent fuel, the federal government must work to meet its obligation in a more timely manner.

Public Acceptance
A natural result of the industry’s strong performance is an increase in the level of public acceptance of nuclear energy. Recent surveys by the Nuclear Energy Institute (NEI) and the Associated Press indicate that the public is increasingly supportive of nuclear power. Interestingly, last month’s Associated Press poll found that 55 percent of those who support nuclear power would support a new plant within 10 miles of their home. Recent NEI surveys also show that acceptance of new nuclear plants is increasing, particularly in the West.

Policymakers, the media, and the public itself often fail to give people enough credit for being able to make an informed decision about nuclear power. When surveyed, many people who support nuclear power believe that their neighbors do not. Yet, surveys consistently show that a majority of the public has a favorable opinion of nuclear power. Public acceptance  presents perhaps the biggest challenge for the nuclear industry in that we can only indirectly influence how the public perceives the industry. Countering inaccurate and reckless statements from the anti-nuclear community takes an enormous amount of public education.

Future of the Industry — Current Reactors
It will come as no surprise that I believe that the nuclear energy industry has an exceptionally bright future. For the current fleet of reactors, I see three trends continuing in the near future: increased output of electricity from existing nuclear reactors, a gradual consolidation of plant ownership and operations, and applications for the renewal of existing operating licenses.

Electric generation from the current fleet of nuclear reactors is likely to increase as a result of higher capacity factors and plant uprates. As strong as the performance of the current fleet of nuclear plants is today, capacity factors can increase further as the industry continues to share  best practices among plants. In fact, I think that this is a trend that we will see not just in the  United States, but worldwide as well. While plants are nearing their maximum capacity factors, plants can produce additional electricity by uprating units to increase their maximum capacity. The Chairman of the House Energy and Commerce Committee recently noted in a letter to NRC Chairman Meserve that there are 14 license applications pending at the NRC for power uprates which would add over 1,000 megawatts of new capacity. Exelon Nuclear plans to add approximately 1,000 megawatts of new capacity over the next three years through uprates at our existing plants. Some industry analysts believe that a total of 8,000 to 12,000 megawatts of additional generation can be gained if uprates were sought by the current fleet of reactors.

The consolidation trend that the industry has seen in recent years is also likely to continue, though at a slower pace than we have seen in the past. Since 1998, nearly two dozen reactors have changed hands through utility mergers and acquisitions, the sale or auction of individual plants, and the formation of nuclear operating companies. While two utilities have announced their intention to auction plants later this year, most of the consolidation that will occur in the future is likely to be through mergers and acquisitions.

A final trend affecting the current fleet of reactors deals with plant life extension through license renewals. As recently as 1997, the Nuclear Regulatory Commission (NRC) estimated that only a fraction of currently operating reactors would seek to extend their operating licenses. Predictions by the Energy Information Administration (EIA) were even more dire, with EIA estimating that 58 reactors would cease operation between 1996 and 2015. The improved economic performance of plants, combined with a recognition of the clean air compliance value of emissions-free generation, have led the NRC and EIA to reexamine those estimates. Today, most observers, including NRC Chairman Richard Meserve, predict that the vast majority of the nation’s current 103 operating plants will apply for 20-year license extensions.

Future of the Industry — New Plants
The demand for electricity in the United States is growing rapidly. The DOE estimates that electricity demand will grow by 45 percent over the next 20 years. Based on that estimate, the U.S. will need more than 1,300 new power plants—65 a year—to meet that demand. It is significant to note that it was over 15 years ago when 65 plants were last built in a single year in the United States.

As these new plants are built, it is critically important that there is a diversity of energy sources. One of the reasons California is having such difficulty is that they depend too much on natural gas as the fuel for electric generation. New plants cannot just operate on natural gas, but must also include coal hydro, solar, wind, and yes, nuclear.

New nuclear plants will have to be safe, economic, and clean to be acceptable to legislators, regulators, investors, and the public.

Safe: Any new nuclear technology must be passively or inherently safe. Given the importance of public opinion in the siting of any new industrial facility, any new nuclear plant should exhibit such safety features, and the new reactor technologies certified by the NRC incorporate many passive design features.

Economics: Of course, any new reactor technology must be economically competitive with other generation sources.  In the newly deregulated marketplace, however, it is also important for any new technology to have a low capital cost, to have short construction lead times, and to be of relatively small size so as not to disrupt the economics of the regional market the plant is built to serve.

Clean: New reactor technologies must also have a minimal impact on the environment.

The industry is working together to lay the groundwork for new nuclear plants. The NRC has certified three new advanced reactor designs after conducting extensive, multi-year safety reviews. Of the three new certified designs, two have been built and are setting world-class performance records in Japan, and additional reactors are being built in Korea and Taiwan. Two additional advanced designs are expected to be submitted to the NRC in the near future for approval.

The Pebble Bed Modular Reactor
Exelon Corporation believes that we have found a technology that possesses the characteristics necessary to successfully compete in a deregulated environment in the Pebble Bed Modular Reactor (PBMR), a design under development in South Africa. Exelon is a partner in the PBMR project with Eskom, the state-owned utility in South Africa; the Industrial Development Corporation of South Africa, a state-owned investment firm; and BNFL, the former British Nuclear Fuels Limited. The PBMR technology is an evolutionary improvement of a proven design previously utilized in Germany. Let me explain.

Safe
The Pebble Bed technology relies on a ceramic fuel design that cannot suffer meltdown.  Fuel melting is the primary safety concern related to current light water reactor technology.  In the PBMR, the reactor temperature never rises above 1600 degrees Celsius, even under a worst-case loss of coolant accident.  PBMR fuel, however, does not begin to degrade until temperatures reach 2000 degrees Celsius.

Economic
As a small (110 - 125 megawatt) modular reactor, the PBMR is well-suited for use in a deregulated power market.

• Low Capital Cost: Capital costs for each PBMR module are expected to be a fraction of the cost of current reactors – roughly $125 to $150 million for a 125 MW plant — thus decreasing investment risk. At $1,100 per kilowatt to construct, the PBMR can be competitive with other energy sources.
• Speed to Market: We estimate that the PBMR can be built in 18 to 24 months, as opposed to 48 to 72 months or more for large reactors. Speed to market is essential if the PBMR is to compete effectively with coal and natural gas-fired plants in a deregulated market. Of course, the construction timeframe does not include the time necessary to receive regulatory approvals for building the plant. Timely licensing action will be necessary to take advantage of the quick construction time.
• Small Size: Adding small increments of new capacity to electric markets will better match new electric supply with demand growth, thus preventing an oversupply of electricity and allowing a quicker recovery of the capital costs.

Clean
Like current nuclear reactors, PBMR reactors will emit no air pollutants or greenhouse gases, and since the PBMR is a more efficient reactor, the plant uses a fraction of the water used by conventional light water reactors. This lack of reliance on water may also enable the PBMR to be sited in locations that are not suitable for light water reactors. 

The PBMR project is currently in its preliminary stage, with a detailed study of the design being conducted by an international team of experts. The study is due to be completed this summer. If the technology is deemed ready for commercialization, and if the economics prove to be competitive against other forms of generation, the partners will proceed to build a demonstration plant in South Africa near Cape Town. We estimate that construction of the plant will take 36 months, with a 12-month testing period following the completion of construction.

If Exelon’s review of the feasibility study is favorable, we intend to begin the licensing process to build a number of PBMRs in the U.S. as soon as next year. Our current business plan calls for the submission of a license application for early site permitting in 2002, followed by an application for a combined construction and operating license in 2003, after the detailed design is completed in South Africa.

Of course, a number of legal and regulatory issues must be addressed before a pebble bed reactor can be built in the United States. Most of these issues fall into one of two categories: the first category results from the fact that new nuclear plants would be merchant plants operating in a deregulated environment; the second category results from the fact that the PBMR is a small, modular reactor that produces roughly one-tenth of the power of a conventional 1,100 megawatt light water reactor.

The current NRC regulations were promulgated when it was anticipated that only regulated electric utilities would build nuclear plants. These regulations did not forsee the dawn of a deregulated power generation market and are now obsolete. If Exelon builds a PBMR, it will be a merchant nuclear power plant that will not be in a regulated utility rate structure. The financial risk of the plant will rest on the shareholder, not the ratepayer. If these outdated regulations are not changed, the financial burden imposed on merchant plants clearly has the potential to make the economics untenable. Some of the key regulations that need to be addressed include the financial protection requirements of 10 CFR Part 140, the decommissioning funding requirements of 10 CFR Part 50.75, and the antitrust review requirements of 10 CFR Part 50.33a.

The PBMR would similarly be disadvantaged by current regulations because of its small size. For example, the Price-Anderson Act should be amended to treat Pebble Bed Modular Reactors in a manner that recognizes the inequity of treating individual PBMR modules as separate facilities. Under the current NRC interpretation of Price-Anderson, a 10-module, 1,100 megawatt PBMR site would have 10 times the potential retroactive liability of a single 1,100 megawatt light water reactor. Similarly, the annual fees assessed on a per reactor basis under 10 CFR Part 171 should be revised to recognize the disparity between a 110 – 125 megawatt PBMR and a much larger light water reactor. The large emergency planning zone requirements in 10 CFR Part 50.47 should also be revisited given the fundamental safety differences between a PBMR and current reactors.

In addition to the above regulations, the licensing process which we would follow under 10 CFR Part 52 to obtain a combined construction and operating license for these plants has never been utilized. As a result, we expect that there will be a steep learning curve for both the NRC staff and ourselves on how to execute this process with resultant high costs and delays. We will also need to work with the NRC staff to develop the technical licensing framework for the PBMR as the existing regulations are written for light water reactors. Regulations will need to be developed for gas reactors, also at additional costs and potential delay.

Exelon believes strongly that the development of the design and the cost to commercialize and build the PBMR should be borne by the PBMR partners. We anticipate that the partners will invest upwards of $600 million of their own money to make the PBMR commercially viable with Exelon investing a significant additional amount to license and build the first PBMRs. There are, however, a number of first of a kind costs that Exelon will bear as the first licensee for this new technology that will flow directly to government agencies such as the NRC in the form of licensing fees and the national laboratories as consultants to the NRC. As stated earlier, we expect that the costs of licensing this technology will be higher than normal because of the unproven nature of the 10 CFR Part 52 licensing process and the need to create a gas reactor licensing framework. The technical expertise needed to review the PBMR application does not currently exist either in the NRC or in the national labs and will need to be developed. We believe it is appropriate for some level of government funding to be provided to fund the work of government agencies in these areas.

Finally, the federal government must take additional action if new plants using any nuclear technology are to be built. First, Congress must renew the Price-Anderson Act, which will expire in August 2002. Second, Congress and the Administration must take steps to assure the existence of a competitive nuclear fuel market.

Thank you again for the opportunity to discuss this important issue with you today.