Public Policy

Executive Summary
Exelon Generation is the largest nuclear power generator in the United States, owning and operating approximately 20 % of the nuclear capacity in the country. We have evaluated various technologies and options for future electricity generation and have determined that small, modular nuclear power plants could provide a competitive advantage in the deregulated wholesale power marketplace while at the same time, make a significant contribution to the reduction of greenhouse gases and air pollution attributed to electric generation. As a result, we have made an investment in a joint venture to study the feasibility of an advanced nuclear reactor design called the Pebble Bed Modular Reactor. This technology is currently being developed in the Republic of South Africa and we are investigating the feasibility of licensing power plants based on this technology here in the United States.

The key advantages of this technology appear to be increased nuclear safety, minimal environmental impact, low capital and operating costs, stable fuel costs, short construction time, and the ability to add incremental capacity to regional markets to economically match load growth. We believe that these advantages are clearly both in our competitive interests as well as the national interest.

In order to move forward with the implementation of this technology, additional design and licensing work is required as well as some key regulatory changes. In particular, there are several non-technical regulations that require revision because the concept of merchant nuclear power in a de-regulated marketplace was not contemplated when they were initially written. Legislation to allow the Nuclear Regulatory Commission to make some of these changes may be necessary. Also, some form of cost-sharing between the Department of Energy and the private sector may be needed to defray the high licensing costs expected with the "first time" utilization of the 10 CFR Part 52 licensing process and the cost of developing an advanced reactor licensing framework to be used by the Nuclear Regulatory Commission

Testimony of Edward F. Sproat III
Mr. Chairman and Members of the Subcommittee:

I appreciate the invitation to appear before the Subcommittee to discuss the views of Exelon Generation Company regarding our interests in building new nuclear power plants in the United States and the potential barriers we currently face in our efforts to do so. My name is Edward F. Sproat and I am the Vice President of International Projects for Exelon Generation Company. Exelon Generation is a wholly owned subsidiary of Exelon Corporation, which was formed last year by the merger of Unicom Corporation of Chicago and PECO Energy Company of Philadelphia. Exelon Generation currently owns and operates approximately 37,000 megawatts of diversified electrical generation with another 8,500 megawatts under construction or development. We are the largest nuclear generation operator in the country with approximately 20% of the nation’s nuclear generation capacity. Both Unicom and PECO Energy were pioneers in the commercialization of civilian nuclear power with each company building its first nuclear plant in the early 1960’s. As a result, our new company has both a deep respect for and a keen understanding of nuclear power and we have been able to make it the foundation of our successful generation business.

Exelon’s Involvement in the Pebble Bed Modular Reactor Project
You may have recently heard or read about the Pebble Bed Modular Reactor, or PBMR, that is currently being developed in the Republic of South Africa. Exelon is investing approximately $7.5 million in this project to complete the preliminary design so that a feasibility study of the technology and its economics can be completed. Our other partners in this venture are ESKOM, the national electric utility of the Republic of South Africa; the Industrial Development Corporation of South Africa; and British Nuclear Fuels Limited (BNFL) of the United Kingdom. The study is due to be completed early 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 with the appropriate approvals of the South African government will proceed to build a demonstration plant in South Africa near Cape Town. Construction of that plant will take approximately thirty-six months, followed by a twelve month testing period.

If Exelon’s review of the feasibility study is favorable, we do not intend to wait for the completion of the demonstration plant in South Africa to begin the licensing process to build a number of PBMR’s in this country. We would intend to submit 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. We believe that the licensing process, under the best of circumstances, could be completed in twenty-six months; but in reality, the time required is unknown as there are a number of technical and legal issues that will need to be resolved. I will come back to the legal issues in a moment.

Reasons for Exelon’s Interest in the PBMR
Both Illinois and Pennsylvania are at the forefront of the deregulation of the electric utility industry. As a result, Exelon has been able to learn about the market dynamics of the deregulated marketplace very quickly. To be able to compete in the deregulated wholesale power markets, which have distinctly unique regional characteristics, new generation sources must be able to meet several criteria. Specifically, new plants must be able to be permitted and brought on-line quickly, in thirty-six to forty-eight months at the most, and they must be able to compete with gas–fired combined cycle power plants on a total cost basis in the 3 to 3.5 cents per kilowatt-hour range. They must be small enough so that as their capacity is added to the market, an oversupply situation is not created in the region that drives prices down below the producers’ marginal costs. They must also meet the environmental constraints of the region. We don’t believe that the currently available designs of light water reactor nuclear power plants can meet all of these criteria. We believe that the PBMR is the only reactor currently under development that may be able to meet the needs of this deregulated marketplace in the next five years. We intend to find out if it can.

Description of the PBMR
The PBMR is a small nuclear power plant that would produce approximately 125 megawatts of electricity per module with four of these modules being able to fit on a football field. Each module has a high temperature gas-cooled reactor that heats helium under pressure to approximately 900 degrees Celsius, which turns a gas turbine connected to a generator. The helium then returns to the reactor. This direct cycle allows higher efficiencies than existing nuclear plants and also significantly reduces the amount of water required for plant cooling over other power plants. The coupling of a gas turbine directly to the helium reactor has only recently been made possible through advances in gas turbine technology

The reactor core is comprised of about three hundred thousand fuel spheres that are approximately the size of billiard balls. Each sphere contain approximately 14,000 coated particles of 9% enriched Uranium 235, each 0.5 millimeters in diameter. The coating on each particle is designed to contain the radioactive gases produced by nuclear fission and can withstand extremely high temperatures. As a result of the reactor and fuel designs, the fuel cannot melt under any conditions, a significant safety improvement over existing reactor technology. The reactor and fuel designs have been demonstrated through years of testing in Germany where the Pebble Bed Reactor was invented in the early 1970’s. The South Africans are utilizing the German fuel and reactor technology for the PBMR and would be the suppliers of the fuel to be used in our reactors. The ceramic nature of this fuel also make it insoluble in water which is significant in that it can’t leach into ground water when stored underground in a spent fuel repository.

Regulatory Hurdles
As I mentioned before, the expected length of the process that we will face to license the first set of PBMR’s is difficult to determine. While the technical issues will be complex, there are legal hurdles that appear to be more difficult to resolve. Specifically, there are a number of regulations that were promulgated when it was anticipated that only regulated electric utilities would build nuclear plants. These regulations never foresaw the dawn of a deregulated power generation market and are now obsolete. If Exelon proceeds with building PBMR’s, they will be merchant nuclear power plants that will not be in a regulated utility rate structure. The financial risk of the plant will rest on the shareholder, not the ratepayer.

The financial burden imposed on small, modular plants by these inappropriate regulations clearly has the potential to make the economics untenable. Some of the key regulations which need to be addressed include the financial protection requirements of 10 CFR Part 140, the decommissioning funding requirements of 10 CFR Part 50.75, the antitrust review requirements of 10CFR Part 50.33a, the annual fees on a per reactor basis in 10 CFR Part 171, and the large emergency planning zone requirements in 10 CFR Part 50.54(m).

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 U.S. Nuclear Regulatory Commission 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.

Potential Role for Public Funding
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. It is anticipated 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 PBMR’s. 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 10CFR 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.

Summary
In conclusion, as the shortage of electricity supplies in several areas of the country looms large with the approach of summer, we must find ways to cut through the morass of archaic legal and procedural impediments to building new environmentally benign sources of electricity. This is an issue of urgent national priority.

Nuclear power has earned the right to be counted among this country’s most viable options as a future power source. It has achieved an outstanding safety record and serves as a stable and abundant domestic source of electricity which emits no air pollutants or greenhouse gases. If we’re able to make the PBMR commercially viable and cost competitive, we will have at least one potential solution to our future energy needs.